What Are the Differences Among the Major Types of Insurers in the United States?

The insurance industry is typified by insurers with a number of different organizational forms. Stock insurers are corporations owned by the shareholders of the firm. The shareholders hire managers to run the company, and the insurance product is sold to customers who may or may not be shareholders in the firm.

Mutual insurers are companies owned by their customers. Any policy owner of the company also owns a portion of the company.

Reciprocal insurers or reciprocal exchanges are insurance companies where the policy owners of the exchange agree to insure one another. They are very similar to mutual companies.

Lloyd's associations are insurance companies where the manager who makes decisions for the firm also has his/her own personal wealth at stake in the firm.

Blue Cross/Blue Shield insurers are typically nonprofit (some may now be for-profit), community-oriented health insurance providers. They typically offer traditional indemnity health insurance.

HMO's (Health Maintenance Organizations) provide comprehensive health care coverage to their customers. HMOs, in their simplest form, provide prepaid health care coverage. Once you pay your premium, you can use the services of the HMO at little or no further cost to you.

Should I Care Which Type of Insurer I Purchase Insurance From?

From the customer's point of view, the company that offers the product and service you want, at the quality you desire, for the lowest cost should be the company you purchase insurance from—regardless of their organizational form.

Economists have conducted numerous studies to identify which organizational form can provide the insurance product at the lowest cost, but the answers are mixed. Therefore, potential customers should probably base their purchasing decisions on other factors such as the financial stability and reputation of the firm.

Get Answers to Commonly Asked Questions

Get answers to some of our most important and commonly asked questions that will help you make informed decisions. Each section is grouped by insurance type.

• General Insurance - General insurance FAQs.
• Personal Insurance - The questions we receive most on your house and personal vehicle.
• Business Insurance - Some questions our business clients have asked recently.
• Life / Health Insurance - Answers to questions concerning your life and health insurance needs.
• Emergencies - Answers to questions if you have a loss or a claim.

General Insurance

What Are the Differences Among the Major Types of Insurers in the United States?

The insurance industry consists of insurers with various organizational structures. Stock insurers are corporations owned by shareholders, who hire managers to run the company. Mutual insurers are companies owned by their customers, meaning any policy owner is also a part-owner of the company.

Reciprocal insurers or reciprocal exchanges operate similarly to mutual companies, where policy owners agree to insure one another. Lloyd's associations involve managers who make decisions while having their own personal wealth at stake in the firm.

Blue Cross/Blue Shield insurers are typically nonprofit, community-oriented health insurance providers. They traditionally offer indemnity health insurance. Health Maintenance Organizations (HMOs) provide prepaid health care coverage, allowing customers to use medical services with little or no additional cost beyond the premium.

Should I Care Which Type of Insurer I Purchase Insurance From?

From a customer perspective, the company that offers the best product and service at the lowest cost should be your choice—regardless of its organizational structure. Studies have attempted to determine which type of insurer offers the lowest cost, but results are mixed. Therefore, it's more important to evaluate the financial strength and reputation of the insurer before purchasing a policy.

Some Insurance Agents Say They Are Employees While Others Are Independent – What’s the Difference?

Insurance is sold through two primary types of agents: independent agents and exclusive agents. Traditionally, most agents were independent business owners paid on commission, but many insurers now employ exclusive agents who are paid as company employees.

Independent agents can shop around with multiple insurance companies to find the best policy for their clients. Exclusive agent companies prefer to have their agents work only for them, which means they do not compare policies with competitors.

Independent agents also tend to provide more personal claims service and objective advice, whereas some exclusive agent companies require customers to call a centralized 800-number for claims. Independent agents' personalized service has proven valuable, leading to the growth of independent agencies in the 21st century.

What Do I Give Up by Not Using an Agent to Purchase Insurance?

Many property-casualty and life insurance products can be purchased without the use of an agent. Typically potential policyholders will either be contacted through mail or Internet ads, or they can call an 800 number to apply for the insurance product. These companies claim to have better pricing, but many times they do not. They claim to save you money by "cutting out the middleman", but what they do not tell the consumer is they are spending hundreds of millions of dollars on TV, radio, mail, and newspaper ads on their distribution system, as well as employee expenses.

Instead of receiving personal, customized, quality local service from a highly trained insurance professional, the consumer is many times buying an inferior product that is based on price only and impersonal service from distant and minimally trained employees. By purchasing one's insurance from an independent agent, a consumer can talk to the same people every time.

Understanding Financial Ratings of Insurance Companies

Insurance is a product where the insurance company promises to make future loss payments in return for a premium you pay today. It is therefore important that you know the financial health of the insurer when you are deciding how much you are willing to pay for the product. For example, holding all other things equal, people should pay slightly more for a life insurance policy from an insurance company with a higher financial rating or should pay slightly less for the same policy from a company which is not as financially strong.

In order to make this kind of informed purchasing decision, a number of private organizations, called rating agencies, rate the financial stability of insurance companies. Major insurance rating agencies include the A.M. Best Company, Standard & Poor's, Weiss Research, Duff and Phelps, and Moody's. Each of these companies uses data obtained from various sources to rate the financial strength of insurance companies.

It should be noted, however, that each organization has its own rating standards and therefore the financial grades from two different rating agencies may be different. The best advice usually given to insureds is to check the financial rating of the insurer from as many rating agencies as possible to determine the range of opinions of the financial health of the company.

Finding Information on the Largest Insurance Companies in the U.S.

The monthly publication Best's Review (Life and Health Edition) periodically contains information on assets, premium income, and products sold by most of the largest life insurance companies operating in the U.S.

The sister publication, Best's Review (Property and Casualty Edition), provides certain statistical information on large property-casualty companies. Both magazines are published by the A.M. Best Company in Oldwick, NJ.

Public libraries in cities of medium to large size frequently subscribe to one or both of these magazines, making them accessible to those seeking comprehensive insurance industry data.

Frequently Asked Insurance Questions

Get answers to some of our most important commonly asked questions that will help you make good decisions. Each section is grouped by insurance type.

• General Insurance - General insurance FAQs.
• Personal Insurance - The questions we receive most on your house and personal vehicle.
• Business Insurance - Some questions our business clients have asked recently.
• Life / Health Insurance - Answers to questions concerning your life and health insurance needs.
• Emergencies - Answers to questions if you have a loss or a claim.

General Insurance

What are the differences among the major types of insurers in the United States?

The insurance industry consists of various organizational forms:

• Stock Insurers: Owned by shareholders, with managers running the company.
• Mutual Insurers: Owned by policyholders who share company ownership.
• Reciprocal Insurers: Policyholders insure one another in an exchange.
• Lloyd’s Associations: Managed by individuals who have their personal wealth at stake.
• Blue Cross/Blue Shield: Typically nonprofit, community-based health insurance providers.
• HMO (Health Maintenance Organizations): Offer prepaid health care coverage.

Should I care which type of insurer I purchase insurance from?

The company that provides the best product, service, and cost should be your choice, regardless of organizational form. Studies show mixed results on which type provides the lowest cost, so financial stability should be a key consideration.

What is the difference between independent agents and exclusive agents?

Independent agents work with multiple insurance providers, allowing them to compare policies for you. Exclusive agents work for a single insurance company and may not offer comparisons or personalized claims service.

What do I give up by not using an agent?

Direct-to-consumer insurance claims to cut out the middleman but spends heavily on advertising. This may lead to impersonal service, limited policy options, and potentially higher costs in the long run.

Who rates the financial stability of insurance companies?

Organizations such as A.M. Best, Standard & Poor’s, Moody’s, Weiss Research, and Duff & Phelps provide ratings based on financial health. Checking multiple ratings ensures a balanced assessment.

Where can I find information on the largest insurance companies in the U.S.?

The publications Best’s Review (Life and Health Edition) and Best’s Review (Property and Casualty Edition) provide insights on large insurance companies and are available in many public libraries.

What information do insurers ask for when applying for a policy?

Insurance applications involve demographic details, driving records, property specifics, and health history. This data helps insurers assess risk levels and determine appropriate premiums through a process called underwriting.

Personal Insurance FAQs

What can I do to lower my auto premium?

Be sure to talk to your insurance agent about available discounts on car or auto insurance such as: multi-car, renewal, claim-free, student discounts, driver training, defensive driver course, anti-lock brakes, air bags, anti-theft devices, and auto/home discounts. Ask how much you can save by increasing your deductibles.

How can I lower my homeowner insurance premium?

Insurers frequently award lower rates to homeowners who guard against theft, accidents, and other losses. Companies may provide discounts for multiple-policy customers (home and auto). Here are some things you can do to qualify for lower premiums:

• Secure your home with deadbolts and window locks.
• Install a security system with an outside signal and connection to local police.
• Install and maintain smoke detectors.
• Install a sprinkler system for fire safety.
• Install a fire alarm that automatically alerts the local fire department.
• Purchase your auto and home insurance from the same company.

How can I lower my Boat Insurance premium?

Safety equipment discounts are available for boats equipped with specific safety features. Check with your agent or broker to see if you qualify if your boat has:

• GPS
• Ship to Shore Radio
• VHF
• Depth Sounder
• Halon system
• Fume detector
• Alarm System
• Loran
• Completion of Boating Safety Courses (e.g., Coast Guard certification)

What's "full coverage"?

The term "full coverage" generally refers to the legally required and most commonly requested coverages. However, it does not mean that everything is covered in all scenarios. Typically, "full coverage" includes:

• Bodily Injury
• Property Damage
• Uninsured and Underinsured Motorist coverage
• Damage to a covered vehicle (Comprehensive and Collision)
• Additional coverages such as rental car, towing, road service, and extra equipment coverage

Your auto insurance policy declaration page lists the coverages you have selected.

Am I covered if I drive someone else's vehicle?

Coverage varies by state, so consult your insurance agent. Generally, you are covered only for liability to third parties unless the owner is a resident of your household or the vehicle is provided for your regular use. In many states, you are not covered for physical damage to the borrowed vehicle. Any coverage provided is supplemental to the owner's policy.

What kinds of records are needed to substantiate a homeowner claim?

It is recommended to maintain a detailed inventory or a videotape of your personal property. This can save you thousands of dollars in case of a loss. Steps to take:

• Keep an inventory booklet or video record of your possessions.
• Store the record in a safe place outside your home, such as a safe deposit box.
• Retain bills for major purchases and structural additions.
• Take photos or videos of valuable items, including china and silverware.
• Keep all receipts and records in a secure location.

When renting a vehicle, should I buy the insurance coverage offered by the car rental company?

If your personal auto insurance policy includes full coverage and rental reimbursement, you may not need to purchase extra insurance. However, verify this with your insurance company.

If my car is in the shop and I need to rent a temporary vehicle, is the rental car covered on my auto insurance policy?

Rental car coverage applies only to vehicles that have rental reimbursement coverage due to an accident. It does not cover rentals due to mechanical failure.

When my child gets his/her driver's license, must I add them to my insurance policy?

Yes. All licensed drivers living in the household must be listed on the auto policy unless they have their own auto insurance coverage elsewhere.

Who is usually covered under an auto insurance liability policy?

An auto insurance liability policy generally covers:

• Named insured – The person(s) listed on the policy, no matter what car they are driving.
• Spouse – Even if the spouse of the named insured is not explicitly listed, they are typically covered unless the couple does not live together.
• Other relatives – Any relative living in the household related by blood, marriage, or adoption, including a legal ward or foster child.
• Anyone driving the insured vehicle with permission – Someone who steals the car is not covered.

For further assistance, consult your insurance provider for policy-specific details.

Business Insurance

What are adequate liability limits for my business?

This question has received considerable attention over the years by insurance professionals and legal advisors without resulting in definite answers. The question is somewhat akin to posing the query "How high is up?" Nevertheless, there are some perspectives which may be helpful in determining the amount of liability insurance limits to purchase. These might include:

• Attempt to ascertain the largest judgment rendered against your type of business within the judicial area in which you are located or in which you sell your product or service. (Even then, you may not be willing or able to afford the cost of purchasing insurance to provide sufficient liability limits to cover any such awards.)
• Examine your balance sheet (assets vs. liabilities) to determine what you have to lose and thus need to protect. Remember, however, that liability losses resulting in judgments or out-of-court settlements generally have no respect for wealth or lack of it.
• Similar to setting liability limits based on your balance sheet, use your income statement for the same purpose. However, the same concern regarding losses vs. wealth still applies.
• Consider liability limits you can afford or with which you feel comfortable. Unfortunately, this practical approach does not provide "a quiet night's sleep" for most business owners, especially if you realize that the next verdict could easily exceed your limits several times over.
• Review all business contracts you have signed, including premises and/or equipment leases, etc. for their specific liability limit requirements - most contracts will have them! This may determine at least the minimum liability limits you should carry just to comply with the contract provisions.
• Consider what level of liability protection is being carried by other area businesses and competitors similar to yours. While we cannot disclose confidential client information, our agency is a good source of general information of this nature because of the number and cross-section of businesses we insure.

All of this causes one to ask what a business owner can do to determine proper liability limits if the techniques previously listed are filled with uncertainty. There is no one acceptable and simple method. It requires an examination of the legal climate, or perhaps various legal climates, the type of exposures presented, and all of the previously suggested parameters.

In Commercial Insurance, are there policies that provide or combine the various kinds of coverages like a Homeowners policy does with personal insurance?

Yes, there are various "package" policies available. Programs such as the Business Owners Package (BOP), Special Multi-Peril (SMP) and insurance company designed packages are constantly being marketed. Many insurers design packages to meet specialized needs, such as auto garages, auto dealers, jewelers, furriers, barbers and beauty salons, and apartment buildings.

What is Workers' Compensation Insurance?

In general, the current Workers' Compensation system represents a compromise between employers and employees regarding employment-related injuries or illnesses. Basically, employees relinquish their right to sue employers if they suffer some job-related injury or illness. In return, employers agree to provide state-mandated benefits if such injuries or illnesses occur. To ensure employers will have the money to pay these mandated benefits, most states require that employers demonstrate that they have the financial ability to pay any claims that may arise. Typically, this financial ability is demonstrated through the purchase of Workers' Compensation insurance.

I’ve read that employees are suing their own companies for discrimination, wrongful termination, and violations of the Disability Act, etc. I try to be careful, but what if one of my supervisors commits the violation or my file is not properly documented? What can I do?

Your Business Liability coverage and your workers' compensation insurance do not pay these types of claims, but you can buy insurance coverage called Employment Practices Liability Insurance or EPLI. This insurance protects your business from employees' allegations against you and your business. Especially important is the legal defense aspect of the policy, because the legal bills can often be higher than the amount of the claim itself.

Life / Health Insurance

Do I have to take a physical exam in order to get life insurance?

Many life insurance companies issue non-medical life insurance, where you simply have to answer a series of questions in an application. However, depending on your answers, the company might require you to take a physical examination for any of the following: seriously impaired health, existence of a terminal illness, or a request for an unusually large amount of coverage. If you refuse to take an examination, then the company has the right not to sell you a policy.

Can an insurance company refuse to insure me if I have a preexisting condition?

Yes, a company can reject you for a preexisting condition with almost no exceptions. A preexisting condition is a medical condition that the insured knows about before applying for coverage. Such a condition might affect either insurability or premium amount.

How much life insurance do I need?

Before buying life insurance, you should assemble personal financial information and review your family's needs. There are a number of factors to consider when determining how much protection you should have. These include:

• Any immediate needs at the time of death, such as final illness expenses, burial costs and estate taxes;
• Funds for a readjustment period, to finance a move or to provide time for family members to find a job;
• Ongoing financial needs, such as monthly bills and expenses, day-care costs, college tuition or retirement.

Although there is no substitute for a careful evaluation of the amount of coverage needed to meet your needs, one rule of thumb is to buy life insurance that is equal to five to seven times your annual gross income.

If I develop a serious illness or become disabled; how can I protect my family?

People in their prime working years are more likely to become disabled than to be fatally injured. Thus, depending on your personal circumstances, one potentially excellent way to protect you, your family, and even your business, is to acquire disability insurance. In essence, disability insurance provides a "backup" income if you are temporarily out of work. Most disability insurance plans are somewhat flexible, and you can buy coverage for a variety of illnesses or injuries, or exclude specific injuries, such as a bad back.

How many participants does it take to purchase group health insurance?

Within certain participation guidelines, two participants is the minimum number required to set up a group health policy.

Emergencies

What should I do if I have a loss?

Property

• Report the loss to your insurance agent as soon as possible, providing date of loss and description.
• Take photos or videotape of the damage.
• Keep records of your expenses for emergency or temporary repairs. Separate the damaged items from the undamaged items. The insurance company adjuster will want to inspect the damaged items, so don't dispose of them without the adjuster's consent.
• Make a detailed list of all damaged or lost property, including when and where they were purchased. If possible, provide the original receipts for each item.
• Obtain estimates for repairs and/or replacement of the damaged or missing items. Should the loss involve theft or vandalism, contact your police department immediately.

Auto / Car

• When possible, report the accident to the presiding police department and forward a copy of the report to your agent.
• Contact your agent, providing date of accident and details surrounding the incident. Obtain a written estimate for damages from the body shop of your choice.
• You will be contacted by your insurance company to make arrangements for an inspection of your vehicle. No repairs should be made without the insurance company's authorization.

General Liability

• Contact your agent, providing date, time, description of incident, names and addresses of all injured parties and/or owners of property damage. Also provide names and addresses of any witnesses.
• Should you be served with suit papers or any other legal document, forward them immediately to your agent.

Workers' Compensation

• Provide for immediate medical services as required by workers' compensation law.
• Contact your agent for claim reporting procedures. You will need to provide the date, address and Social Security number of the employee, nature of the injury, etc.
• Upon notification of the claim, the insurance company will contact you with further instructions.
• Note: If the claim involves a death, be sure to file OSHA reports within eight hours.

What to do in case of an auto accident?

If anyone is injured, immediately render any possible first aid assistance and call emergency services. Exchange name, address, and insurance information with the driver of the other car. Record the following information: date, time, and place of accident, name and address of owner of the other car, if different from driver, driver's Social Security number and driver's license number, names and addresses of passengers and witnesses, license number of the other car and the cars of witnesses. Report the accident to the nearest police station and file any necessary reports. Cooperate fully with the police, but do not make any admissions about your liability. Don't sign any statements for anyone other than an authorized representative of your insurance company. Promptly report the claim to your agent. Note: If you plan to travel by car in Canada or Mexico, check with your agent for insurance requirements.

What to Do in Case of a Property Claim?

If anyone is injured, immediately render any possible first aid assistance and call emergency services. Take appropriate steps to avoid further damage to the property. Promptly report the claim to your insurance agent.