by Ed Sneineh, Chicago Auto Insurance Specialist
The most common way of rating insurance companies is their financial strength. AM Best (ambest.com) is perhaps the most well known institution that has been rating insurance companies for over 100 years. Also in the same way there are Standard & Poor's [standardandpoors.com] and Fitch Ratings that do rate insurance carriers based on their financial strength.
JDPower [jdpower.com] is another institution that ranks several other organizations including insurance companies. This institution however does not rank the vast majority of insurance companies, especially local, small size insurers. One of the respected aspects that JD Powers rate insurers is by their "auto insurance claim rating."
High financial strength is related to the creditworthiness of the company, its financial strength and its ability to pay claims. The fact that the company has high credit rating (A or better per AM Best) is not an indication of good or bad claim paying practices. Actually with certain insurers, strong financial position could be the result of stringent claim paying practices. There has been some instances of insurers who had A rating with AM Best but had serious customer complaints and state disciplinary actions against them. On the other hand, there were some insurers who had a B rating but maintained very satisfactory claim paying practices with minimal customer complaints and no government disciplinary actions.
So what should consumer be concerned about, financial strength or claim paying practices?
The answer to this question depends on the following:
1. The Need. Clients should focus first on their need. If their insurance needs are met with coverage offered only by company C then they need to go with that company, regardless.
2. Amount of risk involved. If the amount of insurance coverage is significant then financial strength is more important than claim paying practices. For example, a property owner who wants to purchase a policy to cover her $3,000,000 property needs to worry more about the financial strength of the insurer. A student who qualifies for basic auto insurance because his MVR needs to worry more about the claim paying practices of the insurer when insuring his 5 year old Honda full coverage.
3. Price/ premium. There might be little or no differences between insurers who have A+ rating o A++ (with similar satisfactory claim paying practices). Affordability of the insurance plan should be of great importance when dealing with similar insurers who are slightly different in their financial rating.