Financial Services Industry: Insurers, Agents, and Brokers
Changes in the Financial Services Industry
The financial services industry has undergone significant changes, including:
- Consolidation: The number of firms has declined due to mergers and acquisitions.
- Convergence: Financial institutions now sell a wide variety of financial products that were previously outside their core business area.
Types of Private Insurers
In 2010, the insurance market comprised:
- Life and Health Insurers (1061): These insurers sell life and health insurance products, annuities, mutual funds, pension plans, and related financial products.
- Property and Casualty Insurers (2689): These insurers sell property and casualty insurance and related lines, including inland marine coverages and surety and fidelity bonds.
Insurers can be classified by their organizational form:
- Stock Insurers
- Mutual Insurers
- Reciprocal Exchanges
- Lloyd’s of London
- Blue Cross and Blue Shield Plans
- Health Maintenance Organizations (HMOs)
- Other Types of Private Insurers
Stock Insurers
A stock insurer is a corporation owned by stockholders. Their objective is to earn a profit for stockholders by increasing the value of stock and paying dividends. Stockholders elect the board of directors and bear all losses.
Mutual Insurers
A mutual insurer is a corporation owned by the policy owners. Policy owners elect the board of directors, who oversee management. Policyholders may receive dividends or rate reductions.
There are three main types of mutual insurers:
- Advance Premium Mutual: Owned by the policy owners, there are no stockholders, and the insurer does not issue assessable policies.
- Assessment Mutual: Has the right to assess policy owners an additional amount if the insurer’s financial operations are unfavorable.
- Fraternal Insurer: A mutual insurer that provides life and health insurance to members of a social or religious organization.
The corporate structure of mutual insurers is changing due to:
- An increase in company mergers.
- Demutualization: A mutual company is converted into a stock insurer by a pure conversion, merger, or bulk reinsurance.
- The creation of mutual holding companies.
Lloyd’s of London
Lloyd’s of London is not an insurer but a society of members who underwrite insurance in syndicates. Membership includes corporations, individual members (called “Names”), and limited partnerships. New individual members now have limited legal liability.
Reciprocal Exchange
A reciprocal exchange is an unincorporated organization in which insurance is exchanged among the members (called subscribers). Each member of the reciprocal insures the other members.
Captive Insurer
A captive insurer is an insurer owned by a parent firm to insure the parent firm’s loss exposures. A single-parent, or pure, captive is an insurer owned by one parent.
Savings Bank Life Insurance
Savings Bank Life Insurance refers to life insurance sold by mutual savings banks.
Agents and Brokers
Agent
An agent is someone who legally represents the principal and has the authority to act on the principal’s behalf. Authority may be expressed, implied, or apparent. The principal is legally responsible for all acts of an agent when the agent is acting within the scope of authority.
Broker
A broker is someone who legally represents the insured and:
- Solicits applications and attempts to place coverage with an appropriate insurer.
- Does not have the authority to bind the insurer.
Surplus Lines Broker
A surplus lines broker is licensed to place business with a non-admitted insurer. Surplus lines refer to any type of insurance for which there is no available market within the state, and coverage must be placed with a non-admitted insurer.