19 Apr Has the Rating of Any of Your Carriers Dropped?
This is the time of year when there is typically more news regarding carrier ratings as rating agencies review the 2021 financials of most P&C and L&H carriers. Already, there have been some announcements dealing with carriers doing business in Florida, with some of those detailing drops in carrier ratings and carriers essentially going into liquidation. Are these isolated issues, or is more troubling news to come? We should know over the next couple of months.
While historically, every year, there always seem to be some carriers whose rating drops, the downgrade may be minimal (A++ to A+). However, there is a likelihood that a carrier will drop from one letter grade to another. Is it possible one of your carriers could see its rating drop over the next few months? If so, how will you know? Agencies must have a reliable method to identify these carriers. Don’t count on the carrier field rep/underwriter notifying you because this rarely happens.
It is certainly suggested each agency should have a minimum financial rating for those carriers they do business with, and virtually all E&O Plus agencies have such a standard. Often, that minimum rating is A-, the bottom of the range of carriers labeled “Excellent.”
Without a doubt, identifying the rating of your carriers on an ongoing basis can be a time-consuming task, especially if the agency represents 50+ carriers. For this reason, it is best to use some level of technology to monitor this important issue. Several E&O Plus agencies use one platform I have heard of called ALIRT. Based on their website, “ALIRT Research models and analyzes insurance companies’ relative financial performance trends across three industry sectors: Life/Annuity, Property & Casualty, and Health/Employee Benefits.” If you don’t have a technology platform currently to do this analysis, you may want to check ALIRT to see if it is a good fit.
One of the trickier issues you may face deals with carriers with an NR rating or carriers that are not even rated by some of the various rating agencies (AM Best, Demotech, S&P, Moody’s, etc.). For example, an AM Best rating of NR-3 essentially means “Rating Procedure Not Applicable.” This could be the result of the type of business written by the carrier or the limited number of states the carrier does business in. An NR rating is not an automatic “red flag,” although reviewing the carrier in more depth is probably a good idea. Since these carriers are not assigned a letter rating, it will be difficult to know if their financial position is deteriorating. A favorite expression of mine at corporate America was to know the trend “the minute it happens.” This is a wise approach when it comes to carrier financials. A proactive approach is always preferred to hopefully minimize the impact if one of your carriers is going in the wrong direction.
When the rating changes below a pre-determined level (for example, dropping from A to B), the agency should look to identify, via their agency system, the accounts with the specific carrier. Based on the level of the rating drop, serious consideration should be given to notifying these accounts of the rating drop and advising them that your agency can look to remarket the account to a carrier with a higher financial rating. This notification should be in the form of a letter, and the client should be provided options for them to consider. They may wish to stay with the same carrier because the premium is lower, or they may want your agency to provide them with quotes from other carriers. Bottom line, the client should be required to advise your agency in writing their desired direction.
This documentation will be very important if the carrier rating drops to a level where they are placed in receivership or declared insolvent.