Is Getting Insured with a Popular Company Always Best?

There are a ton of insurance companies available to handle the top four types of insurance: life, health, auto and homeowners. Of course, some are extremely popular and serve customers nationwide while others are small and local. Many people feel comfortable acquiring coverage from popular companies because they feel they are more reputable, but is this really the way to go?

The fall of AIG proved that even large, popular insurers can have insurmountable issues and are not immune from collapse. So should a person acquire coverage from an insurance company simply because it’s large and popular?

Why People Run to Popular Companies

When it comes to insurance companies, many people prefer to go with larger entities. Here are a few reasons that this is the case:

  • Financial Backing: One major reason that customers tend to flock to major insurance companies is they are known for having significant reserves to actually pay out the amount they promise if needed. While there’s a chance that a smaller company will have the money to pay out as well, some people want to feel certain that their needs will be met.
  • Customer Service: Another reason that customers prefer larger companies is because they think the customer service will be more readily available or just plain better. There’s no doubt that good customer service is important for auto insurance as well as when choosing among health insurers, life insurers or home insurance companies. People need to feel certain that their companies will meet their needs immediately. The odds increase with a company that has a large staff.
  • Advertising: Large companies often have the luxury of a huge advertising budget that allows them to go as far as creating memorable characters to represent their brand (ex. GEICO’s gecko). Studies have shown for decades that advertising can affect purchasing decisions. The person who is advertised to the most has a greater likelihood of remembering who offers the service when needed and default to that company for help.
  • Online Convenience: Many larger entities have the budget to develop a highly interactive website that allows people to get free insurance quotes, purchase coverage online and manage their policies. Some small companies have the same capabilities, but the likelihood of having a comprehensive site is smaller.

People often inherently go with a large insurance company when choosing coverage. But does this mean that making this choice is always best?

The Pros and Cons of Big and Small Companies

Most people think that the old saying, “the bigger, the better” applies to insurance companies. And in some cases, it just might. But with any other type of company, big or small, there are pros and cons to each consider.

Pros of using a larger company:

  • Large insurance companies typically have more money available to pay claims.
  • Because larger companies have a huge clientele, they can often afford to offer bigger insurance discounts than smaller companies.
  • They usually have a large customer service staff available to meet their needs.
  • Their websites are usually very user-friendly and allow you to take advantage of numerous services from your computer.

Cons of using a larger company:

  • The large company serves a bigger group of people, which could affect the timeliness of the claims process.
  • Because these companies have a larger area to serve, they are more susceptible to greater catastrophic events (West Coast earthquakes and wildfires, East Coast blizzards, Midwest tornados and Gulf Coast hurricanes) that could drain their reserves.
  • Some large companies have such a large clientele that they worry less about providing quality customer service.
  • Larger companies sometimes charge more to pay for the well-oiled machine they operate.

Pros of using a smaller company:

  • Since smaller companies, which are often called “regionals,” are typically exposed to fewer catastrophic losses, they sometimes have more money available if a major event occurs.
  • Building a reputation with the public is crucial for smaller companies, which is why they often work harder to provide better customer service and impressive perks.
  • Because they are stationed in your area, they are often able to send agents to you quicker when it’s time to make a claim.
  • Smaller companies tend to be very cautious about entering new markets, something that often helps them do a better job of underwriting policies.

Cons of using a smaller company:

  • There is a possibility that a smaller company won’t have the money necessary to pay out all claims (ex. city-wide hail storm damages thousands of cars).
  • Customers are used to handling much of their business on the Internet. Smaller companies are often not able to provide the same perks as larger ones when it comes to online quotes, policy management and more.

As you can see, there are pros and cons to going with both the large (popular) and small insurance company. Since there are benefits to going either way, it’s up to you to determine what will be the best insurance company for you.

Choosing the Right Insurance Company for You

So how do you choose the right insurance company? Whether you’re looking for home, auto, health or life, there are a number of factors that are good to keep in mind:

  • Look at financial stability: One of the first questions you should ask of any insurance company is how financially stable is it. Ratings companies like Standard and Poor’s and AM Best could help you gather more information to determine stability.
  • Find complaints against the insurer: As you conduct your insurance company comparison, another thing to look at is which companies have complaints filed against them, how many complaints have been filed and what the nature of the complaints are. Your state’s Department of Insurance website should have detailed information to help you find complaint information. Also, consider looking at customer review websites for information.
  • Explore top insurance company lists: There are tons of lists found on the Internet that publish the best insurance companies in the industry. Good ones to look at are those released by J.D. Power and Associates.
  • Check with local contractors: If you are looking to purchase home or auto insurance, you could check with local home contractors or mechanics to see which insurers, big or small, respond most effectively to claims.
  • Ask friends and family: Chances are your friends and family have held some type of insurance over the years and are eager to express their likes or dislikes regarding the companies offering coverage. So see what they think in terms of life, auto and home insurance coverage. If you work for a company that only allows access to specific health insurance options, ask your veteran co-workers which ones they like the most.
  • Get tons of quotes: One of the best ways to find the right coverage is to compare insurance rates with numerous companies until you are satisfied that one meets your criteria in cost in addition to reputation, customer service and financial stability.

There is no proof that getting insured with a popular company is always best. But of course, since there are benefits to acquiring coverage with large and small companies, it’s good to explore all of your options to determine which is best for you.