The U.S. is in the midst of a financial meltdown. No community or individual will be immune from the agony on Wall Street or the increasing debt of the stimulus decisions. A major concern is the financial stability of the insurance industry. Insurance and bonding are the lubricants that keep the economic engine of the U.S. running smoothly. Without the protection of insurance or bonding, businesses curtail production, sales, or services resulting in a corresponding reduction in workforce, increase in costs and a decrease in competitive alternatives. None of which is good for the U.S. or Indian Country.
We should all keep your eyes on AIG – American International Group, the largest insurance company in the world. Almost daily front page news, AIG lost more than $61 billion in the fourth quarter of 2008 AFTER securing $150 billion in bailout money from our federal government. Its financial fate will determine the viability of most of the 1,600 insurance companies operating in the United States. The federal government keeps pumping billions of dollars into AIG to keep it afloat because the consequences of failure will dramatically alter the ability of consumers to secure affordable insurance. A significant company within the AIG family of companies is Lexington Insurance Company – an important provider of insurance to Tribes and Tribal enterprises. Only three to four insurance companies play an active role in Indian country – the loss of one or more insurance markets will be profoundly felt when Tribes and their enterprises try to secure renewal terms and conditions for insurance.
Think about the “billions and billions” of dollars the federal government is going to spend to stimulate the economy. Every financial or catastrophic crisis that has ever happened in the world produced a significant increase in corruption and excessive profit taking. As the insurance industry fights for survival and its share of the stimulus money, the companies and their agents will do anything and everything to sell their policies. Ethics and ethical behavior may be secondary to their pursuit of your almighty insurance dollar. Exaggeration, overselling, negativity, price cutting and non-disclosure are just a few of the descriptive words that will highlight your insurance buying experience.
Remember the saying “beware of wolves dressed in sheep's clothing.” No matter the relationship you have with your broker or agent, you need to be wary. To help “undress the wolf” you need the following information to be an “informed buyer” and not be bitten by unforeseen financial problems.
1. Ask for a copy of their Audited financial statement for 2007 from both the insurance company and the broker you wish to do business. If your insurance purchase is after June 1, request the 2008 audited financial statement. Is the company or broker losing money? If Yes – Walk away.
2. Ask for a copy of their 2007 or 2008 Actuary report of the insurance company. Does the actuary believe that the insurance company has adequate money to pay incurred claims? If the answer is no – Run!!
3. How much is the broker or agent paid by the insurance company to sell you an insurance policy?
Average commission is between 5-15% of the total insurance cost.
4. What additional compensation or contingent commission does the broker or agent receive from the insurance company that he/she wants you to be insured with? None should be the answer.
5. Does the insurance company require a waiver of sovereignty or require the Tribe or enterprise to invoke sovereign immunity in defense of a liability claim? Ask for a copy of their coverage form before you buy so you can read it yourself . Neither should be required or suggested.
6. Where will disputes between the insurance company/agent/broker and you be adjudicated? Tribal court or State court. Be careful if you must fight disputes in State court.
7. Ask the broker or agent about the track record of the insurance company in paying claims. Are claims paid quickly or do they drag on? At what point will the insurance company cancel your coverage because of your claim activity?
8. Does the insurance company/agent/broker provide any scholarships or employment to Indian people or provide workshops, training or sponsorship of activities within Indian communities? Is Indian Preference utilized? If they are willing to take your money, why aren't they willing to re-invest in you or your community?
9. Will the broker or agent sit down with you and review the conditions and exclusions of coverage BEFORE you purchase the coverage? Yes is the correct answer.
10. Does the insurance company offer any flexibility in modifying the terms and conditions of the insurance policy? Yes is the correct answer. A follow-up question is “what terms or conditions are not negotiable?”
11. A list of ten satisfied customers you can call to confirm what the agent or broker is telling you.
Purchasing insurance protection is one of the most important financial decisions you will make – do so with knowledge and understanding. Do not assume anything while the financial markets are in crisis. Never hesitate to ask as many questions as you need to be sure “what you get is what you paid for.”
Courtesy of AMERIND Risk Management Corporation