What Are Third-Party Rating Services?


What Are Third-Party Rating Services?

Third-party rating services exist to provide objective information about the performance indicators that matter to life insurance seekers. Differences between insurers are significant when the applicant has pre-existing health conditions, high risk factors or a need for jumbo life insurance policies.


Insurance Industry Integrity


Rating services are able to provide helpful insight concerning life insurance companies because of the existing regulatory processes that exist. Consumers should realize the importance of belief when the insurer holds a contract to pay significant sums of money to the beneficiaries on a life insurance policy. Trust is the basis for the entire relationship since the family’s financial future is based on the payout of the life insurance proceeds.


·         State regulations – All states have specific life insurance laws that all insurance companies must follow to receive a state license. Residents in the state will want to find an insurance company with an active life insurance license to underwrite policies. The license must be active and in good standing.

·         Complaint process – Formal complaints filed against life insurance companies are filed with the state where the issue occurred. Life insurance applicants are wise to investigate the existing complaints against selected insurance providers before applying.

·         Valuation reporting – Quarterly valuation reports are generated to reveal the levels of liquidity that exist in every insurance company. Third party rating services gather these important facts to determine the financial strength of each insurer. Accuracy in reporting is required to sustain the insurance licenses with the state.


Third-Party Rating Services


Insurance companies know that the information mentioned above will be used when the third-party rating services evaluate each provider. Actual statistics are used to create the following aspects of an insurer’s rating.


·         Rating system – Financial strength ratings are assigned to every insurance company from “A++,” which means Superior, down to “F” for insurers that are in liquidation. Consumers can trust the ratings since the objective gathering of information is the primary reason for the existence of the rating services.

·         Claims handling – Applicants should be aware of the ways in which an insurance company handles, or fails to handle, claims. Nothing is more important when the policyholder passes away and the survivors must deal with the insurance provider. Third party rating services evaluate each insurer’s approach to claims.

·         Customer service – Insurance companies employ various customer service models based on the approach to customer contact. Agent models create a personal approach, which is more expensive to deploy and maintain. Centralized customer service departments offer the least expensive approach where high-volume interaction favors the insurance company. Combinations are used in large insurance companies where agents complete sales and the claims department deals with policyholders.

·         Financial stability – As an industry, insurance providers value strong financial performance in every aspect of business. Careful calculations ensure that every policyholder will pay fair policy premiums while knowing the insurer will be in business for decades to come.


A.M. Best Company and the Big Three


The A.M. Best Company, founded in 1899, has been the insurance industry rating company for more than a century. Experts agree that the A.M. Best Company’s approach to rating an insurance company’s performance and future outlook is unmatched. As the industry specialist, life insurance applicants can trust this third-party rating service to provide objective information concerning insurance providers all around the world.


Three other rating services offer financial information about companies in all industries. The Fitch Group, Standard & Poors, or S&P, and Moody’s Investors Services watch the financial performance of insurance companies of all sizes. These companies are known as “the Big Three” because of their overlapping interest in stability across all industries. Investors look to these companies to determine if a company has a positive long-term outlook. Consumers are wise to investigate insurance companies whenever large numbers of claims have been paid to cover natural disasters.


Trust the Ratings


Reputation is the driving force behind all third-party rating services. Funds are provided from the insurance companies, but favoritism has never been a problem. Trusted ratings are essential for the rating services since one misstep could cause the demise of the company providing the ratings.


Consumers should realize that the level of regulation in the insurance industry is designed to establish strict guidelines of performance. Every dollar paid to an insurance company must be designated for a specific use. Cost of life insurance is restrained through careful underwriting practices. Accurate risk assessment ensures that each policy is assigned to a comparable class of policies. Rating services investigate insurance companies that begin to show signs of failure.

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