Government Ratings on Insurance Companies

From LoveToKnow Insurance

The issue of government ratings on insurance companies can be confusing for consumers and potentially controversial in some instances.

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Finding Government Ratings on Insurance Companies

Insurance regulation is a somewhat confusing and complex task with elements that are split between federal and state governments. Insurance regulation is intended to promote normal market competition while protecting insurance consumers from insurance scams and financially insecure companies. It also ensures that consumers receive the insurance benefits they've paid for. While offering ratings on insurance companies to consumers intuitively makes sense, federal and state agencies avoid offering public government ratings due a potential conflict of interest - the primary one being that insurance companies that are regulated could be forced into subscribing to the government rating service rather than the existing ones, essentially creating a ratings monopoly.

How Does the Insurance Ratings Process Work Today?

For the most part, the primary federal regulating organization is the National Association of Insurance Commissioners (NAIC). The NAIC mission statement is to assist state insurance regulators in protecting insurance consumers and promoting market competition within each state. The NAIC does provide a consumer information website called InsureU to promote consumer education about insurance companies. This website offers a "Consumer Information Source," which lets you search online for complaints and financial information about specific insurance companies. The financial information you can find includes:

Financial data from the previous year
Number of premiums
The company's total assets
The company's total liabilities

For the most part, looking at an insurance company's assets and liabilities provides a good picture of the financial health of the company, but insurance company financial stability "ratings" are conspicuously absent from the NAIC site. This is because, for the most part, rating insurance companies is left to the major private insurance ratings firms - A.M. Best, Fitch Ratings, Moody's Investors Service, Standard & Poor and Wiess.

Insurance Company Ratings - Are they All Equal?

Most government and state websites, when referring to insurance ratings, will refer consumers to one of the major private ratings firms.

If you're unsure which rating firm to trust, consider that in 1994, the U.S. General Accounting Office (GAO) published a briefing report for the House of Representatives that compared the life and health insurance ratings of these private agencies. The report results were revealing.

Rating scales varied quite a bit from agency to agency because there is no common "grading system" for insurance companies.
Weiss was the only firm that didn't rely as heavily on "analysts' judgment."
Weiss rated more insurers than all other agencies.
Weiss and Moody were more willing to score insurance companies lower on the scale.

Most significantly, whenever the various rating firms disagreed on "vulnerable" classification for an insurer, Weiss typically went with "vulnerable." What this suggests is that, of all rating agencies, Weiss is more likely to err on the side of protecting the consumer, rather than the insurance company.

Where To Learn More

If you're looking for more information on government ratings on insurance companies, the best place to start is with your own state insurance department website. If you don't know how to find it, just visit the NAIC U.S. map and click on your state. Almost every state offers consumers an information section that researches and compares insurance companies. By thoroughly researching your options, you can be sure to choose an insurance company that's financially sound and in good standing..

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