Debt Free Article

Rating Insurance Companies (part 1)

Whatever source you select for buying insurance, which companies warrant your trust?

This debt free article will explain the rating of insurance companies and provide you with important information on how to select the right company for your specific insurance needs. After all, the more money you save and the better you handle your financial planning (which proper insurance coverage is a vital part of), the better your chances are of living a better debt free or debt responsible life.

Typically speaking, consumers are able to get information about insurers from several independent firms that rate insurance companies’ financial stability. These firms include Moody’s Investors Service, A.M. Best, Duff & Phelps, S&P Corporation (Standard and Poor), and Weiss Research. Also, you can obtain this info at your local library, insurance agents, and at times you can obtain good quality info from the rating firms themselves when they release it publicly.

After you have the right information, however, an even further task begins – figuring out what they mean and are saying exactly. As so it goes like this. The 5 firms we just mentioned above are not consistent in how they present their ratings. Each of these firms has their own way of doing things when they create their ratings of insurance companies. They do not necessarily converse with each other or collaborate with each other either. Each has its own rating schedule as well. For instance one firm may rate in letter grades while another uses a totally different system to rate insurance companies. Just be sure you understand this and are aware of the firm’s specific rating scale. If not, you will be frustrated trying to correlate the differences. On the other side of things, if you take the various ratings and line them up, you will start to see some similarities for sure. You will some patterns on how insurance companies stack up against one another. All the raters are examining the same features – the insurance company’s financial strengths and weaknesses, momentum, and quality of management. But, even if you scrutinize insurance companies with the most careful examination, you run the risk of missing an important point.

Recent events with the insurance industry have created a flight to quality among insurance consumers. In and of itself, this emphasis on the carrier’s quality is not a bad thing, but, it is potentially problematic because the strength of the company does not completely guarantee a well designed, competitively priced policy coverage for you. Additionally, it does not necessarily follow that the companies with the highest ratings have provided the best values to their policy holders – or, for that matter, the products that best suit your needs. The rating firms rate companies, not products. You may have purchased a good product that is unnecessarily expensive.

Given this extremely complex situation, what should you do?

Continued…

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