Ratings Changed

Has the Rating of Any of Your Carriers Changed?

by Curtis M. Pearsall, Vice President, Agents' Errors and Omissions Department

If you answer that question by saying "I don't know," then we need to talk. For many carriers the last soft market took a significant toll on their financial picture, and you can bet that most if not all of the various rating agencies will be evaluating those numbers to determine the rating for 2002. Every day, the new ratings are being published; in AM Best's case the books won't be out until the 3rd quarter,but you can access ratings via their website.

While I can appreciate that many agencies will not know the rating of their companies, I certainly hope that they care. After all, put yourself in the position of one of your clients. You place the business with an agent expecting that should you have a loss, the carrier will pay the claim. Logical assumption, isn't it? A loss occurs and you find out the company is insolvent. Trust me - you would not be very happy. Your customers rely on you and your staff to place them with companies that will be around should that loss occur. Show your professionalism and do the right thing.

A couple of tips:

Identify a point person in your office to periodically (at least once a quarter) check on the rating of your markets. This can be done by contacting the company (through the marketing rep) or by accessing the rating via the web.
Establish a criteria/guideline that you will only do business with carriers rated a certain level or higher (suggestion using the AM Best rating…go with at least an A-).
With the amount of activity going to the surplus lines marketplace, make sure you know the rating of the carriers on the proposals you get. If the wholesaler gives you a proposal involving an insurance company that you haven't heard of, ask the wholesaler for the rating. If they don't know it, I would consider not dealing with that wholesaler.
Don't rely on the Guaranty Fund. Periodically, I will get calls from customers asking me why I am so concerned about a particular company because if they fail, the Guaranty Fund will be there to pick up the pieces. The Guaranty Fund is certainly a plus, but it has its limitations. Typically, there are dollar limitations as well as some degree of date sensitivity regarding the date of the loss and the date of the insolvency.

Presuming that agents have done all of the above, there are definitely going to be situations where the rating of a carrier drops. What should be done in that situation? Obviously based on the magnitude of the drop and the actual rating assigned, strong consideration should be given to a professional level of communication to your customers. In this communication you should state the facts and issues accurately. Also, include some degree of detail of the rating organization and the meaning of the rating. To tell a customer that the company that they are insured with is now rated C- without telling them what this really means is not beneficial to anyone. The letter should also state that you would be pleased to provide them with a proposal from a carrier that is rated higher if they would like. Don't make the decision for them. This type of communication is going to be a major part of your defense should a loss occur involving a company that is insolvent.

Communiqué is published for our agent-customers for informational purposes only and is not intended to be, nor should it be relied upon as legal advice. Legal questions should be directed to your legal advisor.

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