Types of Insurers

Question 1

What are the 8 types of Insurers?

Answer 1

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1. Stock Insurers
2. Mutual Insurers
3. Fraternal Benefit Societies
4. Reciprocal Insurers
5. Lloyd’s Associations
6. Risk Retention Groups
7. Risk Purchasing Groups
8. Self Insurers

Question 2

Stock Insurer

Answer 2

The policies issued by stock insurers are called non-participating (non-par) policies since dividends never go to policyholders in this arrangement.

A stock insurer is a business formed as a corporation and owned by its shareholders. The corporation is run by a board of directors elected by the shareholders.

Profits from the insurance operation may be distributed to the shareholders are dividends.

The dividends are taxable to the shareholder.

Question 3

Mutual Insurers

Answer 3

Mutual policies are referred to as participating (par) policies because the policyholders participate in the operating results of the company.

**Mutual companies are referred to as participating (par) companies because they sell par policies.

–Funds that remain after paying claims and operating costs may be distributed to the policyholders are dividends.

–In a mutual insurance company, dividends are considered a REFUND of overpaid premium and are NOT TAXABLE.

–A mutual insurer does not have stock or stockholders. It is owned by its policyholders, aka policyowners.

–Mutual insurers elect a board of directors who oversee the operation of the company.

Question 4

The Federal Government predominately provides what four types of insurance?

Answer 4

1. war risk insurance
2. nuclear energy liability insurance
3. flood insurance
4. federal crop insurance

Question 5

States usually require companies to have a license to sell insurance in the state. The license is called a CERTIFICATE OF AUTHORITY.

When a company is licensed, it is called ______ or ______.

Answer 5

Admitted or Authorized

Question 6

Some states (including Alabama) allow companies to sell insurance to certain types of risks (called SURPLUS LINES) without having to have a license.

These companies are then called ____, ____, or ____.

Answer 6

Nonadmitted, Unauthorized (AL), or Nonapproved.

Question 7

A state license for an insurance company to sell insurance in that state is called a ____?

Answer 7

Certificate of Authority

Question 8

Unauthorized/nonadmitted insurers that do not posses a Certificate of Authority can only sell ____?

Answer 8

Surplus lines insurance products

Question 9

Examples of exposures that might require surplus lines insurance.

Answer 9

• Gaming and casinos
• mining
• skyscrapers
• businesses that have an exceptionally large or specialized risk that no authorized insurer can or will cover.

Question 10

The organizations that rate insurers include (6)

Answer 10

1. AM Best, Inc. (A++ Superior)
2. Standard & Poor’s Insurance Rating Services (AAA Exceptionally Strong)
3. Moody’s Investors Service (Aaa Exceptional)
4. Duff & Phelps Credit Rating Company
5. Weiss Ratings
6. Fitch (AAA Exceptionally Strong)

NOTE: These firms do not all rate every company, and each firm has different criteria on which companies are evaluated. Each firm also uses a different rating scale.