07 May Have You Had a Carrier Downgraded?
This is the time of year when we can expect the various financial rating companies to review many of the various insurance companies and provide feedback, including an update on the financial rating. Already, there have been some significant downgrades, with more likely to follow.
First, agencies should have a process that alerts them to the downgrade. Don’t count on the carrier marketing person notifying you or reading it in some insurance periodical. Due to the number of carriers E&O Plus agencies typically have, more and more agencies are researching and selecting a technology platform to get this key timely information. Another key issue is ensuring that your agency management system can pull up a list of clients by carrier (including all companies within a specific group name). I presume it does, but it might be something worth verifying.
There is a good chance that for many of your clients, the downgrade may be in the middle of the policy term of your client’s coverage. A common question is, “So what should I do when this happens?”
Obviously, not all carrier downgrades are significant, and many may not require any action from the agency. For example, if a carrier goes from an AM Best rating of “A+” to “A,” other than being aware of the reduction, no further action is probably necessary. However, going from an “A” rating to a “B” is definitely of concern. I know that “B” was a good grade in high school/college, but an insurance carrier rated “B” is only considered “Fair” according to A.M. Best’s definition (B++ and B+ are considered “good”). A- (Excellent) is most agencies’ standard, and the E&O Plus suggested minimum acceptable rating.
E&O Plus recommends that when one of your carriers falls below “A-, “the client is notified. The downgrade can be to another letter grade (B, C, D, etc.), or the carrier may be assigned an “NR” rating. At times, this has resulted from the carrier accepting the letter grade assigned and instead choosing to go to an “NR rating.” This should be a significant cause for alarm that should prompt action.
So what should the letter to the client say? Something such as the following:
Dear Client,
This letter is to notify you that (XYZ Insurance Company), which provides your (list coverage), has been downgraded by A.M. Best from __ to __. A.M. Best is a leading provider of financial ratings for insurance carriers. The downgraded rating means (XYZ) no longer satisfies Name of Agency’s minimum financial strength requirements.
As a result, we will not be renewing your policy with (XYZ) when the policy’s term expires. At renewal, we will make a strong effort to place your coverage with another insurer that meets minimum financial strength guidelines.
We are not planning to cancel your policy with (XYZ) before the expiration of the policy’s term; however, we want you to know that your policy can be canceled midterm. If that is your desire, we will assist you in transferring your coverage to another insurer, and (XYZ) will adjust the premium for the remaining period of the current policy’s term.
If you would like to change insurers for your coverage before your current policy expires, please let us know immediately so we can explore other possible markets and advise you of the cost of purchasing a new insurance policy. The premium and coverage with the new insurer may not be at the same level (terms, conditions, pricing) as your current coverage. We will outline any differences for you.
We look forward to working with you to provide a new insurance contract now or effective at renewal.
If there is any verbal discussion regarding this matter, it is highly recommended that the verbal conversations be documented in the agency system and memorialized back to the client to ensure mutual understanding.
Hopefully, this will not happen to you, but in the event that it does, you will have a plan in place.