Insurance carrier rating: Overview, definition, and example
What is insurance carrier rating?
An insurance carrier rating is a score or grade given to an insurance company that reflects its financial strength and ability to pay out claims. These ratings are assigned by independent agencies—like A.M. Best, Moody’s, or Standard & Poor’s—and help businesses and individuals figure out whether an insurer is reliable.
In simple terms, it tells you how likely an insurance company is to still be standing—and paying—if something goes wrong.
Why is insurance carrier rating important?
If you’re entering into a contract that requires insurance—like leasing a property, hiring a contractor, or working with a vendor—you want to be sure that the insurance provider is financially stable. A highly rated insurance carrier is more likely to pay claims fully and on time.
That’s why many contracts include a clause requiring the other party to use an insurer with a minimum carrier rating—to protect everyone involved from the risk of a low-quality or unstable insurer.
If an insurer with a poor rating goes bankrupt or can’t pay claims, it can leave your business exposed to serious losses.
Understanding insurance carrier rating through an example
Imagine your company hires a contractor to renovate your office. Your agreement requires the contractor to carry general liability insurance with a provider rated at least “A-” by A.M. Best.
Why? Because if there’s property damage or injury during the project, you want to be sure the insurance company is strong enough to pay the claim. If the contractor used a no-name insurer with a poor rating, there’s a higher risk the claim would be denied or delayed—leaving you to pick up the tab.
An example of an insurance carrier rating clause
Here’s how this clause might appear in a contract:
“All insurance policies required under this Agreement shall be issued by insurance carriers with a minimum rating of A- or better by A.M. Best or an equivalent rating from another nationally recognized rating agency.”
Conclusion
Insurance carrier rating gives you a way to measure the reliability of an insurance provider. It’s a simple but powerful way to protect your business by ensuring that coverage is backed by a financially solid insurer.
If your contracts involve insurance—whether you’re requiring it or providing it—always check the carrier rating. It’s one of the easiest ways to reduce risk and make sure support is there when you need it most.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.