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Shopping for auto insurance? Insurer's complaint history may point to problems

If you’re shopping for auto insurance, a list of complaints against an insurer may not be the first thing that comes to mind – but perhaps it should be.

Let's take a look at the 2011 ranking of automobile insurance complaints compiled by the New York Department of Financial Services. What does it tell us? Erie Insurance may be a company worth looking at. Why? Erie Insurance had no complaints that were upheld. That means there were no instances when the New York Department of Financial Services agreed with a consumer's contention that Erie had made an inappropriate decision.

On the other end of the scale in New York, Clarendon National Insurance had two upheld complaints for the average $7,000 it had in auto insurance premiums paid during 2009 and 2010.

In the report, auto insurers in New York were ranked based on a complaint ratio. The ratio is determined by figuring the number of complaints upheld against insurers as a percentage of the total number of policies written for personal cars in the state. Erie Insurance topped the 2011 list with a complaint ratio of zero. The complaint ratio for Clarendon, which was ranked last, was 280.4459.

auto insurance complaints

New York is not alone when it comes to sharing complaint information with consumers. In fact, all states have information regarding complaints against insurance companies, according to the National Association of Insurance Commissioners. While you should never pick an insurer based solely on the number of consumer complaints it receives, taking a look at complaint histories could help you decide between one company and another.

Evaluating complaints against insurers

Complaint ratios offer a glimpse into how satisfied customers are with an insurance company’s service. Typical complaints involve delayed claims payments and non-renewal of policies.

To get a solid picture of an insurance company, you’ll want to take a number of factors into consideration. Here are four ways to evaluate what’s behind the company’s complaint ratio:

1. Check for more information.

No matter where you live, consider checking the National Association of Insurance Commissioners website for complaint information, says Robert Hunter, director of insurance for the Consumer Federation of America. In the Consumer Information Source section of the website, you can find detailed information about a company, including complaint ratios, licensing and financial details.

2. Watch for trends.

Before you buy a policy with an auto insurer in your state, study the complaint ratio of the company during the past several years. A ratio that has increased or decreased greatly during that time may indicate a need for more research. Check to see whether the company is writing more policies than it did previously, or whether there's been an increase or decrease in the number of claim payments in recent years.

In 2011, the two most common complaints among consumers involved delays in the payment of claims and denial of claims, according to the National Association of Insurance Commissioners. If the insurance company you’re looking at has paid fewer claims during the past few years, you’ll want to check for reasons behind the change.

3. Understand the difference between justified and unjustified complaints.

When reviewing complaints against insurance companies, pay attention to the justified and unjustified number of complaints. Unjustified claims may occur if someone files a complaint that refers to things not covered in an auto policy, says Ernie Bray, CEO of AutoClaims Direct Inc. in Carlsbad, Calif. Justified claims, however, indicate a fault on the auto insurance company, such as the denial of a claim that should have been paid.

4. Compare lots of companies.

Consider looking at the complaint ratios of five or six companies, Hunter says. Then take a deeper look to see what type of complaints the company is getting.

What to consider when choosing an auto insurer

In addition to considering complaint ratios, follow these three steps when searching for an auto insurer.

1. Understand the policy.

Even if you’re familiar with the company name, look carefully at the details of your policy, Bray says. Understanding what’s in your policy will help if you need to file a claim.

2. Don’t judge on price alone.

Companies that offer cheap premiums may cut corners on service, says Shane Fischer, a criminal defense attorney in Winter Park, Fla. For instance, if you have to file a claim, you could end up spending more time on the phone waiting to speak with a representative. Furthermore, you may wind up dealing with a different person every time you call about the claim.

3. Look beyond the name.

“Just because a company has a flashy commercial doesn’t mean they have the best service,” Fischer says.

Ask family, friends and other people you know about their experiences with auto insurance companies, Bray says. Find out whether a company offer around-the-clock claims service or whether claims representatives work only on weekdays.

“Everyone pays their policy, but when you have an accident, service plays a big role," Bray says.

State regulators and insurance complaints

While all states compile information regarding complaints against auto insurance companies, how they share the details with consumers varies widely.

In New York’s case, the Department of Financial Services publishes a report every year that ranks the 179 auto insurance companies that do business in the state.

The Texas Department of Insurance provides an annual automobile complaint index on its website. In it, the department lists the number of justified complaints for each company during a given year, as well as the number of policies a company had in effect in Texas during that time. It compares this data with the industry average, which is listed as 1.00. Companies with a ratio lower than 1.00 are considered to have fewer complaints when weighed against the average. Insurers with ratios higher than 1.00 have more than the average number of complaints.

Meanwhile, the Illinois Department of Insurance website lists annual complaint statistics for insurance companies with at least five complaints lodged against them during the year.

At the Arkansas Insurance Department website, consumers can tap into a vast database about insurers. While the department does not rank insurers and provide ratios, it does offer details about every insurer in the state, including annual income, losses and expenses.

Other states, such as Vermont and South Dakota, do not list complaint ratios on their websites. The Vermont Insurance Division refers consumers to the National Association of Insurance Commissioners website, where they can find complaint histories and other data about insurers. The South Dakota Division of Insurance encourages consumers to call with questions regarding complaints against insurance companies.

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