How A.M. Best Ratings Are Used In Automobile Insurance?
Insurance is a way of protection against financial loss. It’s a basic form of risk management, mostly used to mitigate against the possibility of an uncertain or contingent financial loss. In other words, insurance is all about “canceling out” potential losses by taking away or replacing them with potential replacements.
It’s a common misconception that insurance companies only insure against lost money. This couldn’t be further from the truth. They also insure against damage to property, personal and medical and to protect workers’ compensation from acts of nature and man. The latter is particularly important because insurance companies don’t just stand by their products and services, they also have to protect their own assets.
Insurance companies use several different methods of underwriting. While the underwriter will take into consideration the physical characteristics of the product, the demographic and experience information of the company, and the cost and payment history of the product or service sold, there are still other factors that go into the determination of insurance premiums. A big factor in insurance premiums is your health and age.
Health and age play major roles in determining premiums for a number of reasons. Older people generally have more health problems and have to deal with more chronic diseases. These diseases cause many problems for the insured, which causes insurers to charge higher premiums. Also, people who are overweight or have unhealthy habits like smoking and drinking are more likely to develop health problems in the future, which also increases the likelihood of high insurance premiums. In order to keep their overhead low, insurers often charge more premiums than healthier, less risky clients.
Claims experience is also another major deciding factor in premiums. If an insured party makes a claim against an insurer before the insurer has a chance to look into it, the insurer’s risk of loss is increased. Insurance companies sell these policies knowing that the policyholder may make a claim. In turn, the insurance marketer will increase premiums to cover their increased risk exposure. Also, a policyholder who makes frequent claims is considered a high risk client, and can expect to pay higher premiums than policyholders with a lower claim record.
Geico, like most other insurance companies, also uses several financial ratings comparison methods. The most common is A.M. Best, which publishes an annual Moody’s Investor’s rating for each insurer name rating. The rating is determined by a team of financial analysts, who consider both a company’s financial structure and its role in the economy as a whole. The method, however, is not without controversy.
According to critics of the A.M. Best rating system, the rating is too subjective and does not give a reliable comparison of insurance policies. Also, the criteria used by Moody’s to rank insurance policies are not specified and can vary from year to year. While a certain company with a high A.M. Best rating could be high risk, a company with lower ratings could be low risk. Also, Moody’s relies on revenue collected from policyholders rather than on premiums and therefore does not take into account the impact of policy claims.
Despite these points, the A.M. Best rating system has been widely used by many companies to determine their health and safety ratings. Some insurers with low ratings choose to drop out of the A.M. Best rankings, while some with higher ratings decide to remain in the top rankings. Many insurance policies, including many of those sold by Geico, are sold based on the A.M. Best rating systems. While many companies use these ratings, there are still many companies out there that do not use the system, due to their own need for a favorable rating in order to attract more clients and to invest their limited resources in their business. Therefore, a company that has consistently performed well in A.M. Best’s rankings may be an insurer worth considering for your next automobile insurance policy.