One of the most important things you can do when choosing an insurance company is to pick one that is financially secure. As a result of the recent financial environment, financial solvency has probably never been more critical for insurers. There are five major agencies that rate the financial stability of insurance companies.
Insurance ratings are based on financial data that insurers are required to report to the government, as well as information the insurance companies provide directly to the rating agencies. Most financial rating services also post ratings on the Web or publish ratings that are readily accessible to the general public.
It is very important to know what constitutes each agency's high ratings, and stick with insurers that rank highly on a consistant basis. Deciphering the ratings is somewhat confusing, and rating systems can vary quite a bit between each rating service. At first glance all ratings seem equal, like report cards with an "A" as the highest mark and a "C" for average. However, this is not the case. An insurance company touting an "A" rating could have some potential problems paying claims, while one with a "C" rating could be on the fast path to bankruptcy.
The Most Prominent Rating Agencies
• A.M. Best Unlike the other services, A.M. Best rates only insurance companies, and it rates the entire market. Top financial-strength ratings fall in the categories of superior (A++, A+) and excellent (A, A-).
• Standard & Poor's Highest financial-strength ratings are AAA (extremely strong) and AA (very strong). Standard & Poor's also designates certain companies as Security Circle insurers. These companies must rank in the top four categories for financial strength, submit to a comprehensive initial review, and undergo ongoing monitoring.
• Moody's Moody's ratings cover global life, property and casualty, mortgage and title insurers and reinsurers, plus financial guarantors. Look for companies with financial strength ratings of Aaa (exceptional) or Aa (excellent).
• Fitch Fitch Ratings is an international credit rating agency dual-headquartered in New York City and London. It was one of the three Nationally Recognized Statistical Rating Organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975, together with Moody's and Standard & Poor's
• Duff & Phelps This agency specializes in rating small- to medium-size insurers. Companies with a high claims-paying ability get marks of AAA, AA+, AA, and AA-. In addition to its ratings, Duff & Phelps' Solvency Seal identifies companies that have been in operation five years or longer, and show a strong long- and short-term capacity to pay claims.
What to Look For in an Insurer Beyond Just the Ratings
In addition to the ratings, you should also look at how a company ranks across its entire range of services to get a good idea of its overall financial stability. Ratings tell you only how financially sound a company may be on paper. Getting an insurance company to easily pay out a claim is another story. Usually, a personal referral or your insurance agent's advice can help you get a feel for how quickly claims are settled. Another great source for company testimonials is your state insurance department, because it collects complaints from consumers against their insurance carriers.
Still, many insurance companies do go unranked. This isn't necessarily a big cause for concern, but be sure you check with A.M. Best, because its ratings tend to be the most comprehensive. If you see a questionable rating with A.M. Best, and the company you're considering isn't rated with the other services, it's a good idea to obtain a quote from another insurance company as well
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Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681
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