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How to ensure good insurance

States and watchdog groups track 'complaint ratios' and more.

By G. Jeffrey MacDonaldCorrespondent of The Christian Science Monitor / October 29, 2007

As Californians scorched by this month's wildfires pick through the charred remains of hundreds of lost homes and businesses, the dire scene points to a weighty question: Will insurers cover costs to rebuild?

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Fire victims aren't the only ones with a stake in the answer. Insurance consumers everywhere want to know they're dealing with fair underwriters, and few situations suggest fairness – or lack thereof – as poign­antly as a company's response to a natural disaster.

But according to consumer advocates, people wanting to buy insurance from an ethical operator need not rely solely on cautionary tales from the grapevine. There are additional ways, they say, to figure out which companies treat their customers fairly and which ones don't. These include information tracked by state departments of insurance and by industry and watchdog groups.

"You need to go to someplace that provides some comprehensive information, as opposed to stories and anecdotes from individuals with bad experiences," says Sally Greenberg, executive director of the National Consumers League, a Washington, D.C.-based consumer advocacy group. The reason: Horror stories aren't necessarily representative of client experience with a company.

The ethical practices of insurance companies have come under fresh scrutiny in recent years. On the downside, Gulf Coast claimants who lost just about everything in hurricane Katrina are in many cases still fighting for payouts more than two years after the disaster.

On the upside, insurers have at times won praise for waiving deductibles after multiple disasters hit a region, a trend reportedly jump-started by MetLife after a series of hurricanes hit Florida in 2004.

Consumers eager to work with the insurance industry's good guys should weigh two primary considerations, advocates say: access and claims. That's because people across the spectrum need to be able to get coverage at affordable prices, just as they need their policies honored when they have a legitimate claim, says Bob Hunter, director of insurance for the Consumer Federation of America (CFA), an advocacy group. He's also former insurance commissioner for Texas. But this dual consideration means consumers sometimes need to make some tough choices. "Poor people need insurance just as much as we do – or maybe more, in some regards, because they're more vulnerable," Mr. Hunter says, "and yet they tend to be priced out. So if a company has systems that, in my view, really target poor people as people to raise prices on – if that's true, and I think it is – then that's a serious potential problem, an ethical problem for me as a buyer."

Hunter cautions that some companies seem to harbor biases against minorities and low-income people. He objects, for instance, to auto insurance giant GEICO's use of education and occupation as factors to determine a driver's risk. Through a formula, he says, domestic workers and high school dropouts pay higher premiums to GEICO than do their better-educated counterparts who have identical driving records. His tip for ethical consumers: Beware when an insurer starts asking about your schooling and your job. Even though you might get a good rate, your less-educated neighbor may be paying an exorbitant fee due to an unfair process.

"A lot of people don't think about how this classification system works," Hunter says. "I think most people say, 'Oh, the rate is $50 less, I'll take it.' They don't [realize], 'The reason I'm paying $50 less is because some poor people over there have to pay $100 more.' " GEICO spokeswoman Christine Tasher declined to comment on company practices.

The American Insurance Asso­­ciation (AIA), a trade group for property and casualty insurers, defends such risk-calculating means as legitimate ones that have passed muster in a highly regulated industry.