Next month marks a dubious anniversary – one year since the US subprime financial meltdown reached a climax, at least in terms of public consciousness.
September 2008 saw daily headlines of announcing the failure or near-failure of:
- Merrill Lynch (emergency takeover by Bank of America);
- the bankruptcy of Lehman Brothers (the largest in US history);
- AIG Insurance being propped up with ultimately over $180 billion in US gov’t guarantees, loans, and an equity position.
- home mortgage players Fannie Mae and Freddie Mac were sheltered into a “conservatorship” by the Federal Housing Finance Agency to keep them afloat.
Each failure added to the growing mountain of broken promises.
Canadians were partially sheltered, at least domestically, largely due to a more conservative regulatory regime. But south of the border, troubles continue, even though failures are no longer front page news: 77 US banks have crashed since January 1st, 2009!
If September 2008 taught us anything, it’s that you can’t trust every financial institution, even if they are big and their name is well-known. Some regulators and ratings agencies have been accused of being asleep while the inevitable train-wreck was about to happen. Others argue that regulatory structures in the US and Europe were insufficiently rigorous to empower regulators to act on worrying signals.
However, with this recent historical backdrop, you’d think that at least when it comes to financial products and services, consumers would now be more vigilant than ever, exercising heightened caution and care. You’d think that the cheapest possible price would be cause for suspicion, rather than an attraction to buy. You’d think that financial strength issues would be a priority item in every conversation leading to a buying or renewal decision.
But generally you’d be wrong, at least from what we’re seeing in the general insurance industry. However, most insurers are keeping their promises, and prudent insurance consumers, although the exception, are seeking the comfort that comes from the confidence of placing their trust in those entities. Therefore they are asking:
- is my broker/ agent even informed in discussing this topic?? (it is surprising to me how many are not!!)
- is my broker/ agent aware of the current financial strength ratings on the company being recommended?
- can my broker/ agent lead a discussion on this issue that “smells” informed, giving me a degree of certainty?
And if your broker/agent says, “Don’t worry – this insurer is too big to fail”, my advice is to roll your eyes, clear your throat, and politely terminate your professional relationship!