Introduction: In this lesson, we will break down the various types of insurance companies and who they are owned by as well as how they conduct their business in order to be successful.
Stock Insurance Company
A stock insurance company is owned by stock or shareholders. In this type of company, directors and officers direct the company operations and are elected by stockholders. The objective of a stock company is to make a profit for the stockholders, and because of this, the policyholders do not directly share in the profits or losses of the company. To operate as a stock corporation, an insurer must have a minimum of capital and surplus on hand before receiving approval from state regulators.
Mutual Insurance Company A mutual company is owned by policyholders who may also be referred to as members. In a mutual insurance company, A Board of Trustees or Directors directs the company operations and is elected by policyholders. Policyholders receive non-taxable dividends as a return of unused premium when declared by the directors.
Reciprocal Insurance Company
A reciprocal insurance company is a group-owned insurer whose main activity is risk sharing. They are unincorporated and formed by individuals, firms, and business corporations that exchange insurance on one another. Each member is known as a subscriber. Each subscriber assumes a part of the risk of all other subscribers. If premiums collected are insufficient to pay losses, an assessment of additional premium can be made.
Management of a reciprocal exchange falls to the Attorney In Fact, a separate legal entity, who also holds power of attorney over the reciprocal. This individual, partnership or corporate entity issues policies, manage investments and attends to any claims.
Captive Insurance Company
A captive insurance company is a wholly owned subsidiary company that provides risk-mitigation services for its parent company or a group of related companies.
A captive insurance company may form if the parent company cannot find an outside firm to insure them against particular business risks; if the premiums paid to the captive insurer creates tax savings; or if the insurance provided is more affordable or offers better coverage for the parent company’s risks.
Lloyds of London
Lloyds of London is not an insurance company but rather a British insurance market where members join hands as syndicates to insure and spread risks of different businesses, organizations, and individuals. The syndicates are specialized in different types of risks and each syndicate decides which type of risk to insure. Its main purpose is to act as an intermediary between clients, underwriters, brokers, and insurance companies.
Fraternal Benefits Society
An organization of people who usually share a common ethnic, religious, or vocational affiliation. This type of society may provide insurance to its members which are primarily life insurance, and many are church-related. The most important thing to remember about these types of insurers is that their insureds are typically members of the society or religious body that is insuring them.
Risk Retention Groups (RRGs)
Risk Retention Groups are group-owned insurers that primarily assume and spread the liability related risks of their members. These groups are owned by their policyholders and licensed in at least one state. However, they may insure members of the group in other states.
The Group must be made up of a large number of homogeneous or similar units and membership is limited to risks with exposure to similar liability needs, such as theme parks, family attractions, or waterslides. The Group also must have sufficient liquid assets to meet loss obligations and each member assumes a portion of the risks insured.
Self-Insuring
Self-insuring is a risk management technique in which a company or individual sets aside a pool of money to be used to remedy an unexpected loss. Theoretically, one can self-insure against any type of loss. Practically, however, most people choose to purchase insurance against potentially large, infrequent losses. For example, most people choose to purchase auto insurance and health insurance from an insurance company rather than self-insure against car accidents or serious illness.
Reinsurance Companies
Reinsurance is insurance for insurance companies. It’s a way of transferring or “ceding” some of the financial risk insurance companies assume in insuring cars, homes, and businesses to another insurance company, the reinsurer. Reinsurance allows insurers to remain solvent by recovering some or all of amounts paid to claimants. Reinsurance reduces net liability on individual risks and catastrophe protection from large or multiple losses. It also provides ceding companies the capacity to increase their underwriting capabilities in terms of the number and size of risks.
Retrocessionaire
A Retrocessionaire is a reinsurance company that insures other reinsurers. Reinsurance companies cede risks to Retrocessionaires in order to reduce their net liability on individual risks. This helps them avoid catastrophic losses, stabilize financial ratios, and obtain additional underwriting capacity.
https://tela3.wpengine.com/wp-content/uploads/2018/08/logo.png00Christian Ramirezhttps://tela3.wpengine.com/wp-content/uploads/2018/08/logo.pngChristian Ramirez2018-05-22 11:53:512018-10-25 14:40:23Types of Insurance Companies
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