by Rating determining the amount of premium to be paid to insure or reinsure a risk. Guaranteed cost rates are fixed during the policy period. Loss sensitive rates are those that can be adjusted after the end of a policy period, based upon the insured’s actual loss experience.
Rated premium insurance is a policy that is the same as other policies but its rate is higher than the standard premium rate. When an insurance provider issues a rated policy, it means the underwriter has determined that the applicant presents a greater risk and therefore has a higher probability of filing a claim. The result of this risk is an additional premium.
The higher premium is the only thing that differentiates rated policies from non-rated policies. All the benefits remain the same and are not affected by the rating. Most types of insurance such as disability, life, health and long-term care have rated insurance policies.
Generally, ratings are made during the pre-qualification process. However, if an applicant was not adequately pre-qualified, he or she may receive an unexpected rating when the underwriter uncovers pertinent information that was not given by the applicant or the broker during the pre-qualification process.
In certain instances, the underwriter discovers information in the applicant’s medical records or new findings based on the lab results of an insurance medical exam that affects his or her rating. Unexpected ratings may also be given if new information surfaces during the formal underwriting process.
Different insurance companies have varying rating criteria. It is possible to get different classifications from different insurance companies. Getting multiple quotes for the client is also a good strategy because two comparable providers may interpret the client’s medical history differently.
The producer could recommend companies that use more liberal underwriting to avoid getting a rated policy or at least lower the rating. Some providers offer more competitive premiums for specific risks as well.
In addition, rated premium insurance may not be permanent. In some cases the insurance company will offer to remove the rating if the risk no longer exists. For example, the client stops engaging in high risk sports activities or has switched to a less dangerous job.
If the risk is due to a non-permanent health condition, the rated policy may be reduced or eliminated after the client shows good health and is symptom-free for a specified period. Quitting smoking may also have a beneficial effect on the cost of premium eventually since companies often offer lower rates to nonsmokers. Losing weight and adopting a healthy lifestyle may also favorably affect the client’s rating.
If the risk is due to alcoholism, the client may be upgraded to a standard policy if he or she remains alcohol-free and is in good health after five years of undergoing treatment from a rehabilitation center.
Long-Term Insurer Financial Strength Ratings
| Investment Grade | |
| AAA | The highest credit quality. Exceptional capacity for fulfilment of insurance obligations and most unlikely to be affected by any foreseeable adversity. Extremely strong financial condition and very positive non-financial factors. |
| AA | Very high financial strength. Very strong capacity for fulfilment of insurance obligations. Unlikely to have payment problems over the long term and unquestioned over the short and medium term. Adverse changes in business, economic and financial conditions are unlikely to affect the entity significantly. |
| A | High financial strength. Strong capacity for fulfilment of insurance obligations. Possesses many favourable financial security characteristics but may be slightly vulnerable to adverse changes in business, economic and financial conditions. |
| BBB | Good financial strength. Satisfactory capacity for fulfilment of insurance obligations. Acceptable financial security characteristics but some vulnerability to adverse changes in business, economic and financial conditions. Medium grade credit characteristics and the lowest investment grade category. |
| Speculative Grade | |
| BB | Speculative grade financial strength. Capacity for fulfilment of insurance obligations is vulnerable to adverse changes in internal or external circumstances. Financial and/or non-financial factors do not provide significant safeguard and the possibility of investment risk may develop. |
| B | Significant risk to financial strength. Capacity for fulfilment of insurance obligations is very vulnerable to adverse changes in internal or external circumstances. Financial and/or non-financial factors provide weak protection; high probability for investment risk exists. |
| C | Substantial risk to financial strength is apparent and the likelihood of default is high. Considerable uncertainty as to the payment of insurance obligations. Financial strength is of poor standing with financial and/or non-financial factors providing little protection. |
| RS | Regulatory supervision. The insurer is under the regulatory supervision of the authorities due to its weak financial condition. The likelihood of default is extremely high without continued external support. |
| SD | Selective default. The insurer has failed to service one or more class of insurance obligations, but CI believes that the default will be restricted in scope and that the insurer will continue honouring other obligations. |
| D | The insurer has defaulted on all, or nearly all, of its insurance obligations. A ‘D’ would also be assigned upon filing for bankruptcy or similar protection. |
Short-Term Insurer Financial Strength Ratings
| Investment Grade | |
| A1 | Superior financial strength. Highest capacity for the payment of short-term insurance obligations that is extremely unlikely to be affected by unexpected adversities. Institutions with a particularly strong credit profile have a “+” affixed to the rating. |
| A2 | Very strong capacity for payment of insurance obligations but may be affected slightly by unexpected adversities. |
| A3 | Strong capacity for payment of insurance obligations that may be affected by unexpected adversities. |
| Speculative Grade | |
| B | Adequate capacity for payment of insurance obligations that could be seriously affected by unexpected adversities. |
| C | Inadequate capacity for payment of insurance obligations if unexpected adversities are encountered in the short term. |
| RS | Regulatory supervision. The insurer is under the regulatory supervision of the authorities due to its weak financial condition. The likelihood of default is extremely high without continued external support. |
| SD | Selective default. The insurer has failed to service one or more class of insurance obligations, but CI believes that the default will be restricted in scope and that the insurer will continue honouring other obligations. |
| D | The insurer has defaulted on all, or nearly all, of its insurance obligations. A ‘D’ would also be assigned upon filing for bankruptcy or similar protection. |
Insurance Premiums
An insurance premium is the amount of money an individual or business pays for an insurance policy. Insurance premiums are paid for policies that cover healthcare, auto, home, and life insurance.
Once earned, the premium is income for the insurance company. It also represents a liability, as the insurer must provide coverage for claims being made against the policy. Failure to pay the premium on the part of the individual or the business may result in the cancellation of the policy.
An insurance premium is the amount of money an individual or business pays for an insurance policy. Insurance premiums are paid for policies that cover healthcare, auto, home, and life insurance.
Once earned, the premium is income for the insurance company. It also represents a liability, as the insurer must provide coverage for claims being made against the policy. Failure to pay the premium on the part of the individual or the business may result in the cancellation of the policy.
