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.
The Bottomry Contract
The Bottomry Contract was one of the oldest examples of insurance dating back to 4000–3000 BCE. It was an early form of maritime insurance where shipowners borrowed money for a voyage and pledged the ship as security. Bottomry | maritime law. (2019). Retrieved 31 December 2019, from https://www.britannica.com/topic/bottomry
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.
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.
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.
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.
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.
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.
Did you know?
Lloyd's of London specializes in insuring the unusual. A few of the most unusual things it has insured include: Betty Grable's legs, food critic Egon Ronay's taste buds, and forty members of a Derbyshire Whiskers Club who insured their beards against fire and theft. ("Innovation and unusual risks - Lloyd's - The world’s specialist insurance market. Also known as Lloyd's of London; is a market where members join together as syndicates to insure risks.", 2019)
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.
For more help in finding the right insurance, check out "What Is an A-Rated Insurance Company and Why Does It Matter?"