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What is Your Insurance Company's Financial Strength Rating?

What is Your Insurance Company's Financial Strength Rating?

When it comes to choosing your car insurance provider, there's a lot of factors that go into your decision. While your insurance rate and the company's history of service are always important, they shouldn't be the only factors you consider. In fact, there's one insurer aspect that everyone should be aware of before committing to a policy - the company's financial strength rating. These ratings are produced by independent companies and represent an insurer's overall financial strength and its ability to meet consumer contracts. Unfortunately, many consumers aren't aware of their own insurer's rating or how the rating scale works. Here we'll go over some of the ins and outs of the insurer financial strength rating system.

Why You Should Know Your Insurer's Rating

For consumers, knowing your insurer's financial strength rating can give you peace of mind and confidence in the company. Car insurance companies that have high financial strength ratings are typically very stable and should have no problem paying our insurance policy claims. Lenders make use of insurer ratings too, and are more likely to approve credit for those with a positive rating. A high rating also makes the company more attractive to potential investors, allowing the company to further grow and expand. In short, financial strength ratings give consumers the opportunity to make an educated decision about their insurance provider.

How It Works

Despite the importance of insurer ratings, many people are unaware of how to use them. Thankfully, the financial strength rating system is not complicated and everyone is capable of taking advantage of it. Car insurance companies are actually graded in a way that is very similar to the letter system in schools. In this system, the rating of "A++" is considered the absolute best and is usually the most difficult to achieve. Ratings of "A", "B+", or "B++" are still good scores, but not quite perfect. As you go down the scale, ratings like "C++" or "D" represent companies who have weak or poor financial strength. There are also a few other letter grades:

  • E - Under regulatory supervision
  • F - Currently in liquidation
  • S - Rating suspended

Rating Outlook of Insurance Company

Rating Outlook

Many financial strength ratings include a company outlook as well. This is meant to give consumers and investors a general idea of where the company is headed financially over the next year or two. Typically, outlooks are broken down into just 3 categories - positive, negative, and stable. A positive outlook means the insurer could potentially see their financial strength rating increase, if current market trends continue. Of course, a negative outlook means just the opposite. Should a company be regarded as stable, then its financial strength rating is not predicted to change in the near future. Obviously, you'd like your car insurance company's outlook to be positive if possible, but a stable rating is satisfactory if their financial strength is already high.