Types of Isurers

 The insurance industry is a huge financial industry with over a thousand insurance companies

operating in the United States today. Insurance companies are categorized according to how they

are organized and operated.

Stock Company

A stock insurer is owned by a group of stockholders who are not necessarily policyholders.

Shareholders or stockholders purchase shares of an insurance company’s stock. By owning company

stock, the stockholders are allowed to participate in company earnings. Similar to most other publicly

traded companies, if the insurer makes money, then the stockholders benefit with increased stock

values and stock dividends (not the same as mutual company surplus dividends).

In return, the shareholder pays taxes on those dividends as it is a return on their investment.

In most cases a stock company does not yield any direct surplus monies (dividends) to

policyholders, so they are considered a nonparticipating insurance company which issues

nonparticipating (nonpar) policies.

Mutual Companies

There are no stockholders in Mutual companies. Instead, the owners of a mutual insurance

company are the policyholders.

Mutual companies generally sell participating (par) policies that pay policy dividends to the

policyowner when declared by the company. Dividends are simply surplus company profits at year

end that the insurer divides up among the policyholders. The decision to pay dividends or not each

year rests with the company’s board of trustees.

Note that participating policies generally have somewhat higher premiums than nonparticipating 

policies due to an allowance for future dividends.

There are other possible forms for an insurance company to operate under. Let’s take a closer look

at a few more

Fraternal Benefit Societies

Fraternal societies have memberships based on religious, national, or ethnic affiliations. They are

well-known for their social, charitable, and benevolent activities. These companies primarily sell life

insurance.

Before you can purchase insurance from a fraternal company, you must become a member of the

fraternal organization. The membership application is normally completed along with the application

for insurance.

Fraternal societies are regulated somewhat differently from stock and mutual companies, but they

closely resemble mutual companies in their organization and operation. These societies are for the

benefit of their members, and have no stockholders, yet they pay dividends to policyholders.

Reciprocals

This is an unincorporated group of individuals or organizations (called subscribers) that agree to

pool their risks together for the purpose of paying losses and purchasing reinsurance. They are

managed by an attorney-in-fact--someone who is authorized to act for the group. Subscribers have

a responsibility for paying the losses of the reciprocal.

Risk Retention Groups

A Risk Retention Group will allow members who engage in similar or related business or activities to

write liability insurance for all or any portion of the exposures of group members.

For example, if liability insurance premiums for building contractors in a specific state go through

the roof, all the building contractors in that state may join together and form a RRG. Each of the

contractors will pay money into a common pool which would pay any liability claims filed against

any member contractor.

Lloyd’s Associations

Lloyd’s is the world’s best known, but probably least understood insurance brand. This is because

Lloyd’s is not an insurance company but rather a society of members, both corporate and

individual, who underwrite in syndicates on whose behalf professional underwriters accept risk.

Lloyd’s provides a meeting facility and administrative services to its members. Capital is provided

by investment institutions, specialist investors, international insurance companies, and individuals.

Together, the syndicates underwriting at Lloyd’s form one of the world’s largest commercial insurers

and a leading reinsurer

Lloyd's is best known for insuring most any risk for the right premium. Lloyd's underwriters have

agreed to insure everything from the first airplane to the legs of famous movie stars. From shipwrecks

and piracy to kidnap and ransom, Lloyd's can often find a way to cover those risks.

Private vs. Government Insurers

The federal and state governments provide social insurance programs in those areas where private

insurers either cannot or will not write insurance. The U.S. government is the largest insurer in the

world today.

Examples of government insurance programs include Social Security, Medicare, Medicaid, and

state worker’s compensation programs. Additionally, there are insurance programs available to the

military and their families such as Service members Group Life Insurance (SGLI) and Tricare.

Other coverages include the National Flood Insurance Program (NFIP) to help provide flood insurance

for catastrophic flood losses which insurers would not cover without government support.

Note that government insurance programs are primarily funded with taxes and serve national and

state public interest.

In comparing social insurance programs with private insurance, there are four primary areas

that differ:

1. Participation in government insurance programs is mandatory and automatic for all citizens.

2. The government does not provide benefits under an insurance contract or policy.

These benefits are in place as the result of the passage of certain laws. The only way to

change any of these benefits is to change the laws that affect them.

3. Social insurance programs are designed to be adequate enough to meet public needs

rather than equitable. As the government redistributes income through the system,

individuals who contribute the least amount into the system (the indigent, elderly, and

those with a large number of dependents) receive greater benefits.

4. The government has a clear and strong monopoly as an insurance provider

Authorized and Non-authorized Companies (Admitted and Non-admitted)

Beforeaninsurermaytransactbusinessinaspecificstate,theymustapplyforandreceiveaCertificate

of Authority from the Insurance Commissioner and meet the capital and surplus requirements

required by that state. Insurers who meet these financial requirements and are approved to transact

business in the state are considered authorized or admitted into the state as a legal insurer.

Those insurerswho have not been approved to do business inthe state are consideredunauthorized

or non-admitted.

Note that once a certificate of authority is issued, it belongs to the state rather than to the insurer.

Domicile

Domestic Company - This is the state where the insurer's home office is located. The insurer is

considered to be a domestic company in their home state.

Foreign Company - This is a state—other than the insurer's home state—where the insurer is

admitted to conduct business. The insurer is considered to be a foreign company in those states.

Alien Company - This is an insurer whose home office is located in a different country. Canada Life

would be an alien company in Colorado, or any other state