Yes, it will likely affect your premiums in the long term, but in general, most insurance companies will not raise rates or lower rates because of the bailout plan. Insurance companies have the luxury of being a part of the free marketplace. They are not regulated by the Federal government, but rather by each state. The main risk to any insurance company would not be related to the core business of insurance, but rather its investments and holdings of assets used to pay claims. The bailout plan is not a great solution for that. You could easily blame the rating agencies for a lot of this mess because they told investors that Lehman Brothers, AIG, and others had top ratings (AAA or AA ratings) – it is now obvious that they did not.

We hear that the risks of losing AIG would cause great trouble to the financial markets. The biggest risk is that AIG sells large quantities of credit-default swaps; they sell securities that allow other banks and financial institutions (insurance companies and hedge funds) to insure against bad loans. That is probably the biggest fear of the Treasury Department because all those other institutions would start failing because those options that paid a premium to AIG (CDS's purchased from AIG) would have been worthless. Therefore, the “books” would be unbalanced. Now, the question can be raised as to why regulators would allow derivatives (phantom money) to be used as a part of any company’s books. CarInsurance.com does not sell AIG products, but we know that many consumers in the nation and worldwide have insurance policies through AIG. The good news is that their insurance business makes a lot of money, so they could easily buy back most debt that they now have in a few years. Their insurance business may not be as profitable in the short-term because of consumer confidence in the company.

The good news about the US insurance industry is that it is still regulated by state agencies and NOT the federal government. Though it is not a perfect industry, it sill follows some of the constitutional authority given to the states. Insurance companies have to prove to the state that they are solvent enough to pay their claims. If any insurance company or its subsidiary registered in the state get into trouble then the state regulator will step in and list them into receivership of the state. The state then sets up a system to get them solvent or labels them insolvent. At that point, consumers have 30 days (typically) so policies can be moved to another carrier and that state’s system will protect the consumers. In most states, a state guarantee fund exists to pay claims or help recover any losses (usually up to $300,000) in the interim.

As seasoned insurance agents, we have experienced this two or 3 times in the past 30 years. The good news is that the insurance industry takes care of itself and the state agencies protect the consumers without too much government involvement.

The insurance market has had a few years of higher premiums so that should allow companies to keep premiums in line. In addition, as drivers spend less time on the road (because of higher gas and higher cost of living) claim frequencies go down and therefore more money is available to subsidize keeping premiums status quo or lowering premiums. It is important to shop around because of all the dynamics of insurance and nuances in each state, insurance premiums vary greatly between companies and states. CarInsurance.com offers financially solid companies that offer a competitive price along with superior customer service.

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