Laura Berry is a former State Farm insurance producer and insurance expert.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 18, 2021

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Car insurance ratings are intended to protect consumers who pay auto insurance companies. It would be a huge frustration to find that your insurance company can not pay your car insurance claim after an accident. The strength of your insurance carrier determines whether or not they will be able to pay your claim should an accident occur.

Most drivers don’t think to check the insurance ratings of an insurance company before purchasing a policy. They are more concerned with recognizing the name of the insurance company, and whether their rates are affordable.

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What are car insurance ratings?

Fortunately, as in other areas consumers are protected in the insurance industry. Car insurance is a necessary expense. The purpose for having it is to pay for major expenses that come up unexpectedly as a result of the risk of owning and driving a vehicle. When car insurance carriers enter the market to offer services, they must show their ability to fulfill their obligations to the subscribers they serve.

An insurance carrier receives grades A-F, and S for “Rating Suspended” if they are unauthorized to operate in a certain state. The stronger their position in the industry the higher the rating is. Most of the major companies are going to have a B, B+, A or A+ rating.

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What companies give car insurance ratings?

There are several companies that perform insurance industry ratings such as:

  • J.D. Powers and Associates
  • Standard and Poor’s
  • A.M. Best
  • Fitch Inc.

While A.M. Best and Fitch Inc. analyze the financial strength of an insurance company, J.D. Powers and Associates compile information through consumer surveys and other means to get feedback from the public as to the level of service, options, claims handling and satisfaction they receive doing business with them. Standard and Poor’s concentrate their efforts on credit and financial standings. A compilation of these factors determine the rate an insurance carrier receives.

How strong is your auto insurance carrier?

Most of us rely on reputation in choosing the short list of contenders for our business. This may not be the best way to guarantee the financial strength of our choices. With the state of the economy and the rate of bankruptcies among many companies, research will be worth the time and effort in the long run.

A couple of major insurance carriers had to apply for bailout money during the initial years of the economic depression. Consequently, subscribers were left to worry about their claims. A smaller outfit that may be found on the internet may charge less in premiums, but are they strong enough to settle their claims should a large number of them come in at once?

How do car insurance ratings affect my premiums?

While a company is building a name for itself, it may offer under market rates or incentives to attract your business. It takes a number of years before a company can build an A+ rating. This is something to consider when choosing a company strictly based on down payment and premiums.

The amount insurance companies end up having to pay in claims, advertising, and other expenses set the bar for what they can charge in premiums. Their money is usually invested back into the stock market for interest earning, but just like any business, they have their peak and valley seasons. During economic downturns adjustments have to be made to their everyday operations to stay afloat.

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How are car insurance rates determined?

Car insurance rates are determined by a system. A table is used to gauge credit scores in most states. Credit history gives the company an idea of how the member will pay their premiums. Zip codes are a huge consideration because it determines the likelihood of a claim filing.

Companies even take into consideration the pool of risk they take in accepting subscribers. Good drivers with good credit have a wider range of choices for an affordable premium. However, there are second rate insurance companies who are more likely to service the poor and minorities. They charge higher premiums based on demographics and how far they have to spread the risk.

Who regulates car insurance rates?

In addition to being state regulated with regard to policies and operating procedures, car insurance rates are regulated by the state government as well. Companies have to keep their rates comparable to the industry. They can not charge outrageous premiums because they feel like you have the money to pay it.

The law of supply and demand also keeps rates in check. This is what it means to be comparable to others in the industry. To find the best car insurance quotes in your town, enter your ZIP code now!