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Does your insurance carrier make the grade?

By Higginbotham on March 09 , 2016

Carrier Ratings

As a business owner, you carry the burden of responsibility to protect your company’s assets and keep the business financially sound. That takes a smart, proactive risk management strategy, including the right insurance coverage.

But before you decide which insurance coverage is right for your business, there’s one other crucial decision to make: which insurance carrier is right for you.

There’s no shortage of insurance carriers to pick from, and naturally, there are several factors to consider when choosing one to partner with. You want a carrier that has experience and expertise in your industry. You want an agent that understands your exposures and how to address them. And you want a partner that has the vision to see emerging trends and how those trends could impact your bottom line. It helps if the carrier is accessible and convenient to do business with.

But the very first thing you should consider is the carrier’s financial standing. Is the carrier financially sound and credit worthy? Does it have the financial resources to honor its obligations? What about in the long term? To answer those questions, companies turn to independent third-party evaluations such as A.M. Best’s Financial Strength Ratings.

The trusted standard

An insurance carrier’s A.M. Best rating is probably your best indicator of its financial health. The A.M. Best Company was founded over 100 years ago and is highly regarded as providing a benchmark for assessing the financial stability and credit worthiness of insurance carriers. In rating a carrier, A.M. Best completes a thorough review of the carrier’s financial statements, reinsurance, business plans and actuarial reporting, and it analyzes factors such as credit, interest rates, regulations and underwriting criteria. Then it gives the carrier a rating from A++ (Superior) to S (Rating Suspended) based on the carrier’s ability to meet ongoing insurance obligations. It also assigns Roman numeral designating the carrier’s financial size category, anywhere from I (less than $1 million) to XV (greater than $2 million).

Why does this matter to your business?

It’s pretty simple. You want to have confidence that the insurance carrier you choose has the resources to honor your insurance contract, pay claims as promised and be around to provide the protection you need down the road. And there have been plenty of shakeups in the insurance market in recent years:

  • In 2015, A.M. Best downgraded the rating for Lumbermen's Underwriting Alliance (LUA) from a B+ (Good) to E (Under Regulatory Supervision) after the Missouri Department of Insurance ordered the exchange to be placed under regulatory supervision due to a $22.5 million deficit.
  • In 2014, Freestone Insurance Company, formerly Dallas National Insurance Company, was ordered into receivership, eventually found insolvent, and ordered to be liquidated.

Choosing a carrier with an A.M. Best rating of A, A+, or A++ is the best way to ensure that you’re getting a financially healthy partner. Insurance brokers, agents, financial advisors, banks and other insurance professionals use these and other similar ratings to make crucial decisions about insurance carrier selection and investments. Even consumers have been using these ratings more and more in recent years to help them decide which insurance carriers to buy from. And keep in mind that having an insurance carrier that’s rated “A” or better is often required by contracts and state licensing authorities.

It doesn’t make much sense to buy an insurance policy from a carrier that won’t be around long. Evaluate the competition carefully, and make sure you choose an insurance partner that makes the grade. Fortunately, you don’t have to conduct this legwork alone – our team at Higginbotham is here to help.

Tags: Business Insurance, Employee Benefits

  
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