Types of Insurers

and Marketing
Systems

 In terms of legal organization and

ownership the major type of insurers

can be classified

Types of Private Insurers

Stock Insurers
Mutual Insurers
Reciprocal Exchange
Lloyd's Associations
Blue Cross and Blue Shield plans
Health Maintenance Organizations
(HMOs)

A stock insurer is a corporation owned by

stockholders who participate in the profits
and losses of the company.
The stockholders elect a board of directors
who appoint the executive officers to run
the company.
The board of directors has the ultimate
responsibility for the company's financial
success.

A mutual insurer is a corporation owned by

the policyowners.
The policyowners elect the board of directors
who appoint the executives to manage the
company.
Since relatively few policyowners bother to
vote, the board of directors has effective
management control of the company.

A mutual insurer may pay a dividend or give

a rate reduction in advance.
In life insurance, a dividend is largely a
refund of a redundant premium that can be
paid if the mortality, investment, and
operating experience of the company is
favorable.
Dividends, however, cannot be guaranteed.

The corporate structure of mutual insurance

companies is rapidly changing because of
mergers, demutualizations, and formation of
mutual holding companies.
As a result, the number of insurers has
declined over time.

There are severaltypes of

m utualinsurers
Assessment mutual
Advance premium mutual
Factory mutual
Fraternal insurer

Assessm ent m utual

Assessment mutual is an insurer that

has the right to asses the policy

owners an additional amount if the
experience is unfavorable

Advance prem ium m utual

It is owned by the policy owners but

does not issue an assessable policy

The premiums charged are expected
to be sufficient to pay all claims and
expenses
Any additional costs because of poor
experience are paid out of the
company's surplus

Factory m utual
It is a specialized insurer that insures

only superior property

There is great emphasis on loss
prevention
The factory typically must provide
superior construction, approved
sprinkler system and meet other
requirements

Fraternalinsurer
Is a mutual insurer that provides life,

health insurance to members of

social organization .
They sell only life and health
insurance their members
Because they are nonprofit or
charitable organizations , they
receive favorable tax treatment

 A fraternal insurer is a mutual insurer

that provides life and health

insurance to members of a social
organization.
To qualify as a fraternal insurer under
the state's insurance code, the
insurer must have some type of
social organization in existence-such
as a lodge or a religious, charitable,
or benevolent society

 Fraternal insurers sell only life and

health insurance to their members.

Finally, since fraternal insurers are

nonprofit or charitable organizations,

they receive favorable tax treatment.

Changing corporate structures of

m utualinsurers
Company mergers merger means

one insurer is absorbed by another

insurer
Demutualization mutual insurer is
converted into stock insurer
Mutual holding company holding
company is a company that directly
or indirectly controls an authorized
insurer .

Lloyd's of London has several important

characteristics.
Technically, Lloyd's of London is not an
insurance company but an association that
provides certain services to its members,
who write insurance as individuals.
It is operated by syndicates and by
individual members of the syndicates
(called "Names").

Each individual member has unlimited

liability with respect to the insurance he or
she writes as an individual and is
responsible only for his or her agreedupon share of the loss.
Also, each member must meet stringent
financial requirements.
Corporations with limited legal liability can
also join Lloyd's.

Finally, Lloyd's of London is famous for

writing insurance on heterogeneous
exposure units, such as strike insurance
for major league baseball clubs or
insurance on an extravagant outdoor
reception or on a pianist's fingers.

A reciprocal is an unincorporated mutual.

In its purest form, insurance is exchanged
among the members; each member of the
reciprocal insures the other members and, in
turn, is insured by them.

Thus, there is an exchange of insurance

promises; hence the name reciprocal
exchange.
In addition, the reciprocal is managed by an
attorney-in-fact, usually a corporation that is
authorized to seek new members, pay
losses, collect premiums, and perform other
administrative duties.

Agents and Brokers

An agent is someone who legally

represents the insurer and has the
authority to act on the insurer's behalf.

In contrast, a broker is someone who

legally represents the insured.
May provide services such as risk
management, loss control, and
knowledge of commercial insurance
markets

Types of Marketing Systems

Life Insurance Marketing Systems
Property and Liability Insurance Marketing
Systems

Life Insurance Marketing

Systems

An agency building system is a marketing

system by which an insurer builds its own
agency force by recruiting, financing,
training, and supervising new agents.

A nonbuilding agency system is a

marketing system by which an insurer sells
its products through established agents who
are already engaged in selling life
insurance.
Under this system, an insurer enters into
contracts with successful agents who agree
to sell the insurer's products.

The direct response system is a marketing

system by which life and health insurance is
sold directly to customers without the
services of an agent.
Insurers use web sites, television,
telephones, mail, and other mass media to
market the insurance.

Property and Liability Insurance

Marketing Systems

Under the independent agency system, the

agent is an independent businessperson
who represents several companies.
The agent is authorized to write business
on behalf of these companies and, in turn,
is paid a commission based on the amount
of business produced.

In addition, the agency owns the

expirations or renewal rights to the
business.
Finally, the independent agent is
compensated solely by commissions that
vary by line of insurance.

Under the exclusive agency system, the

agent represents only one company or
group of companies under common
ownership.
Agents under the exclusive agency system
do not usually own the expirations or
renewal rights to the policies.

A direct writer is a company in which the

salesperson is an employee of the insurer
and is not an independent agent.
Employees of direct writers are usually
compensated on the basis of a salary plus
bonus or commission that is related to the
amount of insurance sold.

The direct response system refers to

insurers that sell through the mail or other
mass media, such as newspapers,
magazines, radio, or television.
No agents are used to sell the insurance.

Many insurers now use the Internet to sell

various forms of insurance, and premium
quotes can be easily obtained.
In particular, the sale of term life insurance
on web sites is expected to increase in the
future.

A multiple distribution system describes a

marketing system in which more than one
distribution system is used.
For example, some independent insurers
also sell directly to consumers over the
Internet or by television.

Mass Merchandising of Property and

Liability Insurance

Mass merchandising in property and liability

insurance is a plan for insuring individuals
in a group under a single program of
insurance at reduced premiums.

Property and liability insurance is sold to

individual members of a group, such as
auto and homeowners.

Individual underwriting is used; rate

reductions are typically given; premiums are
paid by payroll deduction; and employers
do not usually contribute to the plan.

Insurance in India
1General insurance companies
1.1Public Sector
1.2Private Sector

2Standalone health insurance companies

2.1Private Sector

3Export credit guarantee insurance companies

3.1Public Sector

4Agriculture Insurance Companies

5Life insurance companies
5.1Public Sector
5.2Private Sector

6Re-insurance companies

Date of Registration

Name of the Company

Owners (in percentage)

23.10.2000

HDFC Standard Life

Standard Life , UK 18, HDFC 82

15.11.2000

Max New York Life

New York Life 26, Max India 74

24.11.2000

ICICI Prudential Life

Prudential, UK 26, ICICI Bank - 74

10.01.2001

Om Kotak Mahindra

Old Maruthi , South Africa 26, Kotak

Mahindra 74

31.01.2001

Birla Sunlife

Sun Life of Canada 26, Birla Capital

74

12.02.2001

Tata AIG

AIG , US 26, Tatas 74

30.03.2001

SBI Life

Cardif SA, France 26, State Bank of

India 74

02.08.2001

ING Vysya

ING, Holland 26, GMR Group, Hyd

54, ING Vysya Bank 20

03.08.2001

Allianz Bajaj

Allianz AG, Germany 26, Bajaj Auto

74

06.08.2001

Metlife

Metlife , US 26, Shapoorji Pallonji

30, J & K Bank 25

03.01.2002

AMP Sanmar

AMP, Australia 26, Sanmar Group,

Chennai 74

***

Aviva

Aviva PLC, UK 26, Dabur

Investments 74

Alternative M odes of
D em utualization

M utualH olding Com pany Illustration