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Finding the right insurance policy for your needs can be challenging. How do you know that a company is reputable and financially stable? How are insurance companies rated, and who does the rating? Fortunately, there are a handful of third-party ratings organizations that offer trustworthy assessments of a carrier’s quality. Looking at all these ratings can give you an overview of how well a company could meet your coverage needs.
How are insurance companies rated?
Every consumer analytics company rates insurers using their own proprietary algorithms, so there may be slight differences from one rating company to the next. Many of them, like AM Best and Standard & Poor’s look primarily at financial stability, since being able to pay out on claims is of high importance to policyholders. Consumers expect their insurance carriers to manage their financial resources widely, so that even if there was a widespread disaster—such as a hurricane or wildfire—the company would have the funds to pay out claims efficiently.
After financial stability, many individuals may consider excellent customer service a must-have for their insurance needs. Here, companies such as J.D. Power and the National Association of Insurance Commissioners (NAIC) can help consumers make informed coverage decisions. These analytics companies look at the number of complaints filed against an insurer and customer reviews to gain a sense of how highly they prioritize their customer relationships.
Other factors that rating agencies may consider include the breadth of coverage options, discounts and pricing structure.
What do insurance scores consider?
Insurance company ratings take into account a number of factors. Besides the finances, the general health and ethics of the company are also considered before rating the insurer. Some other consideration factors are:
- Cash in reserve
- Debt to assets ratio
- Ethics and risk management
- Revenue streams
- Quality of policies underwritten
Since every analytics company is different and follows separate methods to determine scores, the ratings may not always be uniform for all insurers. Besides considering third-party ratings, it is also important that you conduct your own independent research to find your best fit.
Who rates insurance companies
Most homeowners insurance, car insurance and life insurance companies can all be rated in some capacity. There are four third-party companies whose scores for insurance providers stand out from all others. These are AM Best, Standard & Poor’s, Moody’s and Demotech.
The most well-known insurance specific rating company, the scores provided by AM Best are often considered the yardstick for financial strength in the industry. The highest rating offered is A++ (Superior) while the lowest is a D (Poor). AM Best does not rate any other kind of businesses other than insurance companies.
Standard & Poor’s
Unlike A.M. Best, Standard & Poor’s rates businesses across all industries, including insurance. They rate the ability and willingness of companies to meet their financial obligations on time and in full. Or, in other words, they rate the likelihood that an insurance company can and will pay out your claim in a timely manner. The highest score it offers is AAA (Extremely Strong) while the lowest is a D.
Another all-industry rating company, Moody’s Corporation analyzes insurance providers for financial stability, market risk and overall performance. They do this with the intent of determining, like other rating companies, how likely an insurance company is to be able to pay out your claim on time. Their highest score is Aaa (Highest Quality) while C (lowest-rated, typically in default) is the lowest.
Ohio-based financial analysis company Demotech rates insurance companies for their survival strength regardless of market downturns. Its rating scale is a little different, in that the highest score offered is A” and the lowest an L, with A’, A, S, M in the middle.
Why are insurance company ratings important?
An insurance company is different from other businesses because it has a financial obligation to customers. Ratings for insurance companies matter because they highlight the financial stability of an insurer and help people gauge if the company will be able to provide them with the money they need in the event of an accident or catastrophe. However, because these ratings are objective and fairly broad, they must not be the only factor to determine the effectiveness of the company. Just because an insurance company is financially strong, it must not be considered a guarantee of excellent customer service too.
What if an insurance company does not have a rating?
Sometimes, an insurance company may be unrated by any of the leading credit-rating agencies. This is not always a negative indicator. In most cases, it simply means that the company is new and has not yet had many years in business or it operates in only a handful of regions and is not considered a national insurer. In the absence of financial ratings, it is best to focus on customer reviews to learn more about the company’s performance.
How else can I evaluate the quality of an insurance company?
Financial strength is only one parameter to consider when searching for the best insurer. Another way to assess carriers is to look at their customer relationships by reviewing complaints. Two organizations that can help are the National Association for Insurance Commissioners (NAIC) and J.D. Power.
NAIC’s complaint index shows the number of complaints lodged against a company, broken down by product line. With a benchmark index of 1.0, anything above that indicates a higher number of complaints than expected for the company’s size.
J.D. Power issues annual listings of customer satisfaction and claims handling that rank major insurers for the quality of their customer interactions. The company works across a number of industries, including insurance, and offers unbiased readings that may help give you a sense of a company’s responsiveness to policyholder needs.
Frequently asked questions
There’s no right or wrong time to check a company’s ratings. Shopping around for a new policy is a logical time to review ratings, but you can also check annually when your policy renews to see how your carrier’s ratings have fluctuated. Most rating organizations update their reports annually, if not more frequently, and it is easy to check most of them with a simple Google search.
There are several consumer analytics available to you, and in some cases, there may be conflicting information from one to the next. If you’re looking for a reputable source of information for insurance ratings, companies like AM Best, Standard & Poor’s, Moody’s and Demotech are industry-recognized insurance reviewers and can be a good place to start.
If you discover that your insurance company has a low rating with a third-party rating company, you may be tempted to shop around for other insurance companies. However, you do not have to make changes right away. If you’re happy with your insurance company overall, or if you have discounts or other perks that you want to keep, it may be worth considering whether the company has historically had good ratings or whether a low rating is the norm. It may also be helpful to consider whether a recent catastrophic event may have caused an impact to the rating. It may also be helpful to read through recent reviews and customer complaints so you can make an informed decision on whether or not to leave your insurance company due to a low rating.