Insurance Requirement Question - Best's Ratings
Posted by Cary White on Wed, Feb 09, 2011 @ 02:07 PM
A.M. Best Rating
While some require that all insurers be an Admitted insurer, a better gauge for determining the financial strength or an insurance company is likely the Best’s Credit Rating reported by A. M. Best Co. A.M. Best Co. was founded in 1899 and was the first independent rating agency in the world to evaluate and report on the financial strength of insurance companies. Best’s Ratings are recognized as the leading independent objective insurance company evaluating entity recognized by insurance professionals. Each insurance is subjected to the same rigorous criteria intended to assess their financial strength. A.M. Best then assigns each company three types of ratings: Best’s Financial Strength Ratings; Best’s Insurer Credit Ratings; and Best’s Debt Ratings. Every A.M. Best evaluation is an independent opinion, based on A.M. Best’s comprehensive quantitative and qualitative evaluations of a company’s balance sheet strength, operating performance and business profile. While no A.M. Best evaluation is a warranty of a company’s strength or ability to meets its obligations to policyholders or other financial obligations they are essential tools for insurance industry professionals and those that rely on insurance to weigh the strength of the insurance companies on which they rely.
Best’s Financial Strength Ratings are the most important to insurance certificate holders. Each Best’s Financial Strength Rating consists of a Financial Strength Rating and a Size Rating based on policyholder reserves. Best’s Financial Strength Ratings are easy to validate online or through your insurance certificate management software. Most insurance professionals suggest a minimum best rating of A- (Financial Strength) VII (Financial Size). Details about the Best’s Financial Strength Ratings can be found here.
Insurance Certificate Management Considerations
If you require Admitted insurance, you would need to check the admitted status of every insurer on every certificate for the subject state where the risk is located, not the state of the insured. Knowing that Nonadmitted insurance is a legitimate alternative to Admitted insurance for many classes of business, it would also stand to reason that you would have to have a uniform standard procedure for reviewing and approving Nonadmitted insurers and/or Gap insurers should the issue arise, which may include the review of each to determine if they are on the LESLI List or other list of approved Nonadmitted insurers. Clearly, this would likely require significant additional review and work than protection.
Because Nonadmitted insurance carriers play an important role inside and outside the California marketplace, certificate holders should require a minimum Best’s Rating for all insurers. This . They provide coverage that would be otherwise unavailable or with inferior limits. The buyer should be aware of market conditions and make sure that they are buying a policy from a reputable carrier by investigating the carrier’s AM Best financial rating (available online at www.ambest.com). Many insurance certificate management software systems include Best’s Ratings criteria to automate the review and management of these criteria.
Whether you require Admitted insurance or not, or a minimum Best’s Rating, it is essential that your insurance requirements specify that all insurers on every certificate be listed as they are listed by A.M. Best. Too often brokers and agents abbreviate the name of the insurer or list the group name. If the insurer is Lexington Insurance Company, that is what should be put not American International Group or AIG. Likewise, Navigators could mean Navigators Insurance Company or Navigators Specialty Insurance Company of which one is Admitted and the other is Nonadmitted.