| Principles of Insurance (Part 2) | |||
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Insurers There are three categories of insurance organizations referred to as "insurers" or "insurance companies": Proprietary insurers Proprietary insurers are distinguished from non-proprietary insurers in that the former attempt to make a profit for their "owners", as opposed to making a profit for the policyholders. The owners of a proprietary insurance company are investors who are engaged in the insurance business as pure investments, underwriting insurance products to make profits. Proprietary unincorporated insurers The most well-known proprietary unincorporated insurer is Lloyd's of London. In the insurance marketplace, Lloyd's is best known for insuring difficult-to-place risks, such as high-risk exposures like earthquake and pollution related issues or unique property exposures. Proprietary incorporated insurers The largest category of incorporated propriety insurers is the stock insurance companies. Like Lloyd's of London, they are for profit and are owned by stockholders. Profits attributed to the operation of the company are returned as dividends to the stockholder, not the policyholders. In the United States more than three-fourths of the total premiums written are through "stock insurers". Examples of stock insurers are State Farm, Firemen's Fund, Geico, and Progressive Casualty. Non-proprietary insurers Non-proprietary insurers are owned and controlled by their policyholders. The three main types of non-propriety insurers are: Mutuals Unlike a stock company that is owned by stockholders who aim to earn a profit, a mutual company is owned by the policyholders, similar to a profit-sharing arrangement. The cost of the insurance depends on the profit or loss made by the company. Savings or profits are passed on to the policyholder by charging smaller premiums or dispersing dividends to the policyholders. This type of insurance company only represents about 25% of the total premium written in property and casualty. Examples of mutual insurance companies include Liberty Mutual and Allstate Insurance Company. Factory mutuals are a major category of this type of insurer. Reciprocal companies / reciprocal exchange / inter-insurance exchange Like a mutual, the policyholders own a "reciprocal" company and share the profits. But as the word "reciprocate" means "give and take", a member of a reciprocal agrees to share the insurance responsibilities and losses as well as profits earned. Reciprocals can be associated with other non-insurance organizations and write insurance only for their members. Miscellaneous cooperatives This type of insurance is limited to distinct types of organizations with special needs and exceptions such as fraternal insurers, savings bank insurers, and factory mutuals. Governmental insurers Governmental insurers are involved in both property and liability insurance as well as life and health. In simple terms, governmental insurers entered the insurance marketplace because private insurers choose not to insure certain situations. There are a number of reasons that private insurers would not accept the risk of insurance such as: Catastrophic exposure Earthquake is an example of a catastrophic exposure or "CAT" loss. Private insurers have suffered severe economic losses following earthquake losses particularly in California. Exposure that is expected or foreseen An example exposure that is expected or foreseen is a building in a flood plain where there is a high expectation of flood damage due to the proximity of flood waters and elevation of the terrain. Exposure that is dissimilar or unpredictable in type and effect An example of unpredictable exposure in possibility and extent is damage arising out of riots. Who knows what will happen in a riot, how long it will last, and what the outcome will be. Federal programs The following are examples of federal programs of insurance: Let's take a closer look at National Flood Insurance Program (NFIP). Flood Insurance is available for individuals and businesses from three sources: To give you a sense of scale, the leading state in amount of flood insurance written as of l998 was Florida with a total of $203,315,672,000 toward flood insurance. The next largest state was California with $54,755,007,000. State programs (residual risk pools) Various states offer insurance plans. Rather than list examples from different states, you'll get the idea by looking at a sampling from a single state, California: |
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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.
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