How do you determine the financial strength of an insurance company?
The problem arises when you go looking for a companies financial strength. Where do you start? There are 4 main rating companies:
Rating services do not use a universal scale.
S&P and Fitch are the most closely related both using a similar scale (AAA, AA, A, BBB, BB, B, etc). They both use + and – as modifiers within their scale as well. Moody’s on the other hand uses a fairly similar scale (Aaa, Aa, A, Baa, Ba, B, etc) but their modifiers are numeric with 1 being on the high end to 3 being on the low end. AM Best focuses a bit more on the + and – with their scale (A++, A+, A, A-, B++, B+, B, B-, etc). To access most of the sites and usually their rating scales or definitions you’ll also need to sign up. Yes, it’s free to do so but it’s just one more tedious step for someone doing the proper research.
There is a problem of crossover.
You look up your life insurance company or your disability insurance company and they are an A+. What does that mean? Well with AM Best it’s the second best rating you can get. That’s a superior rating. But if it’s S&P or Fitch it’s the fifth best rating you can get. With Moody’s that would probably be equivalent to an A1 rating. Of course it could be a problem if you mistook the superior rating of AM Best with the upper medium rating of Moody’s or the ‘credit may affect finance’ rating (that doesn’t sound too good) of S&P or Fitch.
To make matters worse, when you go online for an insurance quote they often won’t show you all the ratings. They might show you one or two and it’s up to you to understand what the rating is and put it in perspective. Insurance agents are notorious for this too. They will only show you the top rating. It is not unusual for life insurance company’s ratings to vary quite a bit from agency to agency.
Enter Comdex
The Comdex is not a rating system but is instead a composite of the ratings a company has received. The key here is that instead of focusing on the letter that is assigned to companies, Ebix Inc. focuses on the number or percentage of companies receiving each letter. They then correlate this into a percentile score on a scale from 1 to 100. The Comdex becomes a composite index that gives a company’s standing in relation to other companies that have been rated. It gives a universal scale on which to compare your life insurance and disability insurance providers.
I am unaware of any free or easy way that the public can access the Comdex system. But what you can do, is look up individual companies. Almost all insurance providers have information pertaining to their financial strength easily accessible on their websites, this will usually include a Comdex score. You can also request this information for your financial professional that you are working with. I have full access to the Comdex database. If you would like to learn more about a specific insurance company or how that company compares to other companies just ask and I will be happy to share that information with you.
To give you an example of how financial strengths might compare:
| Genworth Life Ins Co | AIG | MassMutual | Prudential Ins Co of Amer | ReliaStar Life – ING | MEGA Life & Health | |
| AM Best | A (3) | A (3) | A++ (1) | A+ (2) | A (3) | B++ (5) |
| S & P | A (6) | A+ (5) | AA+ (2) | AA- (4) | A+ (5) | BBB- (10) |
| Moody’s | A2 (6) | A1 (5) | Aa2 (3) | A2 (6) | A2 (6) | |
| Fitch | A- (7) | A- (7) | AAA (1) | A+ (5) | A- (7) | BBB+ (8) |
| Comdex | 78 | 83 | 98 | 88 | 80 | 54 |
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{ 5 comments… read them below or add one }
There is no free way to access Comdex, which is why my service takes financial ratings entered by agents and presents it on an easy 1-10 scale (shameless self-promotion). This is largely based on a report put out by the US General Accounting Office http://archive.gao.gov/t2pbat2/152669.pdf.
I would also offer that TheStreet ratings (formerly Weiss), which are notoriously stricter than the others, does a really good job. http://www.thestreet.com/insurers/index.html
@Aaron
I haven’t got a chance yet to read through your link though I did see it was from a while ago and 34 pages. I will get to it. Help me understand the 1-10 scale versus using something such as Comdex. I feel as though the 1-10 scale may be manipulated more easily by insurance agents. From my understanding the strength of your website is to level the playing field for the shopper due to unethical insurance people. By using a scale the insurance guy puts in to qualify your quotes doesn’t that end up defeating the purpose?
TheStreet ratings are included in the Comdex results, I choose to exclude them from mention as a way to try and keep things simplier since the other rating agencies seem to get more attention.
We ask agents to enter the real financial rating from one of the five sources listed above. The more sources, the merrier. Then we push that data through an algorithm, based on the US GAO study, to represent any one or many financial ratings on a standardized 1-10 scale.
You’re right that our service does a great job of weeding out bad agents and eliminating practices that are not in favor of people looking for life insurance. The only way they could manipulate the 1-10 scale for financial rating is by entering incorrect data, which can get them barred from future opportunities.
We have a “no monkeying policy” that both people looking for life insurance quotes and agents agree to. It basically says if you lie or mislead anyone, we can kick you out. Fortunately, we haven’t had to make that decision yet.
It sounds to me that you have your own algorithm that you use? Why not just use Comdex ratings?
How does your algorithm or your oversight weigh a company such as SBLI? They don’t have a Comdex but yet are in the second best rating from AM Best. What scale would you give them? Is that a strong financial strength company or maybe just the next one to be owned by the state?
I definitely enjoy reading your blog but I can’t return the favor of comments. Why do you choose not to allow them? I’m interested into some of your recent claims.
Thanks for the comment @EoW. A lot of the answers have to do with the fact that Clarifinancial is a new company that is bootstrapped. Watching cash closely makes you come up with a lot of creative solutions.
We decided not to allow comments on the site because the whole thing is actually homegrown (to make the core quoting and comparing functionality work better). Adding comments to what looks like a blog would have meant hours more programming and figuring out ways to block spam without the benefit of plugins.
In the end, we decided not “own” the conversation by pushing it onto other platforms. You can always make comments on a Stumble or Delicious submission or @ me on Twitter. If that won’t do, our company’s email isn’t hard to find and we read everything we get.
Comdex would have been great, but there are two problems. One is that it isn’t cheap. The other is they do not rate all the companies out there, as you point out. That would be problematic because some companies like SBLI have a strong presence in the life insurance brokerage community.
If an agent entered an AM Best “A+” on our system, it would show as a “9″ out of 10 to the shopper. They would still have the option of seeing the actual rating entered under a “details” tab. Our goal isn’t to pass judgement on insurance companies, we just want to make comparing easy, objective, and comprehensive.
Hope that helps,
Aaron
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