The risk you take with an insurance policy depends on two things: The type of policy you have and the relative strength or weakness of the insurance company. So here are some guidelines:
Determine which broad category of policy you have. Generally speaking, there are three:
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Cash-value policy. These are the most affected by the failure of the insurer. They include fixed annuities and whole life, sometimes called universal life. Your funds go into the insurance company’s own balance sheet, and if their balance sheet goes down, your savings can go down with it.
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Variable annuities or variable life. Your money does not become a part of the insurance company’s portfolio. Instead, it goes into separate accounts. Your money is actually invested in mutual funds, equities or elsewhere.
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Term insurance — life and health etc. Your risk is greatly reduced because you are paying strictly for the insurance. Your savings are not tied up.
With one or two exceptions on unusual products, the products on this site are in category 3.
In the UK, there is no easily accessible list of companies at risk.
The regulator, the FSA, is looking at ways of publishing information more quickly, and is expected to publish warnings if an insurer or anyone else regulated by them fails.
If you have bought your policy via a bank, there is rarely a problem if the bank fails but the insurer has no problems, as few banks do more than introduce customers to deal direct with insurers.
But, some products are exclusive to banks and building societies, and if the bank fails then the product may stop being sold, but there is rarely any problem for existing customers except that at renewal you may have to look elsewhere.
With the current world recession and financial chaos that we have not seen for a hundred years, only a fool would say that no UK insurer will go under.
One or two who were not very competitive and had other problems, may find themselves forced into being taken over. Some small businesses reliant on business loans may fail if their bank panics.
For at least one other insurer, the problems may be mainly outside the UK, and if the UK book is profitable and attractive-plenty of vultures (insurers and private money) are circling to pick up bargains.
We will update you on any issues, and immediately take off any provider who may be having problems.
Leaving companies on, or temporarily/permanently removing them does not in any way indicate that an organisation is financially sound or unsound.
If the FSA cannot predict problems, as mere product analysers, we have no chance of being correct - if we could we would placing some bets at the bookies!
Health insurance: Hot Topic: November 2008
