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
Assessing and reporting on over 16,000 insurance companies worldwide, AM Best is widely recognized as the leading authority on property/casualty insurance carrier ratings. Best’s credit ratings are independent opinions regarding the creditworthiness of an insurer. Founded in 1899, Best has a long history of evaluating insurers based on a comprehensive evaluation of a company’s balance sheet strength, operating performance, business profile, and enterprise risk management. 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 in a timely manner, even in times of market stress.
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
Founded in 1985, Demotech provides ratings for small to mid-size regional and specialty insurers that may not be reviewed by other rating agencies. Their Financial Stability Ratings® (FSRs) are intended to indicate whether an insurer appears able to meet policyholder obligations under a variety of economic conditions. According to the company, Demotech’s methodology focuses on the strength of its balance sheet over time.
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.
