One of the most important factors when choosing an insurance company, is to check on its financial condition. The A.M. Best Company is the most widely recognized rating agency dedicated to the insurance industry. Best’s Ratings help with understanding the financial strength of an insurance company. The ratings range from A++ (Superior) down to D (below minimum standards).
In addition to the Best Ratings, you should also consider the implication of “admitted” and “non-admitted” insurance carriers.
Admitted companies, often referred to as standard carriers, are licensed to conduct business in a given state. To become an admitted carrier, an insurance company must comply with the state’s insurance requirements, including the filing approval of that companies’ coverage forms and rates. Admitted carriers are also part of that states insurance guarantee association. In other words, if an admitted company becomes insolvent, the state will help pay off policyholders’ claims, per its terms and limits. California’s guarantee association (CIGA) has three separate funds organized by line of business that cover: (1) workers’ compensation (2) homeowners / automobile claims (3) all other claims (i.e. liability). Claims and / or statutory benefits are limited to no more than $500,000.
“Non-Admitted” insurance companies are often referred to as an “excess and surplus line carrier” and operates in a state without going through the approval process required for admitted insurance companies. Non-Admitted carriers have more flexibility to write and design insurance policies. When “standard carriers” can not insure a risk, the non-admitted market is available to fill this gap. The designation as “non-admitted” should not be taken as an indication that these carriers are not financially stable. Non-Admitted carriers have to set aside a large monetary reserve or secure adequate re-insurance in order to do business in that state. Non-Admitted carriers are not part of a guaranty association. If a non admitted carrier becomes insolvent, the liquidator collects the remaining assets of the company and then determines how the assets will be dispersed subject to court approval.
It is important to consider all factors when purchasing insurance. The priority should be to seek an insurance carrier that offers the insurance coverage that you need and has the financial strength to meet it’s obligations.
This is for informational purposes only. Consult your attorney regarding legal or compliance matters.