Downgrades of U.S. property & casualty insurers increased in 2023 compared to 2022, according to analysis by Gallagher Re. Its analysis found that several factors contributed to this increase, including social and economic inflation, climate and weather-related losses, supply chain-related delays and volatility in the investment market.

Gallagher Re's analysis found that between January 2022 and August 2023, there were 282 rating actions with 109 carriers experiencing 60 rating downgrades and 64 negative outlook changes; 15 experienced both. None of the issues behind these downgrades—and insolvencies, for that matter—seem to be going away anytime soon, which means that carrier ratings and downgrades must remain top of mind.

In the face of this chaotic time for the industry, insurance carrier ratings provide valuable insights into the financial strength, stability and reputation of insurers and help you when recommending coverage options to your clients.

Your customers rely on you to recommend financially sound carriers. High ratings from reputable rating agencies reassure clients of the carrier's ability to pay claims. Therefore, maintaining an up-to-date understanding of carrier ratings is crucial. Failing to stay informed about carrier rating changes and failing to act on changes in ratings can be the basis of an errors & omissions claim.

Here are eight strategies to stay up to date with insurance carrier ratings and avoid becoming collateral damage in the face of a carrier downgrade:

1) Regularly monitor rating agencies. Familiarize yourself with reputable rating agencies such as AM Best, Standard & Poor's, Moody's and Fitch Ratings. Regularly check their websites or subscribe to their newsletters for updates on insurance carrier ratings. Set up alerts for rating changes and reports on the rating agencies' websites.

2) Utilize industry resources. Access industry publications and websites that provide analysis and summaries of carrier ratings. Engage with professional associations, such as the National Association of Insurance Commissioners (NAIC), for updates.

3) Leverage technology. Use specialized software and platforms designed for insurance professionals that aggregate and provide real-time updates on carrier ratings. Implement customer relationship management (CRM) systems that integrate carrier rating data to streamline your workflow.

4) Maintain direct communication with carriers. Establish relationships with carrier representatives to receive firsthand information about their financial health and rating changes. Attend carrier-sponsored webinars, seminars and conferences to stay up to date on their performance and strategic changes.

5) Use your professional network. Stay engaged with the insurance industry by attending conferences, seminars and workshops. These events often feature sessions on industry trends, regulatory changes and updates on insurance carrier ratings. Professional associations offer access to resources, training and information about insurance carrier ratings. These associations often publish newsletters, reports and educational materials to help agents stay informed and compliant with industry standards.

6) Communicate with your clients. Educate your clients about the importance of insurance carrier ratings and how they can use them to make informed decisions about their coverage. Provide them with resources and guidance on how to interpret ratings and choose reputable insurers with strong financial standing.

7) Policy reviews. Regularly review existing policies in light of the most recent carrier ratings to ensure ongoing suitability for your clients' needs. Be proactive in suggesting alternatives if a carrier's rating declines significantly.

8) Document, document, document. Document all client interactions concerning carrier ratings to maintain transparency and protect yourself and your agency in the event of an E&O claim.

Even in this chaotic environment, by seizing the opportunity to employ these strategies, you will be prepared to effectively advise your clients and not only safeguard your clients' interests but do what is needed to protect yourself.

What to Do After a Carrier Downgrade

When you become aware of a carrier downgrade, promptly review all client files and determine which clients have policies with the downgraded carrier. If the downgrade affects the suitability of coverage for your clients' needs, inform all affected clients promptly and in writing. Swiss Re Corporate Solutions insureds and Big “I" members have access to sample client letters on the E&O Guardian risk management website.

Explain the implications of the downgrade, including the risks and how it may impact their coverage.

Also, be prepared to offer policy replacement options, if appropriate. However, in the hard market, this can be complicated by the lack of available markets in some situations.

Never decide on a customer's behalf to either move their coverage or leave it with the downgraded carrier. There is no right answer, but the customer must make the decision. Promptly remarketing coverage is especially critical if the carrier is placed in receivership or liquidation because you may have as little as 30 days to move their coverage.

Karen Thurlow is a claims expert employed by Swiss Re Corporate Solutions America Holding Corporation. Insurance products are underwritten by members of the Swiss Re group of companies (“Swiss Re").

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of Swiss Re and/or its subsidiaries and/or management and/or shareholders.