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Determining The Financial Health Of A Health Carrier


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It's much easier to assess the financial strength of a carrier in the world of Property and Casualty insurance than in the world of Health insurance. Several organizations have standard rating systems to assess a P/C carrier's strength and financial performance. A broker can quickly compare the financial viability of various P/C carriers using an assigned rating. Brokers usually don't even bother to look at an unrated carrier. 


Unfortunately, most Health carriers have no rating. The lack of a rating doesn't necessarily mean that the carrier has a short operating history or a less-than-optimistic future. It only means that they've decided not to pursue a rating.


Here are some steps to help brokers choose Health carriers with solid financials that have the reserves to withstand the turbulent Health insurance market:




Get a copy of the most recently filed annual and quarterly financial statements for each company you're considering. Ask your state department of insurance if any carriers are under supervision or on a 'watch list.' Also request information on minimum statutory reserve requirements and compare them to each carrier's actual reserves.




Meet with the carrier's senior management team to review their: 

  • Reserve for claims incurred but not reported - This is the single most important evaluation. Find out if they've reserved an adequate dollar amount. Anything less than 15% of premium revenue should be explored further. One of the biggest reasons for financial problems is the understatement of the reserve for claims that are incurred, but not reported.


  • Underwriting methods


  • Pricing philosophy


  • Management programs


  • Medical-loss ratios by product - Have them explain those greater than 90%.


  • Organizational plans


  • Goals for growth - If their goal is significant growth, find out how it will be achieved and financed. You've got cause for concern if their plans include predatory pricing.


  • Claims operation and inventory.


  • Recent external claims audits - Take special note of their accuracy rates.


  • Premium diversification - Is a large amount controlled by a small number of clients? Underbidding a single large contract has doomed some carriers.


  • Reinsurance contracts - Look at insolvency provisions.


  • Lawsuits - Take special note of those with potentially large settlements. Review their audited statements.


  • Liquidity ratios      



Brokers and customers are a good place to start checking references, but don't stop there: 

  • Ask their providers and general business vendors if their claims are paid accurately and on time.


  • Get a credit report.


  • Check with the complaint division of your state insurance department for the number and nature of complaints against them, and how each was resolved. If there are a lot of complaints on the carrier for claims that eventually got paid, it indicates cash-flow problems.


  • Talk with the leadership of the local business health-care alliance. Many larger communities have an employers' coalition to address Health insurance issues. The information they provide isn't readily available in public reports.      

Ask the carrier's management team to address any worrisome information you've uncovered.


Finally, cross your fingers. Health insurance is a risky business, especially in this era of fierce competition for market share. Strong, reliable companies with a long history of financial success can be weakened almost overnight by singular events, such as the loss of a dominant client, underbidding on a major contract, or understatement of reserves for unreported incurred claims.


In may not be as easy to evaluate a Health carrier as it is a Property and Casualty carrier, but it's absolutely necessary. The old adage, 'an ounce of prevention is worth a pound of cure' still applies when placing your clients with a Health insurance carrier.

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