1.2 Types of Insurrers Flashcards
Stock Insurance Company
A stock company is owned by stockholders or shareholders. Directors and officers direct the company operations and are elected by stockholders. Stockholders receive taxable corporate dividends as a return of profit when declared by the Directors.
• Dividends are not guaranteed.
• Traditionally, stock insurers issue Non–Participating policies.
Insurance Regulation at the State Level
The insurance industry is regulated primarily at the state level. The legislative branch writes and passes state insurance laws, or statutes, to protect the insuring public. The judicial branch is responsible for interpreting and determining the constitutionality of the statutes. The role of a state’s executive branch is to enforce the existing statutes that have been put in place. The Commissioner, Director, or Superintendent of Insurance is typically appointed by the Governor, and the Commissioner has the power to issue rules and regulations to help enforce these statutes.
Insurance Regulation at the Federal Level
The McCarran-Ferguson Act of 1945 determined that the federal government can not regulate insurance in areas over which states have the authority to do so. Congress created federal agencies to provide regulatory oversight impacting insurance practices. Government insurers step in (as a last resort) when private insurers are unable to provide protection relative to the catastrophic nature or unpredictability of a risk.
Private vs. Government Insurers
Most insurance is written through private insurers. However, there are instances where governmental-based insurers step in to offer an insurance alternative when private insurers are unable to provide protection. This usually relates to the catastrophic nature of the risk, capacity to handle the risk, and lack of desire to engage in a line of insurance where experience to evaluate necessary premium intake to offset potential loss is lacking.
Mutual Insurance Company
A mutual company is owned by policyholders (who may be referred to as members). 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.
• Dividends are not guaranteed.
• Mutual insurers typically issue Participating policies.
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. The exchange of insurance is affected through an Attorney-In-Fact.
Lloyds of London
Lloyds of London is not an insurance company, but consists of groups of underwriters called Syndicates, each of which specializes in insuring a particular type of risk. Lloyds provides a meeting place and clerical services for syndicate members who actually transact the business of insurance. Members are individually liable for each risk they assume. Coverage provided is underwritten by a syndicate manager, such as an attorney-in-fact or individual proprietor.
Fraternal Benefits Society
Usually organized on a non-profit basis, fraternal benefit societies are primarily social organizations that engage in charitable and benevolent activities that provide life and health insurance to their members. Membership typically consists of members of a given faith, lodge, order, or society.
Risk Retention Groups (RRGs)
Risk Retention Groups are group-owned insurers that primarily assume and spread the liability related risks of their members. RRGs are owned by their policyholders and licensed in at least one state. However, they may insure members of the group in other states. amusement parks, sating rinks,
Self-Insurer
To self-insure means to assume the financial risk one’s self. This is generally an option only for large companies who may even reinsure for risks above certain maximum limits.
