If you intend to buy coverage shopping around, you should select an insurance provider that is capable of financially covering policyholder claims when a significant disaster happens. Due to the many components of an insurer, it is impossible to rely on a single ratio or model. This is because the steps to check an insurer’s financial strength are tough.
However, a simple method to check an insurer’s financial strength is determined by how they are highly rated by experts. In this article, we will discuss the process of checking an insurer’s financial strength and experts that could rate them.
How to Check an Insurer’s Financial Strength
While most insurance companies have good financial stability, your business may still want to take a deeper look into other factors that ensure their financial strength. Two organizations offer ratings of customer satisfaction and customer complaints of insurance companies. These organizations are J.D. Power and the National Association for Insurance Commissioners.
Furthermore, J.D. Power issues an annual report that contains info on customer satisfaction and claims satisfaction of insurance companies, including major insurance companies. The National Association for Insurance Commissioners holds the reported complaints of customers against insurance companies.
How are Insurance Companies Rated?
Insurance companies are rated based on the evaluation of the company’s financial stability. This evaluation includes everything insurance companies are responsible for, including salaries, overhead, and customers’ liabilities. Aside from these, other factors used to rate insurance companies’ financial strength include:
Capital Accumulations
This is one of the key metrics since insurance companies are required to be financially sound to pay claims. The company needs to have remarkable capital to be able to cover losses and remain in operations.
Assets Quality Assets
Insurance companies are rated based on the quality and diversification of their assets. Also, rating organizations look at the company’s investment portfolio to evaluate it.
Profitability
Ratings are made based on the insurance company’s history of profitability, which is a positive indicator of the company’s financial strength.
Operation Production
Rating organizations review how well an insurance company carries out its obligations. They review every area of the operations, like customer satisfaction, administrative practices, employee retention rate, underwriting discipline, and claims management.
Liquidity
The ratings of insurance companies display their liquidity. In addition, this is how the company can easily see short-term financial duties without having its financial stability compromised.
Who Rates Insurance Companies?
Insurance companies are rated by third-party companies who can be objective since they are not stakeholders in insurance companies. In the United States, four companies are responsible for rating insurance companies; these companies are AM Best, Moody’s, Standard Poors, and Demotech.
AM Best
This company was founded when insurance company failures were rampant. It is well known for its comprehensive ratings, which are now used to determine insurance companies’ financial strength. Its ratings range from A++, showing the financial stability from top to bottom.
Standard & Poor’s
Unlike AM Best, this company evaluates other companies but completely covers the insurance sector. It accesses the capacity of companies alongside their reliability in meeting financial needs completely and early.
Moody’s
Also, moody’s is one of the largest credit rating organizations worldwide. One of its specialties is evaluating insurance companies. They evaluate the capacity of insurance companies to pay out claims punctually.
Demotech
This is the youngest insurance company rating organization. It concentrates mainly on grading small to midsize insurance companies. In addition, its ratings begin from the highest to the lowest ratings.
Why Should I Care About My Insurance Company’s Financial Strength?
Selecting a financially stable insurance company with a good reputation for providing good customer service is important, especially for organizations and businesses. Your financial stability depends on your good choices when selecting an insurance company. Businesses depend on and trust the insurance provider to offer the services and payout claims to keep the business operations going.
Final Thoughts
It is vital to get familiar with rating organizations to know the financial strength of your preferred insurance company. These organizations allow you to check their ratings for free, allowing you to see the ratings of several companies. However, life insurance companies display the ratings from these agencies on their website.
Keep in mind that a rating does not guarantee the financial strength of an insurer, but it is important to consider it while shopping for the best coverage.