The Importance of High Insurance Company Ratings
Based on rigorous qualitative and quantitative analysis of the company’s balance sheet, operating performance and volume of business, Insurance company ratings assess an insurance company’s financial performance by a third party. In the insurance sector, there are five major firms prevailing in the market today that provide authentic ratings. They are as follows:
These firms give financial strength ratings to health insurance carriers that also include traditional life / health insurance companies, health maintenance organizations (HMOs) and Blue Cross and Blue Shield plans. To reflect changes in the insurance market, the methodologies in determining the ratings are constantly updated.
This is very important since the insurance company market is volatile and faced with rising inflation, skyrocketing healthcare costs, thus making operating environments very unpredictable for health and life insurance companies. This means that at the time of calculating the price of the insurance policies, the insurance carriers may fail to anticipate a rise in healthcare costs. Hence, this cuts down company profits, ultimately causing severe financial losses to the company.
Apparently, due to the volatile characteristics of the insurance market, small insurance companies are affected the most. Due to market fluctuations, these small insurance companies with their limited resources are unable to respond quickly and efficiently, thus making them prone to financial damage.
How the Rating System Helps Consumers and Companies
To meet current financial obligations, the financial insurance company rating system helps consumers assess the financial status and abilities of insurance companies. The company rating has become an even more significant factor in an insurance buyer’s decision with increasing awareness among customers regarding the correlation between political and economic instabilities and the operations of a company. Since ratings build up a database comprising information regarding the financial status and performance of organizations globally, ratings empower a consumer to take an informed decision.
A financial rating by a well-known rating firm is part of its marketing strategy to gain customer confidence from a company’s viewpoint. Moreover, it sustains the company’s image before credible investors and helps move up the company’s stock value. Also, if investors are armed with a rating from an authentic rater like A.M. Best, it becomes relatively easier for them to enter the market.
There are several ways where small insurance companies also benefit from the insurance rating system. The best thing of such small companies is it gives them an idea of the financial strength and extent of operation of a particular insurer and helps them compare performances of various insurers. It also assists them evaluate reinsurance accounts in the future. The insurance agents decide which of the policies should be marketed in a broader way on the basis of ratings.
Check Ratings Now for Your Next Policy
On the basic philosophy of detection and prevention of insurer insolvency, the insurance company rating system is founded. It is important for you to check the rating of your insurer, if you are a policy holder. Companies with solid high ratings are in a much better financial position to comfortably disburse claims. Companies with low ratings means you have to do a thorough research before you buy an insurance policy from that company.
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ABOUT THE AUTHOR
Bill Jimson is a retired insurance professor who is avid about informing people about insurance. Learn more about how to compare insurance company ratings.