Auto Insurance Claims Service - J.D.Powers Top (and Bottom) Picks

In my insurance buyers' guide, one of the most important - if not the most important - requirement when evaluating an insurance company is to find a company that will actually pay your claim. My discussion centered mostly on claims paying ability, and the importance of having a high financial strength rating ("A" or higher from A.M. Best is ideal.)

However, the willingness of a company to pay a claim (and the speed and ease of the process) can be just as important as the ability to pay a claim.

The problem is, there is no convenient, completely objective way to evaluate companies on this sometimes vague metric. J.D. Power and Associates probably does as good a job as any company (it is the organization behind the popular new car quality rankings as well.) J.D. Power conducted its 2008 survey in October and three companies took the top "five star" overall grade: Auto-Owners Insurance (which took first place overall), Amica Mutual Insurance, and USAA (which is only available to current or former military members.) All three companies also carry the highest (A++) rating from A.M. Best.

Amica Mutual

Amica (which stands for Automobile Mutual Insurance Company of America) is a Rhode Island-based company that was founded in 1907, and bills itself as the oldest mutual auto insurance company. Mutual companies are owned by the policyholders, and any "excess" money is paid back as a dividend. Amica sells policies directly over the phone or internet, much like its more well-known competitors Geico and Progressive.

Auto-Owners Insurance Company

Auto-Owners is based in Lansing, Michigan, and was founded in 1916. Unlike Amica, Auto-Owners is owned by private stockholders. While this arrangement seems less generous to policyholders, stock insurance companies have strong incentives to attact customers and maintain sufficient funds to pay claims (since it is the owner's money at stake!) Auto-Owners sells its policies through thousands of independent agents, which sell insurance from several different companies.

USAA

USAA (which stands for United Services Automobile Association) was founded in 1922 to serve current and former military officers (although it recently opened its doors to enlisted military as well.) Like Amica, it sells its policies directly to its customers, and, also like Amica, has cultivated a reputation for quality customer service. It is structured as a "reciprocal insurance exchange," which is very similar to a mutual insurance company. (Full disclosure: I am a USAA policyholder.)

The Bottom Tier

Of course, for every gold medal winner there is a bottom-dweller, and five companies (out of 25) received only two stars. The companies are AIG, Mercury, MetLife, Hanover Group, and Safeco. AIG has long had a reputation for very good prices but poor service, so I am not surprised by their score. Mercury Insurance has a sizeable "non-standard" customer base, which has a much higher claims rate (and also fraud rate.) Therefore, the company is probably much more careful with how they process claims, in order to nip fraud in the bud. I'm surprised at the inclusion of Safeco (now part of three-star Liberty Mutual) and MetLife, since both companies have strong brands in their home markets. The Hanover Group has only recently recovered from a period of financial distress, and may have "taken their eyes off the ball" while repairing the balance sheet.

You still need to shop around

While this post sounds like a commercial for the 5-star companies, you shouldn't just run out and call Amica or USAA, or ask your agent for Auto-Owners. Why? You could end up paying hundreds of dollars more in annual premiums than a competitor with perfectly fine J.D. Power ratings (State Farm and Hartford both earned four stars, for example - why not check them out as well?)

The best way to use this survey is to find 4 to 6 companies with high financial strength ratings and get quotes from all of them. That way, you can get great service along with a great price.