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Understanding How the Insurance Rating System Works

The idea behind the automated insurance rating system is to provide you, the insurance agent and consumers, with a method by which the financial strength of insurers can be evaluated quickly. There are several insurance rating services that examine insurers, such as A.M. Best, Fitch, Standards & Poor, and Moody, in order to determine the financial stability, creditworthiness, and vulnerability of different insurance companies under the most adverse conditions.

What is the insurance rating system used for?

Generally when an agent or agency is shopping around for coverage among the various insurers they represent to place individual and business insurance, they have access to a rating system to determine the strength of a company. Higher ratings are an indication that the company is solvent, which helps an agent in his or her sales presentation to an individual or business consumer. Simply put, high ratings indicate a high likelihood that an insurance company will be able to meet its financial obligations, such as pay a justified claim.

What’s more, as an agent, you may specialize in certain niche markets, such as restaurants, transportation, manufacturing, etc. You want to check out the rating of an insurer in the specific niches you market to make sure they will continue to make their insurance products for these sectors available for the long haul. Again, it’s also a selling point to business insureds to say that XYZ Company is rated A+ Excellent, and specializes in nonprofits, for example,

What criteria are used in the insurance rating system?

Each service has a unique way of expressing their evaluations, but the general insurance rating system focuses on specific criteria. This includes:

  • A company’s financial flexibility
  • Investment risks
  • Liquidity
  • Competitive position, and
  • Operating performance

Insurance ratings may also be determined by evaluating enterprise risk management, capitalization, or management and strategy. The types of services that provide these ratings will take a look at these, and similar criteria, while evaluating insurance companies.