Car Insurance Company Ratings – What You Should Know

There are several websites and agencies that rate car insurance companies. Depending on which rating scale you consult, you may get very different pictures of how “good” your automobile insurance company is compared to others. Different rating scales measure different qualities, so it is always important to understand how insurance companies are being rated before relying on scores about your company.

Some rating agencies, such as J. D. Power and Associates, score automobile insurance companies on customer satisfaction. Each year, J. D. Power and Associates surveys thousands of customers from about thirty major automobile insurance companies and ranks the companies according to the results. J. D. Power uses a five-factor rating system, with customers responding to questions about “Overall Satisfaction,” “Policy Offerings,” “Talking with the Insurer,” “Pricing,” and “Billing and Payment.” These scores are compiled into an overall numerical score and ranked on a “Customer Satisfaction Index.” J. D. Power and Associates publishes this information each year, awarding the top-scoring company its gold medal for performance.

Another common rating system for automobile insurance companies is that used by A. M. Best to assess financial strength. A. M. Best scores automobile insurance companies based on their parent company’s overall financial strength as well as the automobile insurance division’s financial strength. Financial strength is evaluated through complicated mathematical formulas, but can generally be summarized as the ability of the company to withstand market pressures and economic downturns and to stay solvent and pay claims. A. M. Best gives scores from high to low based on these factors, and large companies tend to score higher than smaller ones using these factors. After a major claims event such as a hurricane, however, some companies may lose their A. M. Best high scores for a time until they recover financial stability.

Another company which ranks insurance companies by financial stability is Standard and Poor’s, commonly known as “S&P.” Standard and Poor’s is often referred to by various financial institutions as the standard for financial assessment, so a high S&P rating is often considered one of the best indicators of true financial stability and strength. Standard and Poor’s uses a variety of formulas and techniques to arrive at their ratings, but most hinge on the solvency of the company and its annual income and assets.

Other common raters of automobile insurance companies include Wiess Research, Duff & Phelps, and Moody’s. Each of these companies uses slightly different formulas to arrive at ratings, so each may have a different ranking for various individual companies. However, if a company appears consistently at a high level on various ranking scales, this is very good proof of overall financial strength.

Be careful of individual websites that purport to “rank” insurance companies in some form. These websites may actually receive payments to place certain companies in their rankings or to promote them in some way, so the information may not be unbiased. Furthermore, you will probably find that if you visit ten different websites, ten different companies will be ranked first, second, and so on. In order to avoid confusion, it is better to stay with rankings based on unbiased reviews by third-party companies.