Ratings, company ratings, like those bestowed by Standards & Poors (S&P) and Moodys, often come up in discussion between advisers and insurers.

What's interesting about this discussion is it always seems to be about this company is rated better than that company. Without swearing too much, FFS, play the ball not the player.

In the 00's we had AIA running around with an AAA S&P rating. Touting use our products because we are better rated than everyone else. Then they rebranded to AIG in line with the wider global company. Then we had the 2008 crash, and they lost the AAA rating, along with hastily rebranding back to AIA, to distance themselves from the US issues.

I am not having a crack at AIA, more a case of an example of why investment grade ratings have very little to do with the security of your insurance policy. They're still here and are a good insurer in many respects.

Added to that, the S&P and Moodys businesses in the US were a key contributor to the global financial crisis, rating companies, stocks, and funds as investment grade, could or would rarely fail, when they were in fact junk, as it turned out.

Today we have a similar conversation going on around one of our newer insurers. The reality is all of our insurers started somewhere as new companies. Of course the rating companies are not going to give them an AAA rating off the back of the first 1-5 years of trading.

Sovereign in 1988 was the new player in the newly demutualized insurance market. Club Life, which became ING Life and now is OnePath Life was the same, and the name changes reflect the growing pains companies suffer along the way.

The Club Life story is one I will come back to shortly.

Whether the investment rating is AAA or B+, it is still in the category of secure. Looking at the information I have to hand only two insurers in the life/medical insurance space in New Zealand have a B rating of Fair, the rest are in the secure grading.

Where I am going on this is the rating of the insurance company frankly doesn't matter that much from a consumer perspective.

The key concerns and questions you should ask are:

• Does the policy I have cover the conditions and situations I need cover for?
• Does the insurer have a reasonable and positive attitude to paying claims?

The rest really is marketing fluff. The insurers have S&P ratings to provide a level of confidence that they have some independent verification of their financial stability and performance.

We also have the Financial Markets Authority (FMA) who oversees and licences insurance companies too. The FMA requires a level of financial stability and available capital to issue a license.

Though this also has its challenges, as we saw with AMI and Christchurch in 2012.

What these ratings and licenses do not convey is the underlying attitude of the company. In the case of AMI, the licensing process of the time did not dig into the reinsurance arrangements and management of the risk insurers carried. This has since changed with the approach the FMA takes with insurers.

For example, which would you prefer to deal with? 

• A rated company that is tough on claims and is difficult to deal with
• B+ rated company that has great engaging service and finds ways to pay claims

My money is on the latter; clients have better things to focus on than fighting with their insurer.

Now I am not saying that A rated companies have a poor attitude. Frankly Sovereign, currently our largest insurer and an A+ rated company, has a great attitude to claims and an excellent claims team.

Where the rub comes in is the policy you buy. It is fine to have a great insurer, well rated for stability and have a great attitude to claims. However, if the policy you hold doesn't cover the risk you need to be supported for, it is all worth nothing at the end of the day.

Back to the Club Life situation I mentioned previously.

The reality of the New Zealand market is it is a small market. It is competitive, relatively crowded by providers for the population base. As a result, the industry does not like to see the negative press.

Club Life had challenges in the early days; reinsurance support was withdrawn at short notice, resulting in difficult trading options for the business. ING stepped in and brought up the fledgeling company and renamed it. Then with the 2008 financial crisis, ANZ Bank acquired ING NZ and along with it ING Life and renamed it OnePath, the provider we know today.

The industry typically responds positively and takes the opportunity to grow through acquisition. The Sovereign insurance client book alone is made up of some 28 insurance companies that no longer exist, all of which had relatively smooth transitions to new brands.

So what's my point?

We have controls over the industry, both for the insurers and the advisers, with the controls on advisers and advice about to increase with further regulation.

The controls over the industry should give policy holders confidence that the policy they purchase will be secure with an insurer into the future, be it the same one they started with or another through acquisition.

With the combination of reinsurance and competition, policy holders have little to fear from challenges with insurers.

The focus needs to be on the advice you receive.

• Is the policy suitable to your needs?
• Is it well rated and is it a quality policy for the job intended?

As far as ratings go, this is where the focus on ratings in the insurance industry should be.

A crap product from a good company will always be a crap product. An excellent product from an average company will always respond better than the crap product in the long run.

The better product from the average company may have some niggles; there often are with any product from any provider, the point is having a point to argue rather than no cover, this is a far better position for you.

If you want to have a frank chat about your options and what the market looks like for your risk management, then give us a call, and we can show you why clients love to work with us.