The Financial Security of Your Insurance Company

 

When you begin looking for insurance, you’ve probably already developed some criteria that must be met. You know your maximum deductible, you’re aware of how much coverage you need, and you know the premium price that you’d like to pay. Have you thought to take a look at your insurance company’s financial rating? They are looking at yours.

Recently, A.M. Best, one of the most reliable rating institutions, downgraded Marshfield, Wisconsin’s McMillian-Warner Mutual Insurance Co. Previously, the company had held a rating of A- (Excellent) but dropped to a bbb+. The online journal reported that “A.M.Best said the rating actions reflect MWM’s trend of increasing underwriting and operation losses over the past five years, negative cash flow, declining risk-adjusted capitalization and policyholders’ surplus.”

Currently, the company is making a concentrated effort starting at management level to improve their rating. They’re working towards a more profitable state but only time can tell if their efforts will results in a better rating. It could go either way but if MCM experiences a decline in their profit, this can affect their policy holders in a negative way. You may be wondering why, after years of being out of school, grades still matter, especially to an insurance company and you. The financial security of an insurance company is important because it proves they have the money to pay if you file a large claim.

How Ratings Work

When A.M. Best assigns a specific rating to a company, it’s not done arbitrarily. They use the same criteria they’ve used for years and it’s continually garnered respected results. This criteria includes a company’s balance sheet strength, operating performance, and business profile. After a thorough review, the ratings company will assign a grade to a specific company. That can range anywhere from A++ , which is considered superior, to F (in liquidation) or S (suspended). The importance of these grades is not just to evaluate where the company currently stands but also where it might be headed.

Anyone that’s worked in a standard business model understands the importance of projections so that budgets can be set and standard operations can run smoothly. A.M. Best’s ratings also help project where a company might be headed and this is done by assigning an outlook to the company in addition to the grade. An outlook generally covers the next 12-36 months and can be positive, negative, or stable. With a company such as MWM, things can still take a turn in either direction but overall, their financial rating isn’t terrible. It could be much worse.

Choosing a Financially Secure Insurance Company

When it comes to choosing insurance, for some people, the bottom line is cost so they go with whatever the cheapest option is available. This can be a big mistake. It’s important to make sure that you aren’t overpaying for insurance but if finding the lowest price is the only thing you care about, you need to stop and think about why insurance is really so important.

Having the right auto insurance policy is going to protect your from a multitude of things that otherwise, you would have to pay for out of your own pocket. If money is of no concern to you, then having secure insurance may not be that important but it’s still the law. So when you start shopping for insurance, make sure you add the financial security of a company to your list of criteria.

Let’s look at an example. You bought insurance from a company that offered you a comprehensive policy for $200 less per year than any other major insurer could. Times were tight and you promised yourself that you’d do more research once you bought the policy but you just needed it so that you were obeying the law. A couple of years passed and you could never justify paying more for insurance, especially when it seemed like the prices just kept going up. Driving to work one day, you cause a major pileup that severely injures several people, kills two and causes public and personal damage. You are sued and several claims are filed against your liability and umbrella insurance.

Unfortunately, your insurance company is in serious financial trouble and about to go bankrupt. They cannot pay your claim and you just realized that your safety net had a huge hole it.

How to Check Ratings

Don’t let cost be the sole deciding factor in your insurance search. It’s very important but remember to look at the financial rating. A.M. Best isn’t the only recognized rating organization that independently reviews companies. Others like Standard & Poor and Moody’s Investor Service assign ratings as well. Visit these websites to learn what individual ratings mean. There will a wide range but as a good rule of thumb, you don’t want to buy insurance with any company whose grades is lower than an A. Check the outlook as well.

If you choose an insurer, it’s likely you’ll be with that particular company for several years so you need to make sure that they have a positive outlook.

If your insurance company resists telling you their financial security rating, that should raise a warning flag. Institutions normally publish their ratings and many will even add it to their personal website. Take a look at that and if you have any questions, your insurance agent should be willing to answer any questions. A good agent understands why financial security is important to you. It’s important to them too.

So if you’re starting to shop around for new insurance, look at companies’ financial rating to make sure you’ll be covered if you need to file a large claim. With the right amount of research, you can buy the best protection.

 

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