Some of the types of insurance companies are:
Standard linesSurplus linesCaptivesDirect sellersDomesticAlienLloyd’s of LondonMutual companiesStock companies
Here is a brief explanation of each of these types of insurance companies.
Standard Lines
A standard lines insurance company is licensed to operate and sell certain types, or lines, of insurance in a particular state. This type of insurer is also known as an “admitted” or “preferred” carrier. State laws and state insurance departments govern standard lines insurers, including the rates that these insurers charge. A standard lines insurer must contribute money to a state guaranty fund. This fund pays claims if an insurance company becomes insolvent.
Surplus Lines
A “surplus lines” insurer is also called an “excess lines” or “non-admitted” insurer. Surplus lines companies face much less regulatory scrutiny than standard lines companies do. They are not regulated by a state’s insurance department but, instead, by a state’s surplus lines office. This gives surplus lines companies more flexibility with the kinds of insurance they sell. However, these companies aren’t backed by a state guaranty fund, meaning claims could go unpaid if one of these companies goes out of business. Surplus lines insurers cover things that standard insurers cannot or will not cover, such as property in a flood, hurricane, or earthquake zone, an extremely old home, a collection of rare art, or a valuable racehorse. Surplus lines companies don’t sell auto liability, life, or health insurance policies.
Captives
A captive insurer is generally a wholly owned subsidiary of a company that’s been set up solely to insure risks taken on by the parent company’s owner. Captive insurance is a form of self-insurance. Typically, this form of insurance is cheaper and easier to get than if the parent company shopped for coverage in the general insurance marketplace. A company might turn to captive insurance if, say, it has racked up a lot of insurance claims or it operates in a high-risk industry.
Direct Sellers
When working with a direct seller, a customer buys a policy directly from the insurer rather than through an independent broker or agent. Some direct sellers operate local offices, but many sell their policies online or over the phone. Rather than getting quotes, buying a policy, or changing a policy through an independent agent or broker, a customer deals directly with an insurer. Independent agents and brokers sell policies from more than one insurer. Familiar brands among direct sellers of home and auto policies include State Farm, GEICO, Progressive, Liberty Mutual, Allstate, Farmers, and Nationwide.
Domestic
A domestic insurance company operates and is licensed in the state where it is domiciled. An insurer is “domiciled” in the state where it holds its primary license, and therefore is “domestic” to that state. The company can be licensed to operate in other states but is considered a “foreign” carrier in those states.
Alien
An insurer that is incorporated in another country is called an “alien” insurer in the U.S. states where it’s licensed to do business. For example, an insurance company that was incorporated in France would be viewed as an alien insurer in the U.S.
Lloyds of London
Lloyd’s of London is the world’s largest insurance and reinsurance marketplace. It technically is not an insurance company, though. Instead, Lloyd’s of London brings together insurance buyers and sellers who are seeking to cover big or unique risks. Insurance has been obtained through Lloyd’s of London to cover, for instance, the voice of American rocker Bruce Springsteen and the legs of British soccer star David Beckham.
Mutual Companies
Mutual companies are owned entirely by their policyholders, who are considered shareholders. They can receive dividend payment distributions and might not be penalized by premium increases stemming from claim losses.
Stock Companies
Stock companies are corporations with shareholders. One of the main goals of a stock company that sells insurance is to boost profits and return those gains to shareholders. Unlike a policyholder of a mutual company, a policyholder of a stock company has no say in how the company is run.
What It Means to You
The insurance industry is filled with a lot of lingo. Understanding this lingo, including the various types of insurance companies, can help you make better decisions when you’re shopping for insurance.
