Recently I have been asked by many of clients and prospective clients in regards to the ratings given to insurance companies. Earlier in my practice this topic of conversation was easily overlooked and some what dismissible but lately this conversation has generated some attention and rise for concern which prompted this particular blog. I think it is important to know that just because an insurance company is “A” or even “A+” rated, does not mean that they are in good financial standing.
What are these ratings?
All insurance providers allow themselves to be rated by major analysis Corporations like Standard & Poor’s, Moody’s, Fitch, and A.M. Best. These Corporations give Insurance providers letter grades which are a public opinion as to the current status of the provider. They go off a strict and detailed list examining the financial strengths, investment portfolio, customer service and ability to meet the obligations made to clients (policy holders). Needless to say, it looks good for the insurance carriers when they receive a good rate class from these companies.
Because of this, what has happened is the rating providers have come up with subtle levels of ratings for each letter grade, so as to not mark any insurance company too low unless necessary. You see, you don’t want to upset a multi-billion dollar insurance provider. As a result of this relationship, a company who deserves to have a rating four degrees of separation below their potential still receives a form of “A” rate class.
For example: Standard and Poor’s currently have 7 degrees of separation in their A category. So when an insurance agent tells you that the insurance company he presents is A+ rated, you should ask him/her back “Which rating company are you looking at?”
A.M. Best considers an A+ to be Superior and it is their second highest class. Standard and Poor’s has an A+ rate as their 5th highest class. This mark would be even to a B++ with A.M Best. So you must make sure that you have your facts straight and your companies in order. Just saying that a company is A+ is not good enough.
