Chapter 4 Insurance Companies. Scope of This Chapter - The importance of Gramm-Leach- Bliley Act(GLB) - Describe the most characteristic of the stock insurance company - Describe the most important characteristic of the mutual insurance company
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- The importance of Gramm-Leach- Bliley Act(GLB)
- Describe the most characteristic of the stock insurance company
- Describe the most important characteristic of the mutual insurance company
- Reasons that many mutual companies transformed themselves into stock companies
- LIoyd ‘s of London
Also known as Financial services Reform Act of 1999.
- Stock insurers
- Mutual insurers
- Reciprocal exchange
- LIoyd’s of London
- Blue Cross and Blue Shield plans
- Health maintenance organization (HMOs)
- Other types of private insurers
Property insurers that provide more than one type of coverage, such as a company selling fire, inland marine, liability, worker’s compensation and automobile insurance , are called multiple-line insurers.
-Right to vote and elect the management of the corporation
-Right to sell their shares(Ownership Interest)
-Owners of mutual insurance companies have similar rights to owners of for-profit corporations.
- Vote to elect the directors of the corporations.
- Vote for important business matters such as corporation bylaw or changing to stock insurance company.
If the mutual insurer experiences fewer losses or lower expenses than it predicted or greater investment earnings than projected, it has favorable operating results to pay dividends.
When individuals or businesses purchase insurance from a mutual insurance company , they become owners and share in the financial outcome of ownership , whether favorable or unfavorable (ownership interest of insured)
It provides substantial loss prevention services including regular inspection of the insured premises.
Risk managers call this type of exposure “highly protected risk”
- First reason for demutualization:
Overcome a section of the Deficit Reduction Act of 1984.
- Second reason for conversion :
Financial weakness that some life insurers experienced
in the early 1990s.
- Recent encouraging reason for demutualization is GLB.
Stock insurers can be acquired and can make
acquisitions more easily than can mutual insurance
“ A recent estimate suggests that about 3% of global non-life insurance premiums and perhaps 10% of the market for large industrial insurance still trades at LIoyd ‘s of London.”
LIoyd’s of London in not an insurance company. It is a large marketplace that buyers and sellers meet and negotiate sales, broker meets broker to arrange the purchase of or sale of a client’s stock .
Organizations with Loss Exposures
A meeting place