Insurance Rating Services

One of the most important things you can do when choosing a health insurance company is to pick one that's financially secure. To help you in your decision, five major agencies rate the financial stability of insurance companies.

The ratings that agencies provide are objective, free, and easily accessible. Insurance ratings are based on financial data that insurers are required to report to the government, as well as information the insurance companies provide directly to the rating agencies. Most services post ratings on the Web or publish ratings books that you can find in libraries.

Unfortunately, deciphering the ratings is somewhat confusing, and rating systems vary from agency to agency. At first glance all ratings seem equal, like report cards with an "A" as the highest mark and a "C" for average. However, this is not the case. An insurance company touting an "A" rating could have some potential problems paying claims, while one with a "C" rating could be on the fast path to bankruptcy.

That's why you need to know what constitutes each agency's high ratings, and stick with insurers that consistently make the top tier.

• A.M. Best
  Unlike the other services, A.M. Best rates only insurance companies, and it rates the entire market. Top financial-strength ratings fall in the categories of superior (A++, A+) and excellent (A, A-).
• Standard & Poor's
  Highest financial-strength ratings are AAA (extremely strong) and AA (very strong). Standard & Poor's also designates certain companies as Security Circle insurers. These companies must rank in the top four categories for financial strength, submit to a comprehensive initial review, and undergo ongoing monitoring.
• Duff & Phelps
  This agency specializes in rating small- to medium-size insurers. Companies with a high claims-paying ability get marks of AAA, AA+, AA, and AA-. In addition to its ratings, Duff & Phelps' Solvency Seal identifies companies that have been in operation five years or longer, and show a strong long- and short-term capacity to pay claims.
• Moody's
  Moody's ratings cover global life, property and casualty, mortgage and title insurers and reinsurers, plus financial guarantors. Look for companies with financial strength ratings of Aaa (exceptional) or Aa (excellent).
• TheStreet.com
  This company sticks to a straight report-card-style rating system. Excellent financial strength ratings are A+, A, and A-. Call 800-289-9222 for more information.

In addition to the ratings, you should also look at how a company ranks across its entire range of services, and from agency to agency, to get a good idea of its overall financial stability. Ratings tell you only how able a company is to pay claims — not how willing. A personal referral or your agent's advice can help you get a feel for how quickly claims are settled. Another source is your state insurance department, because it collects complaints from consumers against their health carriers.

Still, many insurance companies do go unranked. This isn't necessarily cause for concern, but be sure you check with A.M. Best, because its ratings are the most comprehensive. If you see a questionable rating with A.M. Best, and the company you're considering isn't rated with the other services, it's a good idea to obtain a quote from another insurance company as well.