What Auto Insurance Company Ratings Mean Exactly

January 27, 2012

In order to accurately assess the financial strength of an auto insurer, consumers have the right to view auto insurance company ratings. Just as an auto insurance company will evaluate various factors pertaining to your financial history, so too should you evaluate them. The assessment of financial strength works both ways in the auto insurance industry, and both parties have an equal right to the information.

Different Ratings

There are several different ratings that apply to auto insurance companies. Depending on the rating, it can indicate financial weaknesses that a company might have or even that it is under regulatory supervision. Conversely, the highest ratings tell consumers that the company is financially sound and will have no problems paying out claims. Ratings can be found by either calling the insurance company or, better, by calling an insurance rating agency. The agency has no conflict of interest. They simply keep track of and provide the information to consumers. One thing to remember is that a company's rating can be bought and/or removed at their request. In other words, the rating system is one without teeth. There are regulatory agencies that keep track of an insurer's financial status, but an insurer can opt out if their forecast is grim. Fortunately, there are ways to spot this sort of behavior.

AAA

A triple A rating is, as can be expected, the best possible rating for an insurance company to possess. AAA tells the consumer that the company is financially secure and has the ability to pay out any and all claims made against it. If you see AAA, you can rest assured that the company is sound and protected against the ups and downs of finance.

BBB

Definitely not as sound as an AAA rating, BBB tells that there is some financial risk inherent in the company. Largely, however, the company is still in the black, and consumers should not worry that their premiums won't result in a payout should an accident happen.

CC

At this level, the financial risks are more evident. A CC rating means that the company might have trouble paying out even minor claims. For whatever reason, their finances are not in the best shape, and consumers might think twice about hiring this company to insure them.

R

R and NR ratings are two warning signs that should send potential customers towards the door. R indicates that the insurance company is under regulatory supervision by an outside agency. This tells you that the company is not financially sound and you should take your business elsewhere. NR indicates that an insurer has paid to have their rating removed because, more than likely, negative information has been published about the company. NR is just as problematic as R. Both should be avoided.

 

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