1. Types of Insurers and Marketing Systems

2. Types of Private Insurers Stock Insurers Mutual Insurers
Reciprocal Exchange
Lloyd's Associations
Blue Cross and Blue Shield plans
Health Maintenance Organizations (HMOs)

3. A stock insurer is a corporation owned by stockholders who participate in the profits and losses of the company.
The stockholders elect a board of directors who appoint the executive officers to run the company.
The board of directors has the ultimate responsibility for the company's financial success.

4. A mutual insurer is a corporation owned by the policyowners.
The policyowners elect the board of directors who appoint the executives to manage the company.
Since relatively few policyowners bother to vote, the board of directors has effective management control of the company.

5. A mutual insurer may pay a dividend or give a rate reduction in advance.
In life insurance, a dividend is largely a refund of a redundant premium that can be paid if the mortality, investment, and operating experience of the company is favorable.
Dividends, however, cannot be guaranteed.

6. The corporate structure of mutual insurance companies is rapidly changing because of mergers, demutualizations, and formation of mutual holding companies.
As a result, the number of insurers has declined over time.

7. Lloyd's of London has several important characteristics.
Technically, Lloyd's of London is not an insurance company but an association that provides certain services to its members, who write insurance as individuals.
It is operated by syndicates and by individual members of the syndicates (called "Names").

8. Each individual member has unlimited liability with respect to the insurance he or she writes as an individual and is responsible only for his or her agreed-upon share of the loss.
Also, each member must meet stringent financial requirements.
Corporations with limited legal liability can also join Lloyd's.

9. Finally, Lloyd's of London is famous for writing insurance on heterogeneous exposure units, such as strike insurance for major league baseball clubs or insurance on an extravagant outdoor reception or on a pianist's fingers.

10. A reciprocal is an unincorporated mutual.
In its purest form, insurance is exchanged among the members; each member of the reciprocal insures the other members and, in turn, is insured by them.

11. Thus, there is an exchange of insurance promises; hence the name reciprocal exchange.
In addition, the reciprocal is managed by an attorney-in-fact, usually a corporation that is authorized to seek new members, pay losses, collect premiums, and perform other administrative duties.

12. A fraternal insurer is a mutual insurer that provides life and health insurance to members of a social organization.
To qualify as a fraternal insurer under the state's insurance code, the insurer must have some type of social organization in existence-such as a lodge or a religious, charitable, or benevolent society.

13. Fraternal insurers sell only life and health insurance to their members.
Finally, since fraternal insurers are nonprofit or charitable organizations, they receive favorable tax treatment.

14. Agents and Brokers

15. An agent is someone who legally represents the insurer and has the authority to act on the insurer's behalf.

16. In contrast, a broker is someone who legally represents the insured.
May provide services such as risk management, loss control, and knowledge of commercial insurance markets

17. Types of Marketing Systems
Life Insurance Marketing Systems
Property and Liability Insurance Marketing Systems

18. Life Insurance Marketing Systems

19. An agency building system is a marketing system by which an insurer builds its own agency force by recruiting, financing, training, and supervising new agents.

20. A nonbuilding agency system is a marketing system by which an insurer sells its products through established agents who are already engaged in selling life insurance.
Under this system, an insurer enters into contracts with successful agents who agree to sell the insurer's products.

21. The direct response system is a marketing system by which life and health insurance is sold directly to customers without the services of an agent.
Insurers use web sites, television, telephones, mail, and other mass media to market the insurance.

22. Property and Liability Insurance Marketing Systems

23. Under the independent agency system, the agent is an independent businessperson who represents several companies.
The agent is authorized to write business on behalf of these companies and, in turn, is paid a commission based on the amount of business produced.

24. In addition, the agency owns the expirations or renewal rights to the business.
Finally, the independent agent is compensated solely by commissions that vary by line of insurance.

25. Under the exclusive agency system, the agent represents only one company or group of companies under common ownership.
Agents under the exclusive agency system do not usually own the expirations or renewal rights to the policies.

26. A direct writer is a company in which the salesperson is an employee of the insurer and is not an independent agent.
Employees of direct writers are usually compensated on the basis of a salary plus bonus or commission that is related to the amount of insurance sold.

27. No agents are used to sell the insurance.
The direct response system refers to insurers that sell through the mail or other mass media, such as newspapers, magazines, radio, or television.
No agents are used to sell the insurance.

28. Many insurers now use the Internet to sell various forms of insurance, and premium quotes can be easily obtained.
In particular, the sale of term life insurance on web sites is expected to increase in the future.

29. A multiple distribution system describes a marketing system in which more than one distribution system is used.
For example, some independent insurers also sell directly to consumers over the Internet or by television.

30. Mass Merchandising of Property and Liability Insurance

31. Mass merchandising in property and liability insurance is a plan for insuring individuals in a group under a single program of insurance at reduced premiums.

32. Property and liability insurance is sold to individual members of a group, such as auto and homeowners.

33. Individual underwriting is used; rate reductions are typically given; premiums are paid by payroll deduction; and employers do not usually contribute to the plan.

35. Alternative Modes of Demutualization

36. Mutual Holding Company Illustration