| The structure of an insurance company may affect how it does business. Insurance companies may take the form of regular stock companies, mutual insurance companies, or "captive" subsidiaries of companies that effectively are self-insured.
Stock insurance companies have the traditional corporate structure and issue stock to shareholders. A stock insurance company is operated by officers under the direction of a board of directors. Shareholders of a stock insurance company are not necessarily customers or policyholders of the company. Ownership of shares in the company is not restricted to policyholders.
Mutual insurance companies are owned by persons or companies insured by the mutual insurance company. Such companies are operated solely for the benefit of the policyholders. Policyholders have some measure of control over their mutual insurance company because the policyholders elect the board of directors.
The kinds of mutual insurance companies vary according to how premiums are collected from policyholders and how dividends are paid out to policyholders. Advanced premium mutual insurance companies collect a premium from policyholders at the beginning of the term of insurance. The insurance company then returns as a dividend any amounts of the premium not required to cover losses and expenses. There also are assessment mutual insurance companies that require policyholders to pay for losses and expenses once those costs of insurance are determined.
Rarely, a perpetual mutual insurance company will be formed which requires each policyholder to make a one-time premium payment which, because of the prospective length of the term of insurance, is likely to be a substantial amount of money. Finally, there are factory mutual insurance companies that provide loss prevention services for factories once those factories meet various safety and construction standards. The trade-off for companies that pay the cost of meeting such standards is that the resulting factory mutual insurance is likely to cost less than standard insurance.
Persons, companies, or governmental entities may choose to self-insure their own interests. The self-insurance may go beyond simply paying one's own casualty losses. Some companies establish "captive" insurers, which are insurance companies dedicated to insuring the interests of the company that established the captive insurance company.
Other types of organizations that are not insurance companies in the usual sense provide insurance coverage. For example, Lloyd's of London is an organization of several hundred syndicates of individuals. The syndicates separately agree to provide insurance coverage on various risks, and the individuals who make up the syndicate either receive the profit from the operation or provide payment of losses of the syndicate. Another type of insurance organization is a reciprocal exchange in which policyholders have agreed to insure one another. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |