Bảo hiểm - Chapter 5: Types of insurers and marketing systems

Chapter 5Types of Insurers and Marketing SystemsAgendaOverview of Private Insurance in the Financial Services IndustryTypes of Private InsurersAgents and BrokersTypes of Marketing SystemsGroup Insurance MarketingOverview of Private Insurance in the Financial Services IndustryThe financial services industry consists of:Commercial banksSavings and loan institutionsCredit unionsLife and health insurersProperty and casualty insurersMutual FundsSecurities brokers and dealersPrivate and state pension fundsGovernment-related financial institionsExhibit 5.1 Assets of Financial Services Sectors, 2007 ($billions)Overview of Private Insurance in the Financial Services IndustryChanges in the financial services industry include:ConsolidationsThe number of firms has declined due to mergers and acquisitionsConvergenceExisting financial institutions now sell a wide variety of financial products that earlier were outside their core business areaTypes of Private Insurers Size of the insurance market, 2007Life and health insurers: 1009These insurers sell life and health insurance products, annuities, mutual funds, pension plans, and related financial productsProperty and casualty insurers: 2723These insurers sell property and casualty insurance and related lines, including marine coverages and surety and fidelity bondsExhibit 5.2 Top Twenty U.S. Life/Health Insurance Groups by Revenues, 2007 ($ millions)Exhibit 5.3 Top Twenty U.S. Property/ Casualty Companies by Revenues, 2007 ($millions)Types of Private InsurersInsurers can be classified by their organizational form:Stock insurersMutual insurersReciprocal exchangesLloyd’s of LondonBlue Cross and Blue Shield PlansHealth maintenance organizations (HMOs)Other types of private insurersTypes of Private InsurersA stock insurer is a corporation owned by stockholdersObjective: earn profit for stockholdersIncrease value of stockPay dividendsStockholders elect board of directorsStockholders bear all lossesInsurer cannot issue an assessable policyTypes of Private InsurersA mutual insurer is a corporation owned by the policyownersPolicyowners elect board of directors, who have effective management controlMay pay dividends to policyowners, or give a rate reduction in advanceThere are three main types of mutual insurers:An advance premium mutual is owned by the policyowners; there are no stockholders, and the insurer does not issue assessable policiesAn assessment mutual has the right to assess policyowners an additional amount if the insurer’s financial operations are unfavorableA fraternal insurer is a mutual insurer that provides life and health insurance to members of a social or religious organizationTypes of Private InsurersThe corporate structure of mutual insurers is changing due to:An increase in company mergersDemutualization, in which a mutual company is converted into a stock insurer by:Pure conversionMergerBulk reinsurance The creation of mutual holding companiesA holding company is a company that directly or indirectly controls an authorized insurerExhibit 5.4 Mutual Holding Company IllustrationTypes of Private InsurersLloyd’s of London is not an insurer, but a society of members who underwrite insurance in syndicatesMembership includes corporations, individual members (Names), and Scottish limited partnershipsNew individual members, or Names, who belong to the various syndicates now have limited legal liabilityCorporations with limited legal liability and limited liability partnerships can also join Lloyd’s of LondonLloyd’s is licensed only in a small number of jurisdictions in the U.S.Types of Private InsurersA reciprocal exchange is an unincorporated mutualThe reciprocal is managed by an attorney-in-factIn a pure reciprocal exchange, insurance is exchanged among the members; each member of the reciprocal insures the other membersA separate account is kept for each memberA modified reciprocal exchange is similar to an advance premium mutualNo individual accounts Types of Private InsurersBlue Cross and Blue Shield Plans are generally organized as nonprofit, community oriented plansBlue Cross plans provide coverage for hospital servicesBlue Shield plans provide coverage for physicians’ and surgeons’ feesMost plans have merged into one entityMany sponsor HMOs and PPOsSome plans have converted to a for-profit status to raise capital and become more competitive Types of Private InsurersA Health Maintenance Organization (HMO) provides comprehensive health care services to its membersBroad health care services are provided for a fixed prepaid feeCost control is emphasizedChoice of health care providers may be restrictedLess costly forms of treatment are often providedTypes of Private InsurersA captive insurer is an insurer owned by a parent firm for the purposes of insuring the parent firm’s loss exposuresMore than 5100 captives exist todaySavings Bank Life Insurance refers to life insurance that is sold by mutual savings banks, over the phone or through Web sitesAgents and BrokersAn agent is someone who legally represents the principal and has the authority to act on the principal's behalf Authority may be:ExpressedImpliedApparentThe principal is responsible for all acts of an agent when the agent is acting within the scope of authorityAgents and BrokersA property and casualty agent has the power to bind the insurerA binder provides temporary insurance until the policy is actually writtenA life insurance agent normally does not have the authority to bind the insurerThe applicant for life insurance must be approved by the insurer before the insurance becomes effectiveAgents and BrokersA broker is someone who legally represents the insured, and:solicits applications and attempts to place coverage with an appropriate insureris paid a commission from the insurers where the business is placeddoes not have the authority to bind the insurerA surplus lines broker is licensed to place business with a nonadmitted insurerSurplus lines refer to any type of insurance for which there is no available market within the state, and coverage must be placed with a nonadmitted insurerMarketing Systems in Life InsuranceAn agency building system is a system by which an insurer builds its own agency force by recruiting, financing, training, and supervising new agentsGeneral agency systemThe general agent is an independent contractor who represents only one insurer, and receives a commission based on the amount of business producedInsurer provides some financial assistance, but the general agent is responsible for recruiting, training, and motivating new agentsManagerial systemBranch offices are established in various areasThe branch manager is responsible for hiring and training new agents, and receives a commission from the insurerInsurer pays expenses of the branch officeMarketing Systems in Life InsuranceA nonbuilding agency system is a marketing system by which an insurer sells its products through established agentsA personal-producing general agent is a successful agent who is hired primarily to sell insurance under a contractUnder a direct response system, insurance is sold directly to customers without the services of an agentMarketing Systems in Property and Liability InsuranceThe independent agency is a business firm that usually represents several unrelated insurersAgents are paid a commission based on the amount of business produced, which vary by the line of insuranceAgency owns the expirations or renewal rights to the businessUnder the exclusive agency system, the agent represents only one insurer or group of insurers under common ownershipAgents do not usually own the expirations or renewal rights to the policiesAgents are generally paid a lower commission rate on renewal business than on new businessMarketing Systems in Property and Liability InsuranceA direct writer is an insurer in which the salesperson is an employee of the insurer, not an independent contractor.Employees are usually compensated on a “salary plus” arrangementA direct response insurer sells directly to the consumer by television or some other mediaUsed primarily to sell personal lines of insuranceMany property and casualty insurers use multiple distribution systemsGroup Insurance MarketingMany insurers use group marketing methods to sell individual insurance policies to:Employer groupsLabor unionsTrade associationsSome property and liability insurers use mass merchandising plans to market their insuranceEmployees pay for insurance by payroll deduction