Importance of Health Insurance Company Rating

Beyond the simple rules of supply and demand, the health insurance industry is dominated by many critical factors. Government policies, the overall condition of the economy, bank rates ... all have their respective impacts on the performance and operations of insurance companies.

In this scenario, health insurance company rating firms have emerged with the objective of providing a constructive and focused evaluation of companies in order to detect and prevent insurer insolvency. Health insurance companies are supposed to meet long as well as short-term obligations of policyholders. That is why it is important for health insurance providers to maintain a consistent performance level. A health insurance company rating gives you the complete picture about the performance of a company.

In broad terms, a good health insurance company rating means the company is in a secure position and is able to pay claims to policyholders even in the long term. An insurance company with a high rating is expected to have large assets and reserves so that it has no trouble settling claims. There are many organizations that provide financial ratings for insurance companies, though the majors are A.M. Best, Standard and Poor's, Moody's Investors Service, Duff and Phelps, and Weiss Research.

The health insurance company rating is influenced by many factors, among them bad financial decisions, continuous losses, and mergers with other companies. The rating firms keep a tab on the ongoing processes of the company because the existing rating may fall due to any of the above factors. Thus, being rated by a renowned rating firm may have a mirror effect for your company. While a higher rating would help build a larger customer base, lower rates will help you focus on areas that require improvement.

Rating are vital important for any health insurance company. Ratings from authentic firms are like strategic tools to be used to earn customer confidence in areas like financial stability and services. A high rating is also a good marketing tool to tempt customers to reinvest. For a health insurance company that is planning to penetrate a new market, a rating is a useful tool for attracting new customers. Thus, ratings are a valuable resource for any health insurance company.

Often, health insurance companies must undertake comparative analyses between themselves and other players in the industry with regard to performance and financial stability, in which case ratings are a big help. Ratings also help companies evaluate prospective reinsurance accounts. Depending on a health insurance company rating, companies can take a decision on the introduction of particular product packages to the market.

In general, therefore, the financial status of a health insurance company is reflected through its rating. Different rating providers use different yardsticks to evaluate a company's worth. For example, A.M. Best uses financial strength as the main criterion for assigning a rating, while firms like Standard and Poor, Moody's and Fitch's found their ratings on the claims-paying ability of a company. In any case, ratings help companies realize their strengths as well as weaknesses.

In a nutshell, a health insurance company rating helps health insurance companies understand their comparative position in the industry, or where they stand with respect to their competitors. Even if a company is financially sound, it has to compare its performance with others. Simply put, a rating company makes the job of evaluation far easier.