NEWS BRIEF

New Colorado Law Bans Text Messaging While Driving

On December 1st, a new Colorado law takes effect that bans text messaging while driving and prohibits all cell phone use for drivers 18 and younger. In an effort to generate public awareness about the new state law, RMIIA joined Governor Bill Ritter and other traffic safety leaders in announcing the teen winners of a contest to create print, radio and television public service announcements on the dangers of texting and cell phone use while driving.

Click here to view the teen ads.

Click here for more information on teens and shopping for insurance.

Insurance - Consumer Protections

During these financially uncertain times there is increased attention focused on the security and operation of the corporate institutions that hold and protect our money. Now more than ever, it’s important to know how insurance works—industry regulation, consumer protections, profit margins, company investment practices and the overall financial stability of the insurance industry.

The good news is that your car, home and business insurance is highly regulated and there are multiple layers of safety nets that protect consumers' insurance policies and help guarantee that claims get paid. In addition to government oversight, states have guaranty funds that insurers pay into that help protect policyholders in the unlikely event that an insurance company fails.
Insurance Regulation & Oversight

Insurance companies are regulated by state insurance departments that closely monitor the financial strength of insurers doing business in their states. Each state insurance commissioner requires companies to disclose and file annual financial statements that demonstrate company solvency and the ability to protect policies and pay claims.
It is essential for insurance companies to maintain healthy profit margins and strong claim reserves to remain solvent during cyclical economic times, market volatility and in anticipation for high claim payouts in the event of large natural and man-made disasters (hurricanes, wildfires, terrorism, etc.).
Research shows the main reasons for an insurance company failure are inadequate pricing and misestimating the amount that should be set aside to pay claims – not investment problems.
State regulators have repeatedly stressed that the insurance system is financially sound.
National Association of Insurance Commissioners FAQ on AIG
Independent insurance rating agencies also closely scrutinize the financial strength of individual insurance companies and make their rankings available to the public. A.M. Best Company
Standard & Poor's Rating Group
In the recent case of AIG, the troubled non-insurance financial products subsidiary of a holding company required the rescue of the holding company, even though its insurance company subsidiaries regulated at a state level were, and continue to be, financially sound.

Insurance Consumer Protections

In the unlikely event of an insurance company bankruptcy, there is a system in place to pay claims. The state guaranty fund system was created 40 years ago to protect consumers' policies and fund claims payments.
State guaranty funds are financially supported by the insurance industry and do not involve taxpayer dollars.
Since 1976, there have been about 600 insolvencies of auto, home and business insurers. In total, the guaranty system has paid out about $21 billion. $10 billion has been paid out in the last six years.
A separate guaranty fund system also exists for life, health and annuities.
Insurance is a very competitive business. There are many choices for consumers when shopping for an insurance policy. It is also very easy for a concerned consumer to switch to another auto, home, business or life insurance company.

Insurance Company Investments

While the investment environment remains volatile, the financial assets of the industry are very conservatively invested, with more than two-thirds of funds in highly rated corporate and government bonds. Less than 20 percent of the industry’s portfolio is in stocks.

The insurance industry is not suffering from a credit or liquidity crisis. Unlike many of the banks and other financial companies that have struggled, insurance companies, in general, do not borrow to make investments. Nor do they borrow to pay claims. So, even when some investments perform poorly, the effect isn’t magnified as it is when investments are highly leveraged.

Insurance Industry Financial Strength

The finances of the insurance industry remain fundamentally strong.

The industry’s financial strength – as measured by the excess of an insurance company’s assets above its legal obligation to its policyholders – is at or near the record levels of 2007, or more than $500 billion. It is essential to maintain strong claim reserves in anticipation of high insurance payouts, particularly natural and man-made disasters.

The profits of the property/casualty industry declined during the first half of 2008; the decline is partly attributable to a spillover of the collapse of the housing and credit bubble into the mortgage and financial guarantee segment of the industry. The rest of the decline in profits is consistent with a cyclical downturn that is characteristic of the industry and lower investment returns that are affecting every industry.

Throughout its nearly 200-year history in the United States, the insurance industry has endured every conceivable economic circumstance and crisis and managed to persevere.

Updated: January 15, 2010 8:35 AM
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