Different Types of Insurance Companies

What Are the Different Types of Insurance Companies?

• Share
• Pin
• Email

•••

BY JANET HUNT

 

Updated January 17, 2019

When you begin to shop for insurance and consider your options for purchasing an insurance policy, you may receive multiple insurance quotes for coverage from different types of insurance companies. If you know what type of insurance company you are dealing with, you will have a better idea of whether you are getting the best value on your insurance policy.

Some of the different types of insurance companies include: standard lines, excess lines, captives, direct sellers, domestic, alien, mutual companies, stock companies, Lloyds of London and more. Here is a brief explanation of each of these different types of insurance companies and the specific specialty risks insured and other unique attributes.

Standard Lines

A standard lines carrier is much as its name implies. It is an insurance company that has a license to operate and sell specific lines of insurance in a particular state. Another word for standard lines carriers is “admitted carriers.” The rates charged for coverage for a standard lines carrier is regulated by the state board of insurance in the state or states where it offers coverage. These admitted carriers are also subject to laws and restrictions of the states where licensed to operate.

A standard lines carrier must contribute to a state guarantee fund. This guarantee fund pays claims presented should the insurance company become insolvent.

Excess Lines

Another name for an excess lines insurance company is a “surplus lines” company. These types of companies mainly insure specialty risks such as high-risk auto insurance or high-risk individuals that would not be eligible for coverage by a standard lines carrier because of its underwriting guidelines or restrictions. An example would be a driver who has many speeding tickets or other traffic violations or a company who has just opened up and has no prior coverage.

Captives

A captive insurance company is one that typically insures the risks of a specific industry or group of individuals or a specific type of risk such as shipping (transit insurance) and fleet insurance. For example, if a shipping business could not find affordable coverage through the standard insurance market, it may form a company to provide insurance for itself. The company created to provide the insurance is a “captive” of the parent company.

Direct Sellers

A company that sells directly is one that does not use insurance agents but sells directly to the insurance consumer. Many of these direct selling companies do have local field offices with company representatives but the majority of the business is conducted online or over the phone. Because a direct seller does not use local agents, a policyholder must deal directly with the company for quoting, purchasing a policy and for any changes that are needed to the policy. The determining factor in using a direct insurance writer is whether or not the insurance customer feels comfortable dealing directly with the insurance company or whether he prefers the services of his local independent insurance agent.

One well-known direct writer insurance company is GEICO.

Domestic

A domestic insurance company operates and is licensed in the state where it is domiciled. The company can be licensed to operate in other states but is considered an alien carrier in those states.

Alien

The alien insurance company is incorporated on laws of another country. For example, an insurance company incorporated as a U.S. company but operating in France would be considered an alien carrier by the perspective of France.

Lloyds of London

Lloyds of London specializes in insuring unusual or high-risk items and are underwritten through authorization of the English Parliament. Even though the risks are often unusual such as celebrity body part or offshore oil risks, “main street” or more common types of risks are also insured.

Mutual Companies

Mutual companies are actually owned by the policyholders who are considered shareholders and can receive dividend payment distributions and may not be penalized by an increase in premium due to losses. This can vary by company. A well-known mutual company is Liberty Mutual.

Stock Companies and Additional Classifications

Stock companies are corporations with shareholders and distribute excess earnings as dividend payments to shareholders. Additionally, a company may be classified as a “monoline carrier” meaning it only writes one line of coverage or as a “multi-line company” who writes policies on several different types of insurance.

What it Means to You

When making a choice to buy insurance, you may decide to purchase an insurance policy from an agent who represents either captive company (such as State Farm); or through an independent agent who represents many companies. You can also choose to purchase an insurance policy from a direct seller (such as GEICO) by purchasing online or over the telephone. Knowing a little more about the different types of insurance is another tool you can use in finding the best value when buying a policy.

What is a Captive Insurance Company?

A Captive is a Type of Self-Insurance

• Share
• Pin
• Email

BY MARIANNE BONNER

Updated January 18, 2019

A captive is an insurance company created and controlled by a business that is not an insurer for the purpose of insuring that company's risks. It is a type of self-insurance.

Captives made their debut in the U.S. in the late 1950s. States regulated them like insurance companies so establishing and operating a captive in the U.S. was very expensive. The few businesses that used captives created them offshore (in a foreign country) to save money.

The number of captives increased substantially in the 1980s, when product liability, medical malpractice, and other liability coverages became difficult or impossible to obtain. Nowadays, businesses use captives in hard and soft markets to obtain a wide range of property/casualty coverages. According to the NAIC, the industries with the most captives are finance, real estate, construction, and manufacturing.

Reasons To Create a Captive

Many Fortune 500 companies have established a captive. Here are some reasons why a company might create one:

• To obtain better control over its cash flow
• To secure a type of coverage that isn't available in the marketplace
• To obtain broader coverage than insurers will provide
• To save money on risk management costs
• To obtain stable insurance pricing

What's a Domicile?

A captive is subject to the rules and regulations of its domicile, the place from which it operates. A U.S. company may domicile its captive offshore or in one of 39 states or territories in the U.S. that have passed captive legislation. Common offshore domiciles include Bermuda, the Cayman Islands, Barbados, and Ireland. Some U.S. states have passed captive-friendly laws to encourage captives to form there. Examples are Vermont, Utah, Delaware, Hawaii, and North Carolina.

Choosing a Domicile

When a business opts to create a captive, it must choose its domicile carefully. Here are some factors to consider:

• REGULATIONS. Laws and regulations vary widely from one jurisdiction to another.
• CAPITAL REQUIREMENT. The amount of money a company needs to establish a captive varies widely from a low of about $250,000 to over $1 million.
• COSTS. The fees charged for creating and operating a captive vary from one domicile to another.
• APPROVAL PROCESS. The time and effort required to obtain approval for a captive vary from place to place.
• TYPES OF INSURANCE PERMITTED. Many domiciles restrict the lines of insurance that may be written by a captive. For instance, some prohibit captives from insuring workers compensation unless the insurance is "fronted" by a licensed insurer. In a fronting arrangement, the insurer issues the policy forms but the captive assumes the risk of losses by reinsuring the insurer.
• SUPPORT SERVICES. A captive needs access to various types of professional services (actuarial, legal, management etc.)
• FINANCIAL REPORTING. Most domiciles require captives to submit audited financial statements at least once a year but the standards vary from place to place.

Types of Captives

Most captives created by businesses are single-parent (also called pure) captives, which are owned by one company. Other types of captives include group captives, association captives, and rent-a-captives. A group captive is created by a collection of companies that operate similar businesses and have similar loss exposures. An association captive is established by a trade or professional association or industry group to insure similar types of businesses.

A micro-captive is a small captive with an annual written premium of $2.3 million or less. The annual monetary cap is set by the U.S. Internal Revenue Service. Micro-captives have some tax advantages. They are taxed under IRS code 831 and pay tax only on the income they generate from investments. They do not pay tax on underwriting income.

A rent-a-captive may be used by non-owner companies for a fee. The companies gain access to the captive without making a capital commitment. The benefits of using a rent-a-captive include lower insurance costs, stable premiums, and better control over a company's insurance program.

How To Create a Captive

There are five basic steps to creating a captive according to Captive.com, a website dedicated to captives and the professionals that operate them.

1. Choose the structure. The first step is to decide which type of captive will suit your needs (single-parent captive, association captive, rent-a-captive etc.).
2. Do a feasibility study. A feasibility study will help you determine whether the type of captive you have elected will meet your risk management goals. Some regulators may require you to submit a feasibility study with your application.
3. Select a Captive Manager. Most captives require a full-time manager. You should interview several companies and select the best candidate. To be effective, a captive manager should be knowledgeable in accounting, taxes, local regulations, claims management, and insurance pricing. Some captive managers perform feasibility studies.

1. Choose a domicile. This is a major decision that needs to be made carefully. Changing the domicile of an existing captive can be very difficult.
2. Submit an application. The application process varies from one jurisdiction to another. Your captive manager can help you prepare the required data and submit it in the proper format.

Hobbies That Can Make You Money

5 Hobbies You Can Turn into a Business

• Share
• Pin
• Email
BY RANDY DUERMYER


Updated November 05, 2018
One of the best parts of starting a home business is the ability to turn something you love into your career. Not only will you be able to spend your days immersed in something you enjoy while making a living, but also it's often an ideal business to start because you already know how to do it, thereby shortening the learning curve and ​startup time. 
While there are many hobbies that can be turned into home businesses, here are five common hobbies that you can easily start to make money from. If your hobby isn't listed, no worries. With some creativity, you can turn nearly any hobby into a home business. 

• 01

   Photography

  
  

  

  Comstock Images / Getty Images

  
  

  Is your camera strapped to you at all times? Are your friends and family always asking you to take pictures? Photography is not only a viable home business ideas but also there are many different forms it can take. Do prefer to take landscape photos? Then you can sell your photography to online photo resources. Do you like to take portraits? Consider having a studio in your home. You can even specialize in children or pets. Or maybe you like to get out, in which case you can be a wedding or event photographer. 

  
  

• 02

   Reading

  
  

  

  pablohart / Getty Images

  
  

  Are you an avid reader? If so, imagine turning your love of books into income? There are several ways you can make money from books. The ideas that specifically target reading include becoming a freelance book reviewer or starting a book blog, in which cases, not only can you get paid, but often you'll get free books as well. 

  Another option is to start an editing service, where you can read and fix errors and help writers improve their work. 

  Maybe instead of reading, you enjoy writing as well. If you have a story or information inside you waiting to be told, you can write a book and either work with a traditional publisher or self-publish.

  
  

• 03

   Gardening

  
  

  

  Hunstock / Getty Images

  
  

  Do you have a green thumb? Many people want to have nice yards with green grass, colorful flowers, and even home-grown vegetables for their dinner table. But not everyone has the time or talent to create a beautiful garden. Turning your enjoyment of gardening into a home business can be a fast and easy way to make a living, especially if you already have the tools and nice yard. You can focus on specific types of gardening, such as lawn and yard care, or you can help people design and develop a vegetable garden. Or you can start a landscaping business. Another option is to start an indoor plant care business.

• 04

   Art/Creative

  
  

  

  Simon Ritzmann

  
  

  If your hobby involves artistic endeavors, there are many ways you can turn your creativity into income. You can sell your finished products online through resources such as Etsy, or consign them to local shops. Instead of selling your completed works, you can get paid to teach others how to enjoy the hobby. 

  
  

• 05

   Pets/Animals

  
  

  

  Michael Taylor / Getty Images

  
  

  The pet industry is $60 million a year strong. People love their pets, and if you do too, there could a home business in it. There are a variety of ways to indulge in your love of animals and get paid, including pet sitting services, grooming and boarding, creating and/or selling pet accessories or food, pet photography, and more. 

  In most cases, a love of animals is all you need to get started. However, other ideas, such as groomer and boarder may require additional licenses or permits, and possibly training or certification.

Have Fun and Get Paid

If you dread getting up and going to work, turning your hobby into a part-time or full-time home business is a great way to have fun and get paid. One word of warning though; starting a home business related to your hobby means you'll be turning something you enjoy in your free time into your career. You run the risk of reducing the fun and calming aspects of your hobby by putting pressure to create income. For many people, however, turning their hobby into a business creates more overall enjoyment and satisfaction in life.