Haris Ashley
When it comes to choosing an insurance carrier, it's essential to consider various factors such as price, customer service, and the ability to pay out claims. One crucial aspect is assessing the financial strength of the insurance carrier, which can be done through insurance company ratings. These ratings are provided by independent agencies that evaluate the financial health, solvency, and ability of insurance companies to meet their financial obligations and pay policyholder claims. The four major insurance company rating agencies in the US are Moody's, AM Best, Fitch, and Standard & Poor's, each with its own rating scale. These ratings can impact consumer trust and confidence in an insurance carrier's ability to fulfil its financial responsibilities.
| Characteristics | Values |
|---|---|
| Rating agencies | AM Best, Standard & Poor's, Moody's, Demotech, Fitch Ratings, National Association of Insurance Commissioners, J.D. Power, Better Business Bureau |
| Rating criteria | Financial strength, ability to pay out claims, customer satisfaction |
| Rating scale | Varies by agency, e.g., AM Best's highest rating is A++, while Fitch's is AAA, Moody's is Aaa, and Standard & Poor's is AAA |
| Rating frequency | Most organizations update their reports annually or more frequently |
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What You'll Learn
Third-party ratings organisations
AM Best
AM Best is one of the most well-known and respected insurance rating agencies, specialising in assessing insurance carriers. With a history dating back to 1899, AM Best operates internationally and is known for its comprehensive evaluations of financial strength, claims-paying ability, and financial stability. The company's ratings are often considered the industry standard, with designations ranging from A++ (Superior) to D (Poor).
Standard & Poor's
Standard & Poor's is another prominent third-party ratings organisation that assesses insurance carriers. They are part of the “big three” credit rating agencies, alongside Fitch and Moody's, and provide ratings for various industries, including insurance. Their ratings scale differs from AM Best, with their highest rating being AAA for extremely strong.
Moody's
Moody's is also one of the “big three” credit rating agencies, offering assessments of insurance carriers' financial strength and claims-paying ability. Their highest rating is Aaa, indicating the highest quality. Moody's is recognised as an industry-standard reviewer, providing valuable insights into insurers' financial health and stability.
Fitch Ratings
Fitch, another member of the “big three," has been in the business of providing credit ratings since 1914. Their rating system includes designations such as AAA, AA+, AA, and so on, with anything rated BBB and above considered investment-grade. While Fitch provides ratings for various industries, their assessments of insurance carriers are particularly noteworthy.
J.D. Power
J.D. Power is a consumer research company that rates customer satisfaction across multiple industries, including insurance. They provide annual listings that rank insurers based on customer satisfaction and claims handling. While their ratings are dependent on consumer reviews, they offer valuable insights into the quality of customer interactions and responsiveness to policyholder needs.
Demotech
Demotech is another recognised insurance rating organisation that assesses the financial stability and claims-paying ability of insurance carriers. Their ratings are designed to provide stakeholders with guidance on insurer solvency and reliability.
These third-party ratings organisations offer valuable insights into the financial health, stability, and reliability of insurance carriers. By considering ratings from multiple organisations and conducting independent research, individuals and businesses can make informed decisions when choosing an insurance provider.
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Financial strength
There are four major insurance company rating agencies: Moody's, AM Best, Fitch, and Standard & Poor's. Each agency has its own rating scale that does not necessarily equate to another company's rating scale, even when the ratings appear similar. For example, AM Best's highest insurance company credit rating is A++, meaning superior, while Fitch's is AAA for exceptionally strong, Moody's is Aaa for the highest quality, and Standard & Poor's is AAA for extremely strong.
AM Best is the most prevalent insurance-specific agency and the one most commonly used by major insurance companies. It is also known for its FSRs, which look at a company's ability to meet all of its policy and contract obligations. Fitch, on the other hand, is one of the oldest rating agencies, having been in business since 1914. Its rating system includes designations such as AAA, AA+, AA, AA, and so on, with anything rated BBB and up considered investment-grade.
It is important to consult multiple rating agencies when assessing an insurance carrier's financial strength, as ratings may not be consistent across all agencies. Additionally, it is worth considering other parameters, such as customer satisfaction and reviews, when evaluating insurance carriers.
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Customer satisfaction
One of the most important factors is trust. According to the J.D. Power 2024 U.S. Auto Insurance Study, customers with a high level of trust in their insurer report considerably higher satisfaction and brand advocacy, even when rates increase. However, the study also found that slightly more than half (51%) of auto insurance customers have little trust in their insurer. Managing expectations around rate increases is critical to building trust. Customers who understand the reasons for rate increases tend to have higher trust scores.
The J.D. Power study also identified seven core dimensions that impact customer satisfaction, ranked in order of importance: level of trust, price for coverage, people, ease of doing business, product/coverage offerings, problem resolution, and digital channels. Customers with high satisfaction tend to trust their insurer, perceive value in the price of coverage, and find the insurer easy to do business with. They also appreciate a diverse range of product offerings, efficient problem resolution, and robust digital tools.
Various organizations conduct surveys and studies to evaluate customer satisfaction with insurance carriers. For example, The Zebra surveyed 2,722 U.S. insurance policyholders, assessing satisfaction with car and homeowners insurance providers. Forbes Advisor analyzed over 760,000 car insurance rates and evaluated coverage options, complaints, and claims experiences. Insure.com considered survey data, complaint indexes, and insurance rates from various sources. These assessments provide valuable insights into customer satisfaction with different insurance carriers.
When it comes to specific insurance carriers, several companies have consistently ranked high in customer satisfaction across different studies. USAA, for instance, has topped The Zebra's customer satisfaction survey with a score of 8.9 out of 10. Erie Insurance, a regional carrier, has also received high marks for customer satisfaction, scoring 8.5 or 8.8 out of 10 in different surveys. State Farm, a national insurer, has ranked above average in overall customer satisfaction in 10 out of 11 regions surveyed in the J.D. Power Auto Insurance Study. Travelers has been ranked as the top car insurance company by Insure.com for two consecutive years, with customers praising its competitive costs and reliable claims handling.
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Insurer's ability to pay claims
Insurance company ratings are an important metric that helps consumers, businesses, and investors make informed decisions when selecting insurance providers by indicating the company’s ability to meet its policy obligations and handle claims effectively.
Ratings agencies like AM Best, Standard & Poor's, Moody's, and Demotech are industry-recognized insurance reviewers. These agencies use rigorous, proprietary techniques and processes to assess an insurance company's financial health and claims-paying ability. The ratings consider a variety of financial metrics, including capital reserves, asset quality, profitability, operational performance, and liquidity. For instance, AM Best evaluates insurance companies based on their financial strength and ability to pay out claims, while Standard & Poor's rates a company's fiscal soundness and its ability to pay claims.
The ratings help determine an insurer's ability to meet its financial obligations and handle claims. A good financial rating indicates that an insurance company is likely able to pay out claims, even during challenging economic periods or after a major catastrophe. This is crucial for policyholders, as they expect their insurance carriers to manage their financial resources wisely and be able to pay out claims efficiently, even during widespread disasters.
It is important to note that insurance company ratings are not a guarantee of an insurer's ability to pay claims. While financial strength is a critical parameter, other factors such as customer satisfaction and complaint indices also provide valuable insights into an insurer's overall performance and responsiveness to policyholder needs. Therefore, it is recommended to consider ratings from multiple agencies and other sources of information to make a comprehensive assessment of an insurance company's reliability.
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Credit ratings
Insurance company credit ratings are important because they indicate whether or not an insurer can be expected to pay claims. This is crucial as people and businesses depend on insurance companies to pay claims when they suffer an insured loss. Credit ratings are also important because they seek to prevent insurance company insolvency.
Credit rating agencies rate insurance companies based on their financial strength and ability to pay policyholders' claims. They do not indicate how well an insurance company's securities are performing for investors. Credit ratings are considered an opinion, not a fact, and the same insurance company can receive different ratings from different rating agencies.
The four major insurance company rating agencies are Moody's, A.M. Best, Fitch, and Standard & Poor's. Each agency has its own rating scale, which may not equate to another company's rating scale, even when the ratings appear similar. For example, A.M. Best's highest insurance company credit rating is A++, meaning superior, while Fitch's is AAA for exceptionally strong, Moody's is Aaa for the highest quality, and Standard & Poor's is AAA for extremely strong.
A.M. Best is one of the better-known rating agencies for insurance carriers, but it is not the only one or the most accurate. A.M. Best is the most prevalent insurance-specific agency and the one most commonly used by major insurance companies. It evaluates insurance companies based on their financial strength and ability to pay out claims. A.M. Best's Financial Strength Rating (FSR) represents an insurance carrier's ability to meet policy and contractual obligations.
Fitch is one of the traditional "big three" raters, alongside Moody's and Standard & Poor's. Fitch has been in business since 1914, and its rating system ranges from AAA (the highest) to D (the lowest). Anything rated BBB and up is considered investment-grade, while anything rated BB or below is non-investment-grade.
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Frequently asked questions
Insurance company ratings are evaluations of insurance companies based on their financial strength and ability to pay out claims.
Insurance company ratings matter because they indicate an insurance company's solvency, financial strength, and ability to pay policyholder claims.
There are several third-party ratings organizations that offer trustworthy assessments of a carrier’s quality. The most common ones are AM Best, Standard & Poor’s, Moody’s and Demotech.
Companies like Fitch Ratings, the National Association for Insurance Commissioners (NAIC), J.D. Power, and the Better Business Bureau are also reputable sources for insurance ratings.
There is no right or wrong time to check an insurance company's ratings. However, shopping around for a new policy or when your policy renews annually are good times to review ratings and see how your carrier’s ratings have fluctuated.
