Properly pricing insurance policies is central to an insurer's ability to pay claims

The rapid rise in insurer insolvencies the industry has seen in recent years has left many policyholders with valid claims unpaid. However, an insurer can only do this if it is financially able. An insurer must act in good faith to pay promptly all claims that are legally owed under the insurance contract. A personal lines insurer might provide services to help high-net-worth individuals with everything from optimizing residential security to safely transporting valuables. While several organizations provide data that is useful in rating insurance policies, the two used most frequently by commercial lines insurers are the Insurance Services Office (ISO), which houses data for numerous commercial lines of insurance, and the National Council of Compensation Insurance (NCCI), which provides data on workers' compensation exposures.

In order to determine the appropriate rates to charge for various types of businesses and lines of insurance, a company typically analyzes its own detailed statistical claims and exposure experience, as well as data available from outside agencies. Insurer's with material legacy claims issues have greater demands on their capital than newer insurers with fresh capital. In this day and age, customers and brokers are also wise to inquire about the history of an insurer, being especially cognizant of "legacy" claims that might be lurking on an insurer's balance sheet from years past. The ratings bestowed by these agencies are an important gauge of an insurer's ability to fulfill its financial obligations to policyholders. Several agencies, including A.M. Best Company, rate the financial strength and claims-paying ability of insurers. Consequently, the strength of a company's balance sheet and capital base has become a more critical consideration and differentiator than ever before.