Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, December 20, 1993 TAG: 9312220252
SECTION: BUSINESS PAGE: A10 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
Consumers who are considering purchase of insurance usually are told to request a company's grade from one or more of the national rating companies.
The problem, however, is that the rating may not always be as good as it sounds.
A-plus, for instance, although it still denotes financial strength, is actually the second-best grade from A.M. Best, one of the rating firms. Its best grade for an insurance company is A-double plus.
But if the rating comes from Standard & Poor's, an A-plus grade is actually the fifth rung, from the top AAA.
Weiss Research, on the other hand, follows more of a school-like system with A-plus at the head of the class and is generally considered stingy about issuing a grade that high.
The accompanying chart shows the grading systems of the various rating agencies, so clip and save it if you are considering rating your insurance company's financial strength and switching your business to another company.
Most of the rating agencies give or sell their ratings to consumers who want to check the financial soundness of a company they are considering. Most also can provide more detailed information on a company.
This is important because people are relying on a private company to pay them potentially large amounts of money many years after the contract is written. There is no federal insurance to back up this protection as there is to guarantee money in a bank account.
Virginia, like most states, sponsors a program to protect its residents against failure of insurers. People are covered by their own state fund regardless of where the insurance company is based.
But there are two problems with this program:
There are limits on the amount of individual protection for life insurance and annuities.
Like most states, Virginia covers only up to $100,000 for cash value and up to $300,000 for death benefits.
Time of payout can also be an issue. The Federal Deposit Insurance Corp. pays off depositors at a failed bank within a few days of a closing. But coverage of an insolvent insurer would be financed through a levy on companies doing business in a state. That means the payout to policyholders could take years following a major failure.
In short, there is no existing and ready money in the state fund to cover an insurance company failure.
So it's better to choose a solid company up front. The cost of surrendering a cash value life insurance policy or an annuity is very high.
Here are the various sources for obtaining information about an insurance company.
The Virginia Corporation Commission has a hotline at (800) 552-7945. It's an automated system, meaning callers must punch telephone keys to reach the right department before talking to a person.
The commission will tell whether the company is licensed to do business in Virginia and whether, in the words of its spokeswoman, it is "fly-by-night." The state does not rate companies.
A.B. Best has the most complicated system. That's because you have to know the number that Best assigns to each insurer it rates.
You can get the number by consulting Best's Insurance Reports, which is kept by most libraries. That means it is best to read about the company there, then call for the latest rating.
Or, you can make a toll call to Best at (908) 439-2200 to ask for the company number.
Armed with the number, make a second call to (900) 555-2378. The fee for information from that number is $2.50 a minute, according to a Best spokeswoman. The average call lasts 1 to 1 1/2 minutes for each insurance company on which a rating is requested. Best will also provide a detailed report on companies for $20 per company. Like other rating services, it will accept credit cards as payment.
Standard & Poor's has a desk that will provide ratings on up to five companies for each call. The toll number is (212) 208-1527.
The agency also sells detailed reports on companies for $25 each. The number to call to order those reports is (212) 208-1592.
A spokeswoman said consumers should consider Standard & Poor's triple, double and single sets of letters rather than the nuances of pluses and minuses.
That's because insurers rated AAA through BBB are considered in the secure range although those in the lower grades could be the result of adverse economic conditions.
Insurance companies rated BB through CCC are in what Standard & Poor's calls the "vulnerable range."
Moody's also offers free ratings for a company on a toll line. The number is (212) 553-0377.
Moody's has no written reports for consumers. Its full-service, updated reports are aimed at commercial customers and cost several thousand dollars.
Weiss Research is supported entirely by its customers rather than by the companies it rates.
Weiss contends that makes the organization more objective. And it is also the most conservative so that a lower grade is not as bad from Weiss as from other agencies. It offers verbal ratings - a letter grade with its meaning - for $15 per insurer, which is charged to a credit card. The toll-free number is (800) 289-9222.
Callers can also buy a two-page report on an insurance company for $25 or a 19-page version with detailed information for $45.
Weiss sells a directory with safety designations for all companies at $189.
Memo: ***CORRECTION***