rmin chapter 5

Major Types of Private Insurers

• Stock Insurers

• Mutual Insurers

• Lloyd’s of London

Stock Insurer

corporation owned by stockholders

earn profit for stockholders by increasing the value of the stock and paying dividends (Allstate, Progressive)

Mutual Insurer

corporation owned by policyholders.

profits are distributed to policyholders by dividends or rate reductions.

Assessment Mutual (Type of Mutual Insurer)

Insurer has the right to assess policyholders an additional amount if the insurer’s financial operations are unfavorable

Advance Premium Mutual (Type of Mutual Insurer)

Insurer does not issue assessable policies.

Fraternal Insurer (Type of Mutual Insurer)

Provides life and health insurance to members of a social or religious organization

Lloyd’s (of London)

World’s leading market that provides services and physical facilities for its members to write specialized lines of insurance. • NOT an insurer.

Lloyd’s Brokers – (Lloyd’s Structure)

represent policyholders to arrange coverage with syndicates

Lloyd’s Syndicates – (Lloyd’s Structure)

Offer insurance contracts in the market.

Members (Lloyd’s Syndicates)

o Join together & provide capital to form syndicates, receiving profits or bearing losses. o Most are corporations or limited partnerships. o “Names” are high net worth individuals.

Managing Agents (Lloyd’s Syndicates)

manage the syndicates, who typically specialize in certain lines

Underwriters (Lloyd’s Syndicates)

work for the syndicates to assess risks and determine premiums

Insurance Agent

Someone who legally represents the principal (insurance company) and has the authority to act on the principal's behalf

principal is legally responsible for all acts of an agent when the agent is acting within the scope of authority.

Typically has the authority to bind coverage.

Insurance Binders

• Provide temporary insurance until the policy is actually written.

o Can typically be provided by property & casualty (P&C) agents.

o Life insurance agents usually have no authority to issue binders.

Types of Agents - Independents

Usually represents several unrelated insurers

Exclusive/Captive - Independents

Represents only one insurer or group of insurers under common ownership

Distribution – Exclusive Agency System (Captive Agents)

• Agent represents only one insurer or group of insurers under common ownership.

• Agents usually do not own the expirations or renewal rights to the policies.

• More frequently used in personal lines and very small businesses.

• Carriers provide resources and training since agents only sell products for this insurance company/principal.

Distribution – Independent Agency

• Usually represents several unrelated insurers.

• The agency owns the expirations or renewal rights to the business.

• Advantage is that the agent may find coverage that is better suited for the client since not limited to one insurer.

• Agents may be authorized to adjust small claims and may provide loss control services to their insureds.

Insurance Broker

Someone who legally represents the insured and:

• Solicits applications and places coverage with the appropriate insurer.

• Typically works with several unrelated insurers.

• Is paid a commission from the insurer.

• In general, does NOT have the authority to bind.

Large Brokerage Firms

• Very important in Commercial P&C coverage.

• May have knowledge of highly specialized insurance markets.

• May provide risk management and loss-control services. (Aon, Lockton, Marsh)

Brokers & Independent Agents

• Both solicit applications and attempt to place coverage with an appropriate insurer.

• Both can work with a number of insurance companies.

• Both are typically paid on a commission structure (as a % of premium).

Surplus Lines Broker

• Licensed to place business with a nonadmitted insurer.

• Surplus Lines – refer to any type of insurance for which there is no available market in the state.

• Nonadmitted Insurer – An insurer not licensed to do business in the state.

Direct Writer (Other Distribution Systems)

• An insurer in which the salesperson is an employee of the insurer, not an independent contractor.

• Employees are usually compensated on a “salary plus” arrangement.

Direct Response (Other Distribution Systems)

Insurer sells directly to the consumer by television or some other media

Group Insurance Marketing

• Methods to sell individual insurance policies to:

o Employer groups

o Labor unions

o Trade associations

• Products are sold through group representatives, employees who receive a salary and incentive payments based on sales.

• Employees typically pay for insurance by payroll deduction.