IN A RECENT class, I was contrasting insurance carrier stability with insolvency, pointing out that carriers can be quite unstable while being far from insolvent. Someone asked why any of this matters to agents, given the existence of state guaranty funds.
This might sound like a silly question at first. But it isn't, because it brings up two vital points: Most agents don't understand the difference between stability and solvency, and many agents fail to appreciate the perils of doing business with weak carriers and the benefits of doing business only with those that are stable.
Solvency is an all-or-nothing proposition. Either you're solvent or you're not. But there isn't necessarily a direct correlation between solvency and stability. A company can be quite unstable and still be solvent, or vice-versa.
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