What Are The Different Types Of Insurers?

A mutual insurance company is a corporation owned by its insureds. Each policyholder is a member of the company and is entitled to vote at any regular or special meetings of the company, much like stockholders in a corporation.

Mutual insurance carriers fall into three broad groups:

1. Local Or County Mutuals: These are usually organized in a single county or township to insure local property owners. They usually operate on a purely assessment basis and require only a small advance premium when the policy is issued. Some of these are organized as cooperatives, similar to a mutual.
2. Factory Insurance Mutuals: These are older fire mutual insurance companies developed to write insurance only on larger risks having superior construction and protection characteristics. At one time there were 42 factory mutual insurance companies. In 1999, after much consolidation, the remaining three factory mutual insurance company merged to become a single entity while still remaining a mutual insurance company.
3. Regular Fire And Casualty Mutuals: These operate much like stock insurance companies. They charge standard or near-standard premiums.

A capital stock insurance company (stock company) is a corporation operated by individuals who contribute capital to it with the anticipation of making a profit through the sale of insurance products.

The stockholders elect the members of the board of directors, conduct the company's operations, and share in any profits earned.

The number of mutual carriers writing property insurance is greater than the number of capital stock companies, but capital stock companies write a larger share of the country's fire and casualty insurance.

As in a mutual insurance company, policyholders of an inter-insurance exchange (reciprocal) are both the insured and the insurer. There are no stockholders.

A reciprocal is actually an aggregation of individuals, firms and business corporations that exchange insurance on one another. Reciprocals are not incorporated.

What are the different types of insurers? In this arrangement, each member assumes a fraction of the coverage on every other member. Profits earned by the reciprocal exchange are distributed among the members in the form of premium refunds or dividends like mutual insurance companies.

The actual exchange of insurance is effected through an attorney-in-fact, appointed by the members and empowered on their behalf to bind them to one another.

Some reciprocal exchanges are organized by a particular industry and confine their activities to that industry. Others offer insurance to the general public.

This type of organization is formed by a number of unincorporated individuals associated together and authorized to operate an insurance business.

Each individual agrees to accept only a portion of the risk. These associations are patterned after the famous Lloyd's of London and are sometimes referred to as American Lloyd's.

The insurance business is cyclical and occasionally enters into periods when its capacity and ability to meet the needs of insurance buyers, primarily commercial insureds, becomes strained. Premiums for certain coverages increase substantially, while the market for some coverages may not be available at all.

Starting with a California decision in 1963, the theory of strict liability began to be applied to product losses. This resulted in insurance companies having to reevaluate their rating structure and appetite for product liability. This, along with other factors, caused one of the tightest markets in the insurance industry's history to develop in the middle 1980s.

The federal government reacted by introducing the Federal Liability Risk Retention Act of 1986 that allowed industry groups to join together and form a captive insurance group to provide, at first, only product liability coverage. This approach was so successful that the act was expanded to include other lines of insurance.

Examples of risk retention groups are the petroleum industry, propane transporters, attorneys and professional groups.

Every property insurance coverage form or policy excludes loss or damage arising out of nuclear energy exposures. The operators of nuclear facilities and others who handle nuclear materials obviously have a great need for insurance against the hazards of their activities.

This applies both for loss to their enormously expensive installations and materials they handle as well as to their potential liability to others.

Stock and mutual insurance companies have banded together to form the American Nuclear Insurers (ANI), Mutual Atomic Energy Liability Underwriters (MAELU) and the Mutual Atomic Energy Reinsurance Pool (MAERP). In Canada, the Nuclear Insurance Association of Canada provides both types of insurance.

Their capacity matches the requirements of the Nuclear Regulatory Commission. A utility may also combine the coverage from the pool with excess property insurance protection provided by Nuclear Electric Insurance, Ltd. (NEIL), a utility industry captive.

A number of states established special insurance funds to actually provide insurance. The state acts as the insurer and collects premiums or taxes from the public and offers insurance protection against specified hazards.

The state fund is usually empowered to write only workers' compensation insurance or workers' compensation and employer's liability insurance. In a few states, disability benefits insurance is also written only by a state agency.

Laws that provide that a given line of insurance can be acquired only through a state facility are called monopolistic. If the state facility operates in conjunction with private carriers, it is called competitive.

Many large corporations and industry associations have the spread of risk and substantial finances required for a successful self-insurance program. However, United States tax laws do not usually allow tax deductions for payments made to a reserve fund set up to pay insurance losses.

In order to obtain the tax deduction advantages for these premiums, and to better organize risk management services other than loss payments, many large corporations organize or take control of insurance companies.

In order to minimize the burden of more rigorous state regulations, these insurance companies, known as captive insurers, were initially only available from offshore carriers. Bermuda and the Cayman Islands became and remain leading centers for forming offshore captives.

As captive insurance became more understood, a domestic market began to develop. Vermont was the first state to provide a United States domicile for captives, and it remains the top state for captive formation. However, more than half of the states have now introduced regulations and laws designed to attract the formation of captives in their states.

To comply with Internal Revenue Service rulings, and as sources of additional revenue and profit, many captive insurance companies accept insurance and reinsurance risks from the general insuring public as well as from their parent company.