The Importance of Insurance Carrier Ratings
When looking for insurance, it’s easy to focus on coverage details, exclusions, and premiums. And while those are all important aspects of your policy, there’s another factor that is just as crucial: the financial strength of your insurance carrier. Why does this matter? Because no matter how comprehensive your policy is, it’s only as good as your carrier’s ability to fulfill it.
This is where carrier ratings come into play. These ratings, provided by independent rating agencies, measure an insurer’s financial health and ability to pay claims–even in difficult times like widespread natural disasters or economic downturns. Understanding these ratings can give you peace of mind, knowing your properties are covered by a reliable carrier. But not all rating systems are created equal.
AM Best
AM Best is widely recognized as the leading authority on insurance carrier ratings. Founded in 1899, Best has a long history of evaluating insurers based on their financial stability, creditworthiness, and claims-paying ability. Its ratings range from “A++” (Superior) to “S” (Suspended), with “B+” or better indicating a financially secure carrier. Insurers with these ratings have demonstrated strong financial resilience and the capacity to meet policyholder obligations even in high-stress scenarios.
For real estate investors, obtaining coverage underwritten by AM Best B+ or better rated carriers means peace of mind. These insurers are less likely to face financial insolvency or struggle during major claim surges, ensuring covered claims will be paid in a timely and reliable manner.
DemoTech
DemoTech, on the other hand, takes a more niche approach to carrier ratings. Founded in 1985, it primarily evaluates smaller insurers “based on their area of focus and execution of their business model rather than on financial size,” according to the company. While this methodology broadens the pool of rated carriers, it has led to skepticism in the industry. For example, Insurance Journal points out that “DemoTech’s ‘A’ financial stability ratings have long been considered to be roughly equivalent to AM Best’s ‘B’-level ratings.” This is concerning for those who prioritize financial strength and long-term stability as DemoTech’s criteria does not align with the stricter standards of AM Best.
Unrated Carriers & The Risks That Come with Them
An additional layer of risk comes from unrated carriers–insurers that carry no rating from agencies like AM Best or DemoTech. While these carriers may still be licensed and legally able to sell policies, the lack of rating means there’s no independent verification of their strength. Without a rating, it’s difficult to gauge whether an unrated carrier has the resources to pay claims, particularly during widespread or catastrophic events. Policyholders could unknowingly be taking on significant financial risk, relying on a carrier with unknown or unstable financial footing. In worst-case scenarios, an unrated carrier may become insolvent, leaving policyholders without coverage when they need it most.
Why Rating Systems Matter to You
When it comes to insurance, the agency you work with is just as important as the carriers they work with. Agencies that prioritize partnerships with financially secure carriers, such as those rated “B+” or better by AM Best, ensure their clients are protected by insurers with proven positive track records. Additionally, for the reasons listed above, some lenders require specific carrier ratings. Review your loan documents to ensure your policy meets lender requirements.
Working with an agency, like National Real Estate Insurance Group, that partners exclusively with financially stable AM Best highly rated insurers ensures your properties are in good hands. All of NREIG’s policies are underwritten by AM Best “A-” rated or better carriers.
Learn more about the responsibilities of NREIG and our insurance carrier partners here.