When shopping for any type of insurance policy, it’s important to consider the financial strength of the insurance companies themselves—after all, the whole point of buying insurance is having the peace of mind that you’ll have access to funds you’ve been promised when you need them. One way to assess an insurer’s financial health is by looking at their AM Best rating. Here’s how AM Best ratings work and why they matter for any prospective insurance buyers.
What are AM Best ratings?
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AM Best is a credit rating agency that specializes in rating insurance companies. Their ratings represent an independent opinion of an insurer’s financial strength, operating performance, and ability to meet its ongoing obligations to policyholders.
The AM Best rating scale runs from A++ (Superior) on the high end down to D (Poor) on the low end, with ratings from A++ to B+ considered “Secure” and ratings below that deemed “Vulnerable.” Some of the key factors AM Best analyzes include:
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Balance sheet strength (level of risks vs. capitalization)
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Operating performance (profitability, business profile)
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Business profile (diversification, operating strategy)
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Enterprise risk management
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Financial flexibility and liquidity
An insurance company with a high AM Best rating, such as A or A+, is considered to have a superior ability to meet its ongoing insurance policy and contract obligations. An insurer with a low rating like B or below may struggle to pay claims, especially during challenging economic periods.
Why do AM best ratings matter?
An insurance policy is a promise to pay covered claims and losses at some point in the future. If the insurance company doesn’t have the financial strength to fulfill that promise when you need them most, your coverage won’t provide the protection you expected. That’s why it’s crucial to select an insurer that has the resources and capital to reliably pay claims.
While AM Best ratings aren’t the only factor to consider when choosing an insurance company, they do provide a valuable independent assessment of an insurer’s financial strength and ability to meet its obligations. A high AM Best rating serves as validation that the insurance company is financially stable and well-positioned to pay claims. This can help give consumers more confidence in the protection provided by their policies.
When shopping for any type of insurance, take the time to research and understand the AM Best ratings of the companies you are evaluating. While price is certainly a key consideration, you’ll want to balance that with the financial strength ratings to select a stable, secure insurer that you can count on when you need to file a claim.