With most things you purchase, you can take it home and enjoy it. You can see if it’s good for you right away. You get immediate feedback.
Insurance is a little different. When you buy an insurance policy of any kind, you are essentially buying a contractual promise – for an eventuality that may not even come to pass for many years. In some cases, (we hope) it may never come to pass.
But when claim time comes, it is critically, supremely important that you can rely on the insurance company to honor the terms of its contract with you in good faith.
When it comes to a disability company, not only do you count on that company to remain solvent so that it can keep its promises to policyholders many years into the future; you are also selecting a partner who could well be responsible for paying your salary for the next 20, 30 or even 40 years if you are just getting started in your career.
Here’s the thing: Not all carriers are created equal.
Disability insurance is not a commodity; they are not all the same. Insurance companies vary widely in a variety of ways:
- Size of their general fund
- Premiums coming in
- Current liabilities, including obligations to existing members
- Riskiness of investments within their general fund
- Overexposure to certain kinds of risks
- Access to liquidity if claims increase
- Access to reinsurance
- Quality of the reinsurer
- Quality or riskiness of the other people in your risk pool
- Vulnerability to adverse selection
- Maximum exposure to a single individual, company or community
- Willingness to honor legitimate claims
- Care with which the company investigates questionable claims
In the end, an insurance company is as good as the claims it pays. But every insurance company is subject to its ability to pay. If it takes too many risks and they don’t pan out, they may not be able to honor those promises, even with the best of intentions. The most well-meaning executives cannot overcome a lack of liquidity and poor judgment in the past with regard to risk management and premium pricing. And there are carriers run by good people now but who have made these mistakes in the past.
Now, most people don’t have the time or inclination to investigate every single one of these variables. Fortunately, there are other ways of finding out how every carrier in your market stacks up:
Check the Ratings
All insurance carriers are rated by third party rating services such as AM Best, Moody’s, Standard & Poor’s and Weiss. They measure a company’s financial stability as well as its ability to meet claim obligations – a higher ranking is more favorable. Comdex aggregates all the ratings and then gives each company a score from 1-100. We take insurers’ responsibilities to maintain a solid financial footing and provide their policyholders with adequate stability and liquidity very seriously. We therefore do not recommend any carriers below a Comdex of 90.
Companies with poor financial strength ratings must offer their products at a lower price in order to entice people to buy them. It’s like a sale rack – the sale rack is where clothes that no one wants end up. The price must be lowered to compensate for the lack of desirability. It’s a vicious cycle – When insurance companies make premiums too low, it makes it harder for them to keep promises to existing policyholders. They must then take more risks in their investment portfolios, or they must start getting stingy on claims in order to survive.
We don’t represent companies who appear to be falling into that trap. Other brokers may provide quotes that have lower premiums than us (though we do believe we are very competitive, all things considered). However, we are confident we offer the best long-term value in disability protection for doctors over the course of their medical careers.
This is why the best policy is not always the cheapest. The best policy to own is the one most likely to pay your claim in full, years or decades from now.