1/C - Types of Insurers Flashcards
Government Insurers
Characteristics of social insurance:
- Non-profit
- Mandatory participation
- Benefits prescribed by law
- Designed to meet needs of general public
- Government has monopoly
Private Insurers
Characteristics of private insurers:
- Sell insurance based on consumer preferences
- Offer a wide variety of insurance products
- Typically exist to generate a profit or benefit a group
- Insured party voluntarily participates
Stock Insurance Companies
- Always for profit
- Usually publicly-traded
- Stockholders provide capital and participate in profits or losses
- “Non-participating” insurers: no dividends go to policyholders
Mutual Insurance Companies
- Owned by policyholders (no shareholders)
- Policyholders elect board of directors
- “Participating” insurers: policyholders participate in dividends
(Nationwide, New York Life and State Farm)
Re-insurers
An insurer that provides insurance for other insurers
Characteristics of reinsurance:
- The insurer buys insurance to reduce its exposure to loss
- The re-insurer pays a percentage of the insurer’s losses, or any losses over a certain amount
Reciprocal Insurers
A group of people or organizations that insure each other Characteristics of reciprocal insurers: - Unincorporated - Non-profit - Operated by an attorney-in-fact - Members pay into individual accounts - Cost of claims shared by whole group
Fraternal Benefit Societies
- Also called Fraternal Associations
- Non-profit, mutual aid organizations
- Engage in charitable activities
- Provide some types of insurance to members
- Typically consist of people with similar religions, ethnicities, or occupations
Fraternal Benefit Society Insurance
- Used to fund altruistic activities
- Must be assessable by law
- Members are both providers and recipients
- If claims payment ability is impaired, members help pay the difference
Self Insurers
Simply set aside money to protect against potential losses rather than pay premiums
Captive Insurers
- Created by businesses in order to retain risks
- Exist to provide insurance only for their “parent” company
- All profits belong to the parent company
- Permitted in some states
Risk Retention Groups
- Owned by their members who assume the risks and share profits
- Provide commercial liability insurance (other than workers’ compensation)
RRG History
Problem: starting in the 1970s, commercial liability became increasingly hard to find and premiums were becoming more expensive
Solution:
- Product Liability Risk Retention Act of 1981
- Federal Liability Risk Retention Act of 1986
- Authorized the use of RRGs so members could write their own liability coverage
RRG Requirements
- Members must be involved in similar business endeavors
- Do not need to be licensed in multiple states
Domestic, Foreign, Alien
Classification Based on Location
Insurance companies can be classified according to their location:
- Domestic Insurer
*located in a particular state, abides by that state’s laws
-Foreign Insurer
*obeys a state’s or U.S. laws, but can be located elsewhere
-Alien Insurer
*obeys laws of another country altogether
Surplus Lines Insurance
What happens when standard insurance doesn’t cover it?
Problem: people can be denied coverage by standard insurers for multiple reasons
Solution: surplus lines insurance
