Who’s Grading Your Insurance Company? Why Carrier Ratings Matter

I received a request to explain carrier ratings, so that is our next topic! (I love requests, so reach out to me at michelle.mcarthur@hubinternational.com if there’s an insurance term you would like me to explain here!)

So, carrier ratings. The simplest comparison would be that a carrier rating is like a credit score for an insurance company. It’s not something most of us would likely think about, but a carrier’s financial strength is critical to ensure that policies are worth the premium paid for them!

There are several organizations that evaluate and assign carrier ratings. A.M. Best is the most commonly used. You may also see references to Demotech and S&P (Standard and Poor’s).

Some of our commercial lenders set minimum carrier ratings for an acceptable insurance policy. You might see something like this:

• Carrier must be rated by A.M. Best
  • B+ or better / Financial Size Category V for admitted carriers
  • A- or better / Financial Size Category XII for non-admitted carriers

Sidebar: What is an admitted carrier vs non-admitted?

• Admitted carriers are insurers licensed by the state and backed by the state’s insurance guaranty fund.
• Non-admitted carriers (also called surplus lines carriers) write specialized or hard-to-place coverage but are not licensed by the state, although they must still be eligible/approved to write business through licensed surplus lines brokers.

Back to our example: the letter grade (A, A+, B, etc.) reflects the insurer’s financial strength and the Roman numeral (V, XII) reflects its financial size category. In general, insurers with A-range carrier ratings are considered to have excellent financial strength while lower ratings indicate greater financial risk.

Why does this matter?

A financially strong insurer is better positioned to pay claims, even in the event of catastrophic losses when thousands of claims could be filed at once. This makes the carrier rating just another piece of the puzzle in building an insurance program that protects our clients’ interests!

For a deeper dive, read our article Insurance Company Ratings: What They Are & How They Work

Until next time! MM