Why You Should Use AM Best Ratings Before Buying New Insurance
When purchasing any type of insurance policy, it is important to consider the financial strength of the insurance companies themselves—after all, the whole point of buying insurance is to be confident that you will have access to the funds promised. when you need them. One way to evaluate an insurer’s financial health is to look at its AM Best rating. Here’s how AM Best ratings work and why they’re important to potential insurance buyers.
What are the AM Best ratings?
AM Best is a credit rating agency specializing in ratings of insurance companies. Their ratings provide an independent opinion of an insurer’s financial strength, operating performance and ability to meet its ongoing obligations to policyholders.
AM Best’s rating scale ranges from A++ (Excellent) at the top tier to D (Poor) at the bottom, with ratings from A++ to B+ considered “Safe” and ratings below considered “Vulnerable.” Some of the key factors in AM Best analysis include:
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Balance sheet strength (risk level compared to capitalization)
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Operating indicators (profitability, business profile)
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Business profile (diversification, operational strategy)
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Management of risks
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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 superior ability to meet its current insurance policies and contract obligations. An insurer with a low rating, such as a B or lower, may have difficulty paying claims, especially during difficult economic times.
Why do top AM 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 capacity to deliver on that promise when you need it most, your insurance won’t provide the protection you expect. That’s why it’s important to choose an insurer that has the resources and capital to reliably pay your claims.
While AM Best ratings are not the only factor to consider when choosing an insurance company, they provide a valuable independent assessment of an insurer’s financial strength and ability to meet its obligations. A high AM Best rating confirms that the insurance company is financially stable and has a good ability to pay claims. This may help consumers have more confidence in the protection provided by their policy.
When purchasing 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 factor, you should balance it with financial strength ratings to choose a stable and reliable insurance company that you can count on when you need to file a claim.