The financial services industry consists of
-Commercial banks
-Savings and loan institutions
-Credit unions
-Life and health insurers
-Property and casualty insurers
-Mutual Funds
-Securities brokers and dealers
-Private and state pension funds
-Government-related financial institutions
Consolidation
means that the number of firms has declined due to mergers and acquisitions
Convergence
means that financial institutions now sell a wide variety of financial products that earlier were outside their core business area
Life and health insurers
1061 - these insurers sell life and health insurance products, annuities, mutual funds, pension plans, and related financial products
Property and casualty insurers
2689 - these insurers sell property and casualty insurance and related lines, including inland marine coverages and surety and fidelity bonds
Insurers can be classified by their organizational form
-Stock insurers
-Mutual insurers
-Reciprocal exchanges
-Lloyd's of London
-Blue Cross and Blue Shield Plans
-Health maintenance organizations (HMOs)
-Other types of private insurers
stock insurer
is a corporation owned by stockholders
-Objective: earn profit for stockholders by increasing the value of stock and paying dividends
-Stockholders elect board of directors
-Stockholders bear all losses
Insurer cannot issue an assessable policy
mutual insurer
is a corporation owned by the policyowners
-Policyowners elect board of directors, who have effective management
-Policyholders may receive dividends or rate reductions
There are three main types of mutual insurers:
advance premium mutual
assessment mutual
fraternal insurer
advance premium mutual
is owned by the policyowners; there are no stockholders, and the insurer does not issue assessable policies
assessment mutual
has the right to assess policyowners an additional amount if the insurer's financial operations are unfavorable
fraternal insurer
is 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
-Holding Company
Demutualization
whereby a mutual company is converted into a stock insurer by a pure conversion, merger, or bulk reinsurance
Holding company
is a company that directly or indirectly controls an authorized insurer
Lloyd's of London
is not an insurer, but a society of members who underwrite insurance in syndicates
New individual members now have limited legal liability
Corporations with limited legal liability and limited liability partnerships can also join Lloyd's of London
Members
reciprocal exchange
can be defined as an unincorporated organization in which insurance is exchanged among the members (called subscribers)
-Insurance is exchanged among the members; each member of the reciprocal insures the other members
-It is managed by an attorney-in-fac
Blue Cross and Blue Shield Plans
are generally organized as nonprofit, community oriented plans
-Blue Cross plans provide coverage for hospital services
-Blue Shield plans provide coverage for physicians' and surgeons' fees
-Most plans have merged into one entity
-Many sponsor HMOs and P
Health Maintenance Organization
provides comprehensive health care services to its members
-Broad health care services are provided for a fixed prepaid fee
-Cost control is emphasized
-Choice of health care providers may be restricted
-Less costly forms of treatment are often provided
captive insurer
is an insurer owned by a parent firm for the purposes of insuring the parent firm's loss exposures
-A single parent, or pure, captive is an insurer owned by one parent
-An association captive is owned by several parents
Savings Bank Life Insurance
refers to life insurance that is sold by mutual savings banks, over the phone or through Web sites
agent
someone who legally represents the principal and has the authority to act on the principal's behalf
Authority may be:
-Expressed
-Implied
-Apparent
The principal is legally responsible for all acts of an agent when the agent is acting within the scope of
binder
provides temporary insurance until the policy is actually written
Prop & Cas vs Life
A property and casualty agent has the power to bind the insurer
A life insurance agent normally does not have the authority to bind the insurer
broker
is someone who legally represents the insured, and:
-solicits applications and attempts to place coverage with an appropriate insurer
-is paid a commission from the insurers where the business is placed
-does not have the authority to bind the insurer
surplus lines broker
is licensed to place business with a nonadmitted insurer
-Surplus 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 insurer
personal selling distribution systems
The majority of life insurance policies and annuities sold today are through
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
are independent contractors who represent several insurers and sell primarily property and casualty insurance
personal-producing general agent (PPGA)
is an independent agent who places substantial amounts of business with one insurer and has a special financial arrangement with that insurer
Brokers
are independent agents who do not have an exclusive contract with any single insurer
direct response system
is a marketing system by which insurance products are sold directly to consumers without a face-to-face meeting with an agent
-Acquisition costs can be held down, but complex products are difficult to sell this way
Other forms of life insurance distribution include:
Worksite marketing
Stock brokers
Financial planners
independent agency
a business firm that usually represents several unrelated insurers
direct billing
The agency owns the expirations or renewal rights to the business; it may bill the policyholders and collect premiums, but most insurers use
Agents may be authorized to adjust small claims and may provide loss control services to their insureds
exclusive agency system
the agent represents only one insurer or group of insurers under common ownership
-Agents do not usually own the expirations or renewal rights to the policies
-Agents are generally paid a lower commission rate on renewal business than on new business
-Exc
direct writer
an insurer in which the salesperson is an employee of the insurer, not an independent contractor.
Employees are usually compensated on a "salary plus" arrangement
direct response
insurer sells directly to the consumer by television or some other media
multiple distribution systems
Many property and casualty insurers use
Many insurers use group marketing methods to sell individual insurance policies to:
-Employer groups
-Labor unions
-Trade associations
group representatives
employees who receive a salary and incentive payments based on sales
mass merchandising
prop and liab to market their insurance