Insurance Chapter 5: Types of insurers and (sales) marketing systems

Consolidation
that the number of firms has declined due to mergers and acquisitions
Convergence
that financial institutions now sell a wide variety of financial products that earlier were outside their core business area
Examples of top U.S. life insurance groups by revenues:
MetLife, Prudential financial, New York life insurance, TIAA-CREF, Aflac and Northwestern mutual
Examples of top U.S. property/casualty companies by revenue:
Berkshire hathaway, state farm, allstate, nationwide and progressive
Stock insurer
a corporation owned by stockholders. they earn profit for stockholder by increasing the value of the stock and paying dividends
Mutual insurer
a corporation owned by the policy owners/policyholders
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; the creation of mutual holding companies
Demutualization
whereby a mutual company is converted into a stock insurer by a pure conversion, merger, or bulk reinsurance
Holding company
a company that directly or indirectly controls an authorized insurer
Personal selling distribution systems
commissioned agents solicit and sell life insurance products to prospects; the majority of life insurance policies and annuities sold today are through this
Career or affiliated agents
are full-time agents who usually represent one insurer and are paid on a commission basis
Multiple-line exclusive agency system
agents who sell primarily property and casualty insurance also sell individual life and health insurance products
Independent property and casualty agents
independent contracts who represent several insurers and sell primarily property and casualty insurance
Personal-producing general agent(PPGA)
independent agent who places substantial amounts of business with one insurer and has a special financial agreement with that insurer
Brokers
independent agents who do not have an exclusive contract with any single insurer
Direct response system
marketing system by which insurance products are sold directly to consumers without a face-to-face meeting with an agent
Other forms of life insurance distribution include:
Website marketing, stock brokers, financial planners
Independent agency
a business firm that usually represents several unrelated insurers
Exclusive agency system
the agent represents only 1 insurer or group of insurers under common ownership
Direct writer
an insurer in which the sales person is an employee of the insurer, not an independent contractor
Direct response
insurer sells directly to the consumer by tv or some other media
Multiple distribution systems
many property and casualty insurers use
Llyod’s of london
is not an insurer but a society of members who underwrite insurance in syndicates
Captive Insurers
an insurer owned by a parent firm for the purposes of insuring the parent firms loss exposures
Single parent(pure) captive
an insurer owned by 1 parent
Association captive
owned by several parents
Health maintenance organization(HMO)
provides comprehensive health care to its members. you pick 1 primary care physician who will coordinate all your health care services. in order to see a specialist, you will need a referral from your PCP
Preferred provider organization(PPO)
you can go to any health care professional you want, typically without referral inside or outside your network. going outside your network you might pay more
Agent
someone who legally represents the principal (insurance company) and has the authority to act on the principals behalf
Principle
legally responsible for all acts of an agent when the agent is acting within the scope of authority including wrongful and fraudulent acts, omissions and misrepresentations
Broker
someone who legally represents the insured, and: solicits application and attempts to place coverage with an appropriate insurer, is paid a commission from the insurers where the business is placed and does not have the authority to bind the insurer
Many insurers use group marketing methods to sell individual insurance policies to:
employer groups, labor unions and trade associations
Group representatives
employees who receive a salary and incentive payments based on sales; products are sold through this
Mass merchandising
some property and liability insurers use this to plans to market their insurance