FIRE 309 Test 2
Branch manager
A company employee who is compensated by a combination of salary, bonus, and commissions related to the productivity of the office to which he or she is assigned.
Ceding commission
A fee paid by the reinsurer to the original insurer.
Risk retention group
A group that provides risk management and retention to a few players in the same industry who are too small to act on their own
Actuarial analysis
A highly specialized mathematic analysis that deals with the financial and risk aspects of insurance.
Mass
A major requirement for insurability is mass; that is, there must be large numbers of exposure units involved. For automobile insurance, there must be a large number of automobiles to insure. For life insurance, there must be a large number of persons to be insured
Fortuitous
A matter of chance.
Personal producing general agent
Agent who sells for one or more insurers, often with a higher-than-normal agent's commission and seldom hires other agents.
Independent agent
Agent who usually represents several companies, pays all agency expenses, is compensated on a commission plus bonus basis, and makes all decisions concerning how the agency operates.
Facultative arrangement
Arrangement in which both the primary insurer and the reinsurer retain full decision-making powers with respect to each insurance contract.
Discriminate
Classify exposures according to similar characteristics and expected loss.
Mortality curve
Curve that illustrates the relationship between age and the probability of death
Salaried representatives
Employees of the company.
Owns the x-date
Has the right to contact the customer when a policy is due for renewal.
Why is it necessary to discriminate in order to pool?
In order for the law of large numbers to work, the pooled exposures must have approximately the same probability of loss. In other words, the exposures need to be homogeneous (similar). Insurers, therefore, need to discriminate, or classify exposures according to expected loss.
Insured
Individual or entity who transfers risk to a third-party
What is the definition of insurance?
Insurance may be defined as a social device in which a group of individuals transfer risk to another party in such a way that the third party combines or pools all the risk exposures together.
Group insurance
Insurance provided by the employer for the benefit of employees or other groups that are created for reasons other than insurance.
Catastrophic loss
Loss that could imperil the insurer's solvency.
Engineering and loss control
Methods of prevention and reduction of loss whenever the efforts required are economically feasible.
Commercial insurance
Property/casualty insurance for businesses and other organizations
Nonproportional reinsurance
Reinsurance that obligates the reinsurer to pay losses when they exceed a designated threshold.
Excess-loss reinsurance
Reinsurance that requires the reinsurer to accept amounts of insurance that exceed the ceding insurer's retention limit.
Investment income
Returns from all the assets held by the insurers from both capital investment and from premiums.
Risk pooling
Sharing of losses by a large number of exposure units, or gathering similar risk exposure into one group
Mortality tables
Tables that indicate the percent of expected deaths for each age group.
Insurer assumes risk
The insurer promises to pay whatever loss may occur as long as it fits the description given in the policy and is not larger than the amount of insurance sold.
Underwriting
The process of evaluating risks, selecting which risks should be accepted, and identifying potential adverse selection.
Mass merchandising
The selling of insurance by mail, telephone, television, or e-mail.
Insurer
The third party that accepts the risk transferred by the insureds.
Service
The ultimate indicator upon which the quality of the product provided by insurance depends.
Catastrophe (cat) modeling
The use of computer technology to synthesize loss data, assess historical disaster statistics, incorporate risk features, and run event simulations as an aid in predicting future losses.
Redlining
When an insurer designates a geographical area in which it chooses not to provide insurance, or to provide it only at substantially higher prices.
Dependent loss
When loss to one exposure unit affects the probability of loss to another
Loss Development
the calculation of how amounts paid for losses increase (mature) over time for the purpose of future projection.
A risk perfectly suited for insurance would meet the following requirements:
• The number of similar exposure units is large. • The losses that occur are accidental. • A catastrophe cannot occur. • Losses are definite. • The probability distribution of losses can be determined. • The cost of coverage is economically feasible.
Excess and surplus lines insurance
Companies that provide coverages that are not available from licensed insurers.
Premium elements
The adjustments for various factors in life insurance premiums.
Key Takeaways from 7.2
The marketing function of insurance companies differs for life/health and property/casualty segments. Agents represent insurers and may work under a general agency or managerial arrangement and as independent agents or direct writers. Brokers represent insureds and place policies with appropriate insurers. Online marketing, mass merchandising campaigns, and financial planning are other methods of acquiring customers. Underwriting classifies insureds into risk categories to determine the appropriate rate.
Key Takeaways from 6.2:
• Insurance provides risk reduction through risk transfer and risk pooling. • The Law of Large Numbers makes insurance viable from the insurer's perspective. • Discrimination (or distinguishing among potential insureds) is necessary in order to create pools of similar insureds.
1. What are the various types of insurance corporate structures?
-Stock Insurers: Insurers created for the purpose of making a profit and maximizing the value of organization for the benefit of the owners. -Mutual Insurers: Insurers owned and controlled, in theory if not in practice, by their policyowners. -Lloyd´s of London: The oldest insurance organization in existence. -Captives: A company that provides insurance coverage to its parent company and other affiliated organizations. -Risk Retention Group: A group that provides risk management and retention to a few players in the same industry who are too small to act on their own. -Alternative Markets: Alternative markets are the markets of all self- insurance programs.
Captive insurance company
A company that provides insurance coverage to its parent company and other affiliated organizations
Insurance
A social device in which a group of individuals transfer risk to another party in such a way that the third party combines or pools all the risk together.
Wholesale broker
A specialized insurance broker who acts as an intermediary between a retail agent and an insurer
Exclusive agents
Agents permitted to represent only their company or a company in an affiliated group of insurance companies.
Why are insurers using credit scoring in their underwriting? In what areas is it possible to misjudge a potential insured when using credit scoring? What other underwriting criteria would you suggest replacing the credit-scoring criterion?
Although it seems obvious that insurance companies use credit scoring in their underwriting to check for an individual's ability to pay premiums, this is not the case. Rather, it's the strong relationship between credit scores and the likelihood of filing a claim that they analyze. E.g. someone who spends money recklessly is also likely to drive recklessly; someone who is lazy about making credit card payments is apt to be lazy about trimming a tree before it causes roof damage. However, using credit scores in this manner is discriminatory and inflexible. An individual's behavioral patterns cannot be judged by their credit scores. E.g. If an individual has poor credit score because he got laid off due to terrorism, that has nothing to with that individual laziness or ability to drive.
When does an actuary need to use his or her judgment in adjusting the loss development factors?
An actuary needs to use his or her judgment in adjusting the loss development factor of the last development month to ultimate development (from 84 months to ultimate in the previous question). This factor is not available to them from the original triangle of losses
Reinsurance
An arrangement by which an insurance company transfers all or a portion of its risk under a contract (or contracts) of insurance to another company.
General agent
An independent businessperson rather than an employee of the insurance company who is authorized by contract with the insurer to sell insurance in a specified territory.
Wholesale agent
An insurance agent who acts as an intermediary between a retail agent and an insurance company.
Retail agent
An insurance agent who acts as an intermediary between an insured and the insurance market place.
Producer
Another name for both agents and brokers.
Explain whether the following risks and perils are insurable by private insurers: a. A hailstorm that destroys your roof b. The life of an eighty-year-old man c. A flood d. Mold e. Biological warfare f. Dirty bombs
Answer: Yes, a hailstorm that destroys your roof is insurable peril because it is economically feasible. Answer: While most of the insurers would not insure an eight-year-old man, some insurers might. However, the person might have to pay face value or over for the policy i.e. if it's a $100,000 policy, the individual might have to pay $104,000. Policies of these kinds would only be beneficiary for the insurer. Answer: Private homeowner's insurance doesn't cover flood damage because it is a catastrophic loss. Flood damages are covered for by The National Flood Insurance Program (NFIP), which is a protection provided by the government. Answer: Molds are insurable because the number of similar exposure units is large and the cost of coverage is economically feasible. Answer: Biological warfare is not insurable because it is an "act of war" and would cause catastrophic losses. Answer: Dirty bombs are not insurable by private insurers because it can cause huge losses. However, government may provide insurance.
Treaty arrangement
Arrangement in which the original insurer is obligated to automatically reinsure any new underlying insurance contract that meets the terms of a prearranged treaty, and the reinsurer is obligated to accept certain responsibilities for the specified insurance.
Law of large numbers
As a sample of observations increased in size, the relative variation about the mean declines.
Direct writers
Companies that market insurance through exclusive agents.
Incurred but not reported (IBNR)
Estimated losses that insureds did not claim yet but are expected to materialize in the future.
Requirements for Insurability:
Flood: Large # of similar exposure units - Yes Accidental, uncontrollable - Yes Potentially catastrophic - Yes Definite losses - Yes Determinable probability distribution of losses - Yes Economically feasible - Depends Insurable? - No Fire: Large # of similar exposure units - Yes Accidental, uncontrollable - Yes Potentially catastrophic - No Definite losses - Yes Determinable probability distribution of losses - Yes Economically feasible - Depends Insurable? - Yes Disability: Large # of similar exposure units - Yes Accidental, uncontrollable - Yes Potentially catastrophic - No Definite losses - No Determinable probability distribution of losses - Yes Economically feasible - Depends Insurable? - Yes Terrorism: Large # of similar exposure units - No Accidental, uncontrollable - No (man-made, though not by the insured) Potentially catastrophic - Yes Definite losses - Yes Determinable probability distribution of losses - No Economically feasible - No Insurable? - No
Underwriter
Individual who decides whether to insure exposures on which applications for insurance are submitted.
Actuary
Individual who determines proper rates and reserves, certifies financial statements, participates in product development, and assists in overall management planning.
Financial planner
Individual who facilitates some insurance sales by serving as a consultant on financial matters, primarily to high-income clients.
Broker
Individual who solicits business from the insured and acts as the insured's legal agent when the business is placed with an insurer.
Why must insurance companies be concerned about the amount paid for a loss that occurred years ago?
Insurance companies need the amount paid for a loss that occurred years ago to conduct actuarial analysis, which is a highly specialized mathematic analysis that deals with the financial and risk aspects of insurance. Actuarial analysis takes past losses and projects them into the future to determine the reserves an insurer needs to keep and the rates to charge.
What are the benefits of insurance to individuals and to society?
Insurance is created by an insurer that, as a professional risk-bearer, assumes the financial aspect of risks transferred to it by insureds. This creates a sense of reduced anxiety to the individual and the society. The pooling of the risk leads to an overall reduction of risk in society because insurers' accuracy of prediction improves as the number of exposures increases. Our society has elected to provide certain levels of death, health, retirement, and unemployment insurance on an involuntary basis through governmental (federal and state) agencies. If we desire to supplement the benefit levels of social insurance or to buy property/casualty insurance, some of which is required, private insurers provide the protection.
life/health insurance
Insurance that covers exposures to the perils of death, medical expenses, disability, and old age.
Property/casualty
Insurance that covers property exposures such as direct and indirect losses of property caused by perils such as fire, windstorm, and theft.
Personal insurance
Insurance that is purchased by individuals and families for their risk needs. Such insurance includes life, health, disability, auto, homeowner, and long-term care.
Stock insurers
Insurers created for the purpose of making a profit and maximizing the value of the organization for the benefit of the owners.
Mutual insurers
Insurers owned and controlled, in theory if not in practice, by their policyowners.
Equal Credit Opportunity Act (ECOA)
Law requiring that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to learn the reasons if you ask within sixty days.
Incurred losses
Paid losses plus known, but not yet paid losses.
Premium
Payment the insurer receives in exchange for accepting or transferring a risk from the insured
Governmental risk pools
Pools formed for governmental entities to provide group self-insurance coverage.
Professor Kulp said, "Insurance works well for some exposures, to some extent for many, and not at all for others." Do you agree? Why or why not?
Professor Kulp was simply calling attention to the fact that how well insurance works as a method of handling risks depends upon the extent to which a risk meets the ideal requisites for insurability. If it meets all of these requisites, insurance will work well. If it meets some requisites but not others, insurance may work to some extent. Insurance against loss caused by sickness, for example, is difficult because sickness may be hard to identify. If I, as the insured, say I am sick and cannot work, you, as the insurer, may find it difficult to prove that I am wrong. On the other hand, insurance to cover the loss caused by a broken leg is easier to deal with because whether or not I have a broken leg can be objectively determined. There are some risks, of course, that fail to meet so many of the requisites for insurability that insurance won't work at all. The nuclear power plant risk is almost uninsurable for this reason. Probability of loss is difficult to calculate, there are not a large number of similar exposure units, and a catastrophic loss could occur.
Policyowners' Dividends
Profits shared by insurance policyholders or stockholders
Adverse selection
Situation in which a buyer knows information that a seller does not. In insurance adverse selection occurs when insurance is purchased more often by people and/ or organizations with higher-than-average expected losses and the premiums charged do not reflect that these are higher risk people in the pool.
What is adverse selection?
Situation in which a buyer knows information that a seller does not. In insurance adverse selection occurs when insurance is purchased more often by people and/ or organizations with higher-than-average expected losses and the premiums charged do not reflect that these are higher risk people in the pool.
Proportional (pro rata) reinsurance
Situation in which the reinsurer assumes a prespecified percentage of both premiums and losses.
How can small insurers survive without a large number of exposures?
Smaller insurers use the sharing of data that exists in the insurance industry. One such data collection and statistical analysis organization is the Insurance Services Office (ISO). In addition to being a statistical agent, this organization provides the uniform policy forms for the property/casualty industry (a small sample of these policies are in the appendixes at the end of the text).They might also focus on a specific insurance that the bigger companies doesn't provide, so that they can bring customers through that idea.
Advertising by the Independent Insurance Agents & Brokers of America extols the unique features of the American agency system and the independent agent. Its logo is the Big I. Does this advertising influence your choice of an agent? Do you prefer one type of agent to others? If so, why?
Some students may prefer exclusive agents, independent agents, and brokers according to the insurance policy. Some students may prefer independent agents, exclusive, salaried representatives and brokers according to their characteristics and what/whom they represent.
Would you rather shop for insurance on the Internet or call an agent?
Some students may prefer shopping for insurance on the Internet while other would prefer to call an agent. However, students should be able to substantiate their preference. Shopping from the Internet allows an individual to select an insurance product and compare the price and coverage. It, however, has the risk of fraud, and lack of clarity while choosing the policy. Calling an agent allows an individual to have a one-on-one conversation to clarify all the queries and to customize the policy according to the requirement. It, however, may provide limited choice of policies when compared to shopping from the Internet.
Assuming reinsurer
The company taking over the risk in a reinsurance arrangement.
Ceding insurer
The company transferring risk in a reinsurance arrangement.
Rate calculations
The computation of how much to charge for insurance coverage once the ultimate level of loss is estimated plus factors for taxes, expenses, and returns on investments.
Capital and surplus
The equivalent of equity on the balance sheet of any firm—the net worth of the firm, or assets minus liabilities
Similarity
The exposures to be insured and those observed for calculating the probability distributions must have similarities. The exposures assumed by insurers are not identical, no matter how carefully they may be selected. Nevertheless, the units in a group must be reasonably similar in characteristics if predictions about losses are to be accurate.
Why is the government involved in insurance, and what are the governmental insuring organizations listed in this section?
The government is involved in insurance to fill the gap of covering exposures that private insurers have not insured. For example, exposures like flood and terrorism. Some government insurance programs exist for political reason. These insurers generally compete with private insurers. The governmental insuring organizations listed in this section are: ● Federal Insuring Organizations: ○ Social Security Administration ○ Federal Deposit Insurance Corporation ○ National Credit Union Insurance Corporations ○ Securities Investor Protection Corporation ○ Federal Crop Insurance Corporation ○ Federal Crime Insurance Program ○ Fair Access to Insurance Requirements (FAIR) ○ National Flood Insurance Program ○ The Veterans Administration ○ Overseas Private Investment Corporation. ● State Insuring Organizations: ○ Unemployment compensation programs ○ Coverage in cases of insurance company failure ○ 18 states have funds to ensure workers compensation programs ○ Most states provide programs for temporary nonoccupational disability insurance, title insurance, or medical malpractice insurance. ○ Seven states along the Atlantic and Gulf coast provide property insurance for hurricane ○ The state of Maryland operates a fund to provide automobile liability insurance to Maryland damages motorists unable to buy it in the private market Several states have created health insurance pools to give undesirable individuals access to health insurance
What is the law of large numbers? Why do insurers rely on the law of large numbers?
The law of large numbers holds that, as a sample of observations increases in size, the relative variation about the mean declines. Insurance contains the elements of risk pooling and risk transfer. The risk pooling creates a large sample of risk exposures and, as the sample gets larger, the possibility of missing future loss predictions gets lower (the law of large numbers). If it were not for the law of large numbers, insurance would not exist. A risk manager (or insurance executive) uses the law of large numbers to estimate future outcomes for planning purposes. The larger the sample size, the lower the relative risk, everything else being equal. The pooling of many exposures gives the insurer a better prediction of future losses.
A risk that is perfectly suited for insurance would meet the following requirements:
The number of similar exposure units is large and each is independent of each other. The losses that occur are accidental or by chance. A catastrophic loss cannot occur. Losses are definite in time and measurable in loss size. The probability distribution of losses can be determined. The cost of coverage is economically feasible to provide and to buy
What does an underwriter do? Why is the underwriting function in an insurance company so important?
Underwriting is the process of classifying the potential insureds into the appropriate risk classification in order to charge the appropriate rate. An underwriter decides whether to insure exposures on which applications for insurance are submitted. They decide how much coverage the client should receive, how much they should pay for it, or whether to accept the risk and insure them. Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk. For the law of large numbers to work, the pooled exposures must have approximately the same probability of loss. In other words, the exposures need to be homogeneous (similar). Insurers, therefore, need to discriminate, or classify exposures according to expected loss. This is the function of underwriters, which make them very important for insurance companies.
Economically feasible
When the size of the possible loss must be significant to the insured and the cost of insurance must be small compared with the potential loss.
What is demutualization?
When top managers of a mutual company decide they need to raise capital, they may go through a process called demutualization. A mutual company undergoes the process of demutualization to convert into a stock company. In the last decade, there was an increase in the number of companies that decided to demutualize and become stock companies. Policyholders, who were owners of the mutual company, received shares in the stock company. Part of the motive was to provide top management with an additional avenue of income in the form of stock options in the company. The demutualization wave in the life insurance industry reached its peak in December 2001, when the large mutual insurer, Prudential, converted to a stock company. The decade between the mid-1990s and mid-2000s saw the demutualization of twenty-two life insurance companies: Unum, Equitable Life, Guarantee Mutual, State Mutual (First American Financial Life), Farm Family, Mutual of New York, Standard Insurance, Manulife, Mutual Life of Canada (Clarica), Canada Life, Industrial Alliance, John Hancock, Metropolitan Life, Sun Life of Canada, Central Life Assurance (AmerUs), Indianapolis Life, Phoenix Home Life, Principal Mutual, Anthem Life, Provident Mutual, Prudential, and General American Mutual Holding Company (which was sold to MetLife through its liquidation by the Missouri Department of Insurance).
Insurance requires a transfer of risk. Risk is uncertain variability of future outcomes. Does life insurance meet the ideal requisites of insurance when the insurance company is aware that death is a certainty?
Yes, life insurance meets the ideal requisites of insurance when the insurance company is aware that death is a certainty. Although death is certain, the time of death is not. The uncertain time of death is the risk that the insureds transfer when they buy life insurance.
Jack and Jill decide they cannot afford to buy auto insurance. They are in a class with 160 students, and they come up with the idea of sharing the automobile risk with the rest of the students. Their professor loves the idea and asks them to explain in detail how it will work. Pretend you are Jack and Jill. Explain to the class the following:
a. If you expect to have only three losses per year on average (frequency) for a total of $10,000 each loss (severity), what will be the cost of sharing these losses per student in the class? The total amount of loss each year = $10,000 * 3 = $30,000 The number of students in the class = 160 Therefore, The cost of sharing of loss per student = $30,000/160 = $187.5 Since the class has 160 students, you will try to convince the students to share only the losses that already occurred. If you are Jack, you will suggest to the students that it will cost each student only $187.5 a year based on the losses last year - much less than buying auto insurance in the open market. When students object by saying that some cars are more expensive than others and should be charged more, Jack may explain, that this experiment would not emulate an insurance company. The system will only assess the participants an equal amount of losses at the end of the year. b. Do you think you have enough exposures to predict only three losses a year? Explain. Because there needs to be a large number of exposures to truly be able to have accurate prediction of losses, the size of the class would not be large enough. With inability to have more certainty about the prediction of losses, it is likely that one catastrophic year such as a year with 30 losses and a cost of $1,875 per student would not work and collection would be impossible.
Hatch's furniture store has many perils that threaten its operation each day. Explain why each of the following perils may or may not be insurable. In each case, discuss possible exceptions to the general answer you have given.
a. The loss of merchandise because of theft when the thief is not caught and Hatch's cannot establish exactly when the loss occurred. The loss of merchandise due to theft may be insured because the losses are definite, economically feasible, accidental, and the probability distribution of losses can be determined. b. Injury to a customer when the store's delivery person backs the delivery truck into that customer while delivering a chair. This is insurable under the liability of the store for the bodily injury of others. There would not be any reason to have an exception. c. Injury to a customer when a sofa catches fire and burns the customer's living room. Discuss the fire damage to the customer's home as well as the customer's bodily injury. In this case, Hatch is not liable for any injury to the customer or for damage to the customer's home. However, these damages and injuries are insurable by the customer under the homeowners' insurance and/or health insurance. d. Injury to a customer's child who runs down an aisle in the store and falls. Injury to a customer's child in the store is insurable because it is an accidental event, it is economically feasible, and the probability distribution of losses can be determined. e. Mental suffering of a customer whose merchandise is not delivered on schedule. Mental suffering of a customer cannot be insured. Insurance helps to ease only financial stress
What types of insurance are available?
· Personal-is insurance that is purchased by individuals and families for their risk needs. · Group- insurance provided by the employer for the benefit of employees. · Commercial- Property/casualty insurance for businesses and other organization. · Life/Health- Insurance that covers exposures to the perils of death, medical expenses, disability, and old age. · Property/Casualty- Insurance that covers property exposures such as direct and indirect losses of property caused by perils such as fire, windstorm, and theft · Private or Government- Insurance is provided both by privately owned organizations and by state and federal agencies. Measured by premium income, the bulk of property/casualty insurance is provided by private insurers. · Voluntary or Involuntary- Most private insurance is purchased voluntarily, although some types, such as automobile insurance or insurance on mortgages and car loans, are required by law or contracts. In many states, the purchase of automobile liability insurance is mandatory, and if the car is financed, the lender requires property damage coverage.
What types of insurance exist? Describe the differences among them.
· Personal-is insurance that is purchased by individuals and families for their risk needs. · Group- insurance provided by the employer for the benefit of employees. · Commercial- Property/casualty insurance for businesses and other organization. · Life/Health- Insurance that covers exposures to the perils of death, medical expenses, disability, and old age. · Property/Casualty- Insurance that covers property exposures such as direct and indirect losses of property caused by perils such as fire, windstorm, and theft · Private or Government- Insurance is provided both by privately owned organizations and by state and federal agencies. Measured by premium income, the bulk of property/casualty insurance is provided by private insurers. · Voluntary or Involuntary- Most private insurance is purchased voluntarily, although some types, such as automobile insurance or insurance on mortgages and car loans, are required by law or contracts. In many states, the purchase of automobile liability insurance is mandatory, and if the car is financed, the lender requires property damage coverage.
What are the main organizational structures adopted by insurance companies?
· Stock Insurers: Organized in the same way as other privately owned organizations created for the purpose of making a profit and maximizing the value of the organization for the benefit of the owners. Individuals provide the operating capital for the company. Stock companies can be publicly traded in the stock markets or privately held. Stockholders receive dividends when a company is profitable. · Mutual Insurers: Owned and controlled, in theory if not in practice, by their policyowners. They have no stockholders and issue no capital stock. People become owners by purchasing an insurance policy from the mutual insurer. Profits are shared with owners as policyowners' dividends. Company officers are appointed by a board of directors that is, at least theoretically, elected by policyowners. The stated purpose of the organization is to provide low-cost insurance rather than to make a profit for stockholders.
Key Takeaways from 7.3
• Actuarial analysis is used to project past losses into the future to predict reserve needs and appropriate rates to charge. • Actuaries utilize loss development and mortality tables to aid in setting premium rates and establishing adequate reserves. • Several adjustments are reflected in insurance premiums: anticipated investment earnings, marketing/administrative costs, taxes, risk premium, and profit. • Insurers use catastrophe modeling to predict future losses. • A major component of insurance industry profits is investment income from the payment of premiums. • Investments are needed so that assets can cover insurers' significant liabilities (primarily loss reserves) while providing adequate capital and surplus.
Key Takeaways from 6.4:
• Insurance products can be sold to individuals (personal) or employers (group/commercial). • Insurance companies are classified as either life/health insurers or property/casualty insurers. • Insurance coverage may be provided by a private company or a government entity. • Some types of insurance are purchased voluntarily, while others are required. • Insurers can be structured as either stock or mutual companies. • Lloyd's of London is a global insurance exchange which sells excess and surplus lines insurance. • Other sources of insurance include: banks, captive insurers, risk retention groups, and public risk pools.
What are the various types of insurance companies?
● Insurance companies can be categorized by the insurers' corporate structure. The following are two corporate structures of insurers: o Stock insurers are organized in the same way as other privately owned corporations created for the purpose of making a profit and maximizing the value of the organization for the benefit of the owners. o Mutual insurers are owned and controlled, in theory if not in practice, by their policy owners. ● Captive insurance company is a company that provides insurance coverage to its parent company and other affiliated organizations. ● A risk retention group is a group that provides risk management and retention to a few players in the same industry who are too small to act on their own. ● Government Insuring Organizations o State Insuring Organizations o Federal Insuring Organizations