Financial strength ratings of auto insurers

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
jalbert
Posts: 3929
Joined: Fri Apr 10, 2015 12:29 am

Financial strength ratings of auto insurers

Post by jalbert » Wed Jun 13, 2018 8:22 pm

I ran across the following data aggregated from AM Best on financial strength ratings of insurers one might consider for auto insurance. It is 2015 data, so not completely current, but I still found it useful.

Amongst the commonly considered insurers, it appears that Berkshire Hathaway, State Farm, Traveler’s, and USAA are the ones with A++ ratings. There no doubt may be others given the missing data in the list and insurers not in the list. Companies highlighted in blue have links showing the data. Market share and customer satisfaction data are also provided.

https://www.insure.com/car-insurance/la ... share.html
Risk is not a guarantor of return.

neilpilot
Posts: 1920
Joined: Fri Dec 04, 2015 1:46 pm
Location: Memphis area

Re: Financial strength ratings of auto insurers

Post by neilpilot » Wed Jun 13, 2018 8:32 pm

jalbert wrote:
Wed Jun 13, 2018 8:22 pm
I ran across the following data aggregated from AM Best on financial strength ratings of insurers one might consider for auto insurance. It is 2015 data, so not completely current, but I still found it useful.

Amongst the commonly considered insurers, it appears that Berkshire Hathaway, State Farm, Traveler’s, and USAA are the ones with A++ ratings. There no doubt may be others given the missing data in the list and insurers not in the list. Companies highlighted in blue have links showing the data. Market share and customer satisfaction data are also provided.

https://www.insure.com/car-insurance/la ... share.html
Financial strength is useful information if you plan to invest in an auto insurer. Not very useful in selecting the company you plan to insure your auto(s). I care much more about available coverage, lower premiums and claims service than the financial strength of my insurer.

Having said that, with GEICO it seems I have the lowest premiums and, as a bonus of questionable value, a financially strong underwriter.

jalbert
Posts: 3929
Joined: Fri Apr 10, 2015 12:29 am

Re: Financial strength ratings of auto insurers

Post by jalbert » Wed Jun 13, 2018 10:57 pm

Financial strength is what enables them to be capable of paying your claims if you need to file one.
Risk is not a guarantor of return.

neilpilot
Posts: 1920
Joined: Fri Dec 04, 2015 1:46 pm
Location: Memphis area

Re: Financial strength ratings of auto insurers

Post by neilpilot » Thu Jun 14, 2018 5:53 am

jalbert wrote:
Wed Jun 13, 2018 10:57 pm
Financial strength is what enables them to be capable of paying your claims if you need to file one.
In theory that’s correct, but in fact when has an auto policy not paid a claim due to underwriting financial issues? Maybe never.

User avatar
bottlecap
Posts: 5896
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: Financial strength ratings of auto insurers

Post by bottlecap » Thu Jun 14, 2018 6:48 am

jalbert wrote:
Wed Jun 13, 2018 10:57 pm
Financial strength is what enables them to be capable of paying your claims if you need to file one.
For your one claim to bankrupt an auto insurer, you'd have to crash into a nuclear plant and blow it up. At that point, auto insurance is the last of your problems!

JT

afan
Posts: 3923
Joined: Sun Jul 25, 2010 4:01 pm

Re: Financial strength ratings of auto insurers

Post by afan » Thu Jun 14, 2018 8:15 am

I can see financial strength mattering for the kind of insurance policy that you will keep for years or decades- say life insurance. Buy it while young and keep it through middle age. You want to count on the company being around.

For auto insurance many people switch to better deals every few years. So a company would have to go from solid to out of business quite quickly to catch a consumer. I don't know whether anyone has ever found their company failed, no or not enough state fund to support bankrupt insurers and got less than they were due as a result. If this happens it has to be rare.

We shop every few years on price and coverage and always end up with the company we have had for years.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

jlawrence01
Posts: 1426
Joined: Mon Feb 25, 2013 1:34 am
Location: Southern AZ

Re: Financial strength ratings of auto insurers

Post by jlawrence01 » Thu Jun 14, 2018 10:20 am

I am more interested in claims service when it comes to auto insurance. Given my experiences with State Farm insurance as an insured and GEICO as a claimant, I would rather stick with small insurance companies that emphasize good claims service. (e.g., Westfield, West Bend Mutual, Auto-Owners, etc.).

Rupert
Posts: 3811
Joined: Fri Aug 17, 2012 12:01 pm

Re: Financial strength ratings of auto insurers

Post by Rupert » Thu Jun 14, 2018 10:23 am

jalbert wrote:
Wed Jun 13, 2018 10:57 pm
Financial strength is what enables them to be capable of paying your claims if you need to file one.
Unless you're buying insurance from one of those sketchy companies that advertise late at night on basic cable television, I wouldn't worry about this.

Nate79
Posts: 3725
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Financial strength ratings of auto insurers

Post by Nate79 » Thu Jun 14, 2018 10:27 am

The only way I can image this is useful is if there is a major incident, such as a hurricane that causes very large amount of claims.

jbmitt
Posts: 339
Joined: Mon Jul 14, 2008 1:00 am

Re: Financial strength ratings of auto insurers

Post by jbmitt » Thu Jun 14, 2018 11:03 am

Almost all states have a state guaranty fund where each licensed carrier pays a percentage of premium for the fund to manage claims in the case of an insurer insolvency.

Insolvencies don't happen very often, and most policyholders and claimants get pretty close to what they are owed. Insurance companies are typically pretty conservative with their investments and are well reserved. They are also periodically monitored by state regulators for adequacy of reserving and methodology of calculating adverse development.

jalbert
Posts: 3929
Joined: Fri Apr 10, 2015 12:29 am

Re: Financial strength ratings of auto insurers

Post by jalbert » Thu Jun 14, 2018 10:02 pm

Most auto insurers also insure against other types of liabilities. The concern would be that your insurer becomes insolvent from a large exposure to, say a major earthquake or hurricane somewhere and as a result lacks the resources to cover a million dollar judgment in an auto liability lawsuit.
Risk is not a guarantor of return.

neilpilot
Posts: 1920
Joined: Fri Dec 04, 2015 1:46 pm
Location: Memphis area

Re: Financial strength ratings of auto insurers

Post by neilpilot » Thu Jun 14, 2018 10:20 pm

jalbert wrote:
Thu Jun 14, 2018 10:02 pm
Most auto insurers also insure against other types of liabilities. The concern would be that your insurer becomes insolvent from a large exposure to, say a major earthquake or hurricane somewhere and as a result lacks the resources to cover a million dollar judgment in an auto liability lawsuit.
Various posts have already discounted your concern. If you are still worried then use GEICO; they don’t write homeowners policies.

jalbert
Posts: 3929
Joined: Fri Apr 10, 2015 12:29 am

Re: Financial strength ratings of auto insurers

Post by jalbert » Fri Jun 15, 2018 1:35 am

Almost all states have a state guaranty fund where each licensed carrier pays a percentage of premium for the fund to manage claims in the case of an insurer insolvency.

Insolvencies don't happen very often, and most policyholders and claimants get pretty close to what they are owed. Insurance companies are typically pretty conservative with their investments and are well reserved. They are also periodically monitored by state regulators for adequacy of reserving and methodology of calculating adverse development.
State guaranty pools are typically limited to $250K/person/insurer. An auto policy with liability umbrella above it typically has a much higher limit, and even an auto-only policy can have a higher limit than that.

I agree that insurance company blowups are uncommon with large insurers with high ratings. I’ve looked at data on our state insurance division website and it is actually not so uncommon to see smaller insurance companies go into receivership. I probably would stick to A+ rated companies and above (ours happens to be A++ but that’s not why we chose it).

I might avoid a company like Farmers based on the rating and the fact that Farmers has been losing money. If I’m understanding the data correctly, their annual payout plus admin cost on auto insurance has been exceeding 100% of premiums.
Risk is not a guarantor of return.

Post Reply