Insurance Company Types and Risk Management

Insurers traded on the New York Stock Exchange (e.g., Aflac, Allstate, GEICO, Progressive).
Stockholders provide capital.
Profits are shared with stockholders via dividends.
Also known as "non-participating insurers" because policyholders typically don't receive dividends unless they are also stockholders.

No shareholders; owned by policyholders.
Not publicly traded.
Policyholders are like stockholders: they elect the board of directors.
Share in company gains through dividends.
Known as "participating insurers" because policyholders participate in the company's profits.
Examples: Nationwide, New York Life, and State Farm.

Insurance for insurers; allows insurers to share risk.
The reinsurer pays a percentage of the company's losses or losses exceeding a predetermined amount.
Benefits insurance companies, especially in cases of catastrophic loss.
Example: September 11th terrorist attacks (estimated cost to insurance industry: $32,500,000,000$ ).
Reinsurance helped the industry recover two-thirds of its losses.

Unincorporated organizations of subscribers operating through an attorney in fact.
A group of people or organizations that insure each other.
Always non-profit.
Members pay premiums into individual accounts.
Expenses are spread equally among members if a claim is made.
An advisory group of subscribers hires an attorney in fact for administration, underwriting, sales, promotion, and claims handling.

Nonprofit mutual aid organizations primarily engaged in charitable or benevolent activities.
Offer members insurance against death, disease, and disability.
Members share common interests (e.g., religion, occupation, or ethnic background).
Examples: The Elks, Catholic United Financial, and Sons of Norway.
Funded by the sale of financial services and life insurance to members.
Insurance benefits are assessable; benefits must have a set monetary value.
Members are both providers and recipients of benefits.
Members may be required to pay their share of deficiencies if the society's claims-paying ability is impaired.

An individual or company sets aside money for potential losses instead of paying premiums to an insurer.
The employer or individual assumes the risk but gains greater control and transparency in plan design and claims.
Example: A small company with few employees and low risk covering health or disability benefits itself.

Formed by large businesses to self-insure.
Exist solely to serve their parent company.
The parent company pays premiums and files claims as usual.
Profits made by the captive insurance company go back to the parent company.
Example: Ashley River Insurance Company (captive insurer of Dollar General).
Provides workers' compensation, stop-loss medical insurance, and non-property liability insurance.
Not permitted in all states.

Companies pool resources to create a shared captive insurer.
Can provide all types of liability coverage to their members except workers' compensation insurance.
Owned by their members (like mutual insurance companies).
A form of self-insurance and are not subject to all the regulations governing traditional insurers, but they do pay premium taxes.
Subject to examination by the State Insurance Commissioner and the state's unfair claim settlement practice laws.
Authorized by the Federal Product Liability Risk Retention Act of 1981 and the Liability Risk Retention Act of 1986.
Businesses in the same industry can form an RRG to avoid premium fluctuations and tailor coverage for their needs.
Example: RRG for physicians retaining lawyers specializing in medical malpractice claims.
All members must be in similar business endeavors.
Need to be licensed in one state but don't have to be licensed in every state in which they operate.
Examples: United Educators (UE) and the Alliance of Nonprofits for Insurance (ANI).

An insurance marketplace dating back to the late seventeenth century.
Started with marine insurance but expanded to property, liability, and reinsurance.
A marketplace where insurance brokers do business with underwriters to share/transfer risks.
Members pay a fee to cover the costs of running the association but are not financially responsible for all other Lloyd's members.