Probably the most reliable way to check the financial stability of an Insurance Company is by getting their financial rating and then understanding what that means. If an Insurance carrier company has strong financial health it is a measure of their ability to pay claims, particularly in times of catastrophe.
The balance small business website offers us a look at financial rating agencies to better understand how they work and why. The 5 top rating firms for Insurance Company ratings are:
The most prominent financial ratings agency for insurance carrier companies is A.M. Best, founded in 1899.They are in over 100 countries. Their requirements for the A rating are quite strict and stringent.
When many of the mortgage brokers began requiring their customers to place homeowners insurance policies with A rated insurance carrier companies many of the smaller insurance carrier companies found themselves unable to satisfy the A.M. Best A rating as their financials were not strong enough. A.M. Best assesses their rating based on these 5 items:
In 1985 a firm called Demotech entered the arena to enable smaller insurance carriers not able to obtain the A.M. Best A Rating, to still get an A by requiring lesser financial strength markers. Not all rating agencies are the same as they certainly have different rating scales and criteria. Demotech develops their ratings by focusing on:
To understand how financial ratings can matter, consider these 3 factors while reviewing a sample of how financial strength can change from year to year.
AANA provides a great case in point for how financial strength can go astray from one year to another. Hopefully, you will see that viewing the financial rating of insurance carriers before you buy their policy is worth doing.