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How to Verify That New-to-You Auto Insurance Company Is Legit

Start by looking up the insurer’s complaint volume and how quickly those complaints were resolved.

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My insurance agent recommended I buy auto coverage from a company I’ve never heard of. The premiums are low, but how can I check out whether the company is legitimate and pays its claims?

SEE ALSO: Smart Shopper's Guide to Auto Insurance

It’s a good idea to verify an insurance company’s record whenever you’re thinking of switching to a new provider. Start by looking up the insurer’s complaint record at the National Association of Insurance Commissioners’ Consumer Information Source. Type the company’s name in the right-hand column, then click on “property/casualty” for business type (that includes auto and homeowners insurers). When you see the list of companies, click on “closed complaints,” then select “closed complaint ratio report.” Because you’re looking for information on personal auto coverage, choose “private passenger” for non-business car insurance.

What you’ll see is a ratio of the insurer’s market share of resolved complaints to the company’s market share of auto premiums (the ratio puts the complaint figures into perspective based on the size of the insurer’s business, so larger insurers aren’t penalized for having more complaints). The national median is 1.00; companies with ratios below the median have a better track record than those above the median. For example, the complaint ratio for Geico in 2015 was 0.86. You’ll also see the insurer’s total premiums collected for the year, its assets and liabilities, and a list of states where it is licensed to do business.

You can also find some helpful information at your state insurance department’s website; go to the NAIC’s jurisdiction map to find a link. Most states include auto insurance buyer’s guides on their sites, with information about state car insurance laws, explanations of the types of coverage, and a list of insurers licensed to do auto insurance business in the state. You can also look up whether the department has taken any enforcement actions against the insurer.

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Most state insurance websites also provide premium comparisons for several hypothetical drivers that allow you to see how the rates of each insurer licensed in the state stack up for someone like you. The Texas Department of Insurance, for example, has a tool that lets you submit your ZIP code, marital status, age range, coverage limits, and general information about your credit record and driving record, and then provides sample premiums from each insurer. Your actual premiums will vary depending on the specific information you submit to the insurer, but this is a great way to narrow down your list. The results also show the insurer’s complaint index, as well as its rate changes over the past 12, 24 and 36 months. Plus, the tool includes the insurer’s A.M. Best financial-strength rating -- which shows the likelihood that the insurer will have the money available to pay claims -- compared with the other auto insurers in the state.

Got a question? Ask Kim at askkim@kiplinger.com.