Why the provider and insurer is more important than price
1. Did you know that according to the Financial Services Compensation Scheme (FSCS) over 35 insurers have become bankrupt in recent years? Millions of UK policyholders have been left stranded by these failed insurers and their policyholder's plight could have been avoided if they had been aware of the risk. Unfortunately, most insurance buyers have a tendency to 'assume' all insurers are financially secure and particularly where the insurance is being sold through a distributor with a household name. So here's how you can help avoid this happening? To keep this simple, insurance companies come in two flavours
Independent financial rating companies such as AM Best and Standard and Poors provide 'ratings' for financial institutions and insurance companies based on a number of financial criteria. An 'A' rated insurer is considered to be significantly more likely to be in business to pay its claims than an 'unrated' insurer because it has proven to be financially stable. It comes as no surprise then to learn that all of the failed insurers referred to above were 'unrated' insurers.
2. Are major brands a safer option? Some major and household named insurance providers will offer cover from 'unrated' insurers simply because the premium is a little less than those of a 'rated' insurer - and this helps them win business. Again, it's no surprise either that some ‘big brand’ motor manufacturer insurers have been 'unrated' and went bust too.
Some major insurance brands allow smaller insurers to sell insurances using their major insurer brand name. For example, Admiral advertises Gap Insurance, however, Admiral is not the underwriting insurer. Coming to terms with the importance of 'choosing' a financially stable insurer is important and by ignoring the risk, you may become another uninsured statistic.
According to online insurance retailer car2cover.co.uk, "there are insurance policies that are only available for a short time after vehicle delivery and cannot be purchased again if an insurer goes out of business. As such, it is important to make sure the insurer for these products is 'rated';
Alloy Wheel Insurance
Scratch and Dent Insurance
At the time of writing this article, another unrated insurer has become bankrupt as published in an online insurance news magazine below
Above article published in the Insurance Times, January 2021.
3. Rated or reviewed - don't think they are the same thing. An insurer 'rating' is not the '5 stars' that appear upon their or their broker websites. The 5 stars are simply customer feedback about the buying experience. It is not an indication of their financial stability.
Some insurers also display a Defaqto rating too, and this is an equally dangerous indicator on which to make a buying decision. Worryingly for the consumer, Defaqto does not consider the financial security of an insurer in its ratings, and thousands of policyholders have purchased Defaqto 5 star cover - only to find their insurer became bankrupt.
When shopping for or comparing insurance, the sensible approach would be to first ensure the insurer is 'A' rated. Don’t just ask the provider, seek your own verification by visiting the insurer's website. Only then compare the terms and conditions and finally prices.
A spokesman for car2cover.co.uk suggests "unfortunately, the majority of insurance buyers pay no attention the insurer's future ability to pay claims, or what unusual claim reducing clauses are present in their terms and conditions. This is where specialists like us can be useful, we are insurance experts and able to understand and provide all the information customers require to able to make an informed decision”.
Clearly, there are banana skins and potholes insurance buyers need to navigate around, so contacting a professional seems to make logical sense.