Insurance protects us against some of life’s risks. But how well has your insurance company protected itself against risk? That question is one reason why insurance companies are regulated and rated.
 
Your insurer must have the financial resources to pay if you suffer a loss. To assess the adequacy of these resources, three independent entities specialize in rating insurance companies, which are also regulated by state agencies.
 
The oldest of the rating services is the A.M. Best Company. It offers its opinion about each company’s ability to meet its obligations to its policyholders, and its other contractual obligations. It rates each company’s financial strength, credit-worthiness and debt load, and ranking among its competitors.
 
Best’s ratings look like grades on a report card: A through F, with pluses and minuses. The company says any grade from B-plus (“good”) up to A-plus-plus (“superior”) should be considered “secure.” A company rated from B to F is “vulnerable.”
 
Insurance companies like to mention A.M. Best ratings in their marketing. Be aware though that some people think Best tends to be “lenient” with its grades. This could favor the industry over consumers’ needs.
 
Three other companies, best known for rating corporate bonds, also assess insurance companies. These are Fitch Ratings Inc., Moody’s Investors Service and Standard & Poor’s Financial Services LLC. Their rating scales differ, but all have “secure” and “vulnerable” categories. An important qualifier: They charge companies to rate them.
 
Another company, Demotech Inc., specializes in rating property insurance companies. It rates “exceptional” or better companies as A, A-prime or A double-prime. Lower ratings are “Substantial” or “Moderate.”
 
Some people think Demotech’s ratings are somewhat misleading because a large percentage of the ratings they give are A or better. That is relevant here in coastal North Carolina, because many big companies, worried about huge claims from the next big hurricane, have backed away from windstorm coverage in our state. That has left much of the market to smaller companies that do not have A.M. Best ratings.
 
The third rater, Weiss Ratings, has a reputation for judging companies more stringently than its competition. Weiss grades “on the curve,” which some industry insiders consider unrealistic; assumes “worst-case scenarios;” and relies on computer analysis of companies’ public financial statements.
 
State licensing agencies, like North Carolina’s Department of Insurance, require companies to prove they have a certain level of assets to cover claims.
 
An Internet search may turn up useful information, including consumer complaints, news reports and actions by regulators. Finally, choosing a reputable insurance agency might be your best path to a sound insurance company.
 
Jim Moore is the president of James E. Moore Insurance Agency. Established in 1954, it has become one of the most trusted independent insurance agencies in North Carolina. The James E. Moore Insurance Agency is a family-owned business and offers homeowners, automobile, life and health, employee benefits, and commercial insurance products. For more information, call 910-256-5333 or visit the agency’s website at www.jamesemoore.com.