When you are shopping for insurance for your small business, one of your main concerns would be about differentiating a good insurance firm from a poor one. Firms that provide financial ratings for insurance companies can help you in your decision. There are five major agencies in the U.S that rate the financial stability of insurance companies.
These companies provide ratings that are objective, free, and easily accessible. The ratings are based on financial data that the insurers are required to report to the government as well as information the insurance companies provide directly to the rating agencies. You can find these ratings on the agencies' website or in books that are available in libraries. The agencies will typically require you to register on their site to access the ratings.
Insurance ratings, essentially, are letter grades just like those in school, with A being the best, followed by B, and so on. The rating system is not uniform and varies from agency to agency. Here's a list of the 5 agencies and their rating system:
• A.M. Best: A.M. Best is a full-service credit rating organization and rates the entire market of insurance companies. Top financial strength ratings fall in the categories of superior (A++, A+) and excellent (A, A-).
• Standard & Poor's: The ratings start from AAA for extremely strong, AA for very strong and so on. Standard & Poor's also chooses certain companies as Security Circle insurers. These companies must rank in the top four categories for financial strength, submit to a comprehensive initial review, and undergo ongoing monitoring.
• Duff & Phelps: This agency specializes in rating small- to medium-sized insurers. Companies get a rating of AAA, AA+, AA, and AA-. In addition to its ratings, Duff & Phelps' Solvency Seal identifies companies that have been in operation five years or longer, and their long and short-term capacity to pay claims.
• Moody's: Look for companies with financial strength ratings of Aaa (exceptional) or Aa (excellent).
• TheStreet.com: This Company rates in straight report-card-style system. Excellent financial strength ratings are A+, A, and A-.
In addition to the ratings, you should also look at how a company ranks across its entire range of services to get a good idea of its overall financial stability. The ratings tell you only how financially able a company is to pay claims, not whether it will actually do so.
While getting the scores from the ratings agencies is a good start, you should also talk to your insurance agent to get a feel of how quickly claims are settled. Another good source is the state insurance department, where information about complaints from consumers is recorded.
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