|
Inside this Article
Types
Of Insurance Companies
Insurance companies may be classified as
- Life insurance companies, which sell life insurance,
annuities and pensions products.
- Non-life or general insurance companies, which sell other
types of insurance.
|
Sponsored
Links
|
In most countries, Life and non-life insurers are subject to
different regulatory regimes and different tax and accounting
rules. The main reason for the distinction between the two types
of company is that life, annuity, and pension business is very
long-term in nature-coverage for life assurance or a pension
can cover risks over many decades.
|
By contrast, non-life
insurance cover usually covers a shorter period, such as one
year.
Insurance companies are generally classified as either mutual or
stock companies.
This is more of a traditional distinction as true
mutual companies are becoming rare.
Mutual companies are owned by the
policyholders, while stockholders (who may or may not own policies) own
stock insurance companies. Other possible forms for an insurance
company include reciprocals, in which policyholders 'reciprocate' in
sharing risks, and lloyds organizations.
Insurance companies are rated by various agencies such as A.M.
Best. The ratings include the company's financial strength, which
measures its ability to pay claims. It also rates financial instruments
issued by the insurance company, such as bonds, notes, and
securitization products.
Reinsurance companies are insurance companies that sell
policies to other insurance companies, allowing them to reduce
their risks and protect themselves from very large losses. The reinsurance
market is dominated by a few very large companies, with huge reserves. A
rein surer may also be a direct writer of insurance risks as
well.
Captive insurance companies may be defined as limited-purpose insurance
companies established with the specific objective of financing risks
emanating from their parent group or groups. This definition can
sometimes be extended to include some of the risks of the parent
company's customers. In short, it is an in-house self-insurance vehicle.
Captives may take the form of a "pure" entity (which is a 100%
subsidiary of the self-insured parent company); of a "mutual"
captive (which insures the collective risks of members of an industry);
and of an "association" captive (which self-insures individual
risks of the members of a professional, commercial or industrial
association). Captives represent commercial, economic and tax advantages
to their sponsors because of the reductions in costs they help create
and for the ease of insurance risk management and the flexibility
for cash flows they generate. Additionally, they may provide coverage of
risks which is neither available nor offered in the traditional insurance
market at reasonable prices.
The types of risk that a captive can underwrite for their parents
include property damage, public and products liability, professional
indemnity, employee benefits, employers liability, motor and medical aid
expenses. The captive's exposure to such risks may be limited by the use
of reinsurance.
Captives are becoming an increasingly important component of the risk
management and risk financing strategy of their parent. This can be
understood against the following background:
- heavy and increasing premium costs in almost every line of
coverage;
- difficulties in insuring certain types of fortuitous risk;
- differential coverage standards in various parts of the world;
- rating structures which reflect market trends rather than
individual loss experience;
- insufficient credit for deductibles and/or loss control efforts.
There are also companies known as 'insurance consultants'.
Like a mortgage broker, these companies are paid a fee by the customer
to shop around for the best insurance policy amongst many
companies .
Similar to an insurance consultant, an 'insurance
broker' also shops around for the best insurance policy
amongst many companies. However, with insurance brokers, the fee
is usually paid in the form of commission from the insurer that is
selected rather than directly from the client.
Neither insurance consultants nor insurance brokers are insurance
companies and no risks are transferred to them in insurance
transactions.
Third party administrators are companies that perform underwriting and
sometimes claims handling services for insurance companies. These
companies often have special expertise that the insurance companies
do not have.
Sponsored
Links
|
