Insurance companies exist to manage the risk of loss and damage to assets and lives. Some specialize in one or more areas, while others may be hybrids. They make money by pooling the risks of many policy holders. This is called underwriting. Insurance companies also collect premiums from their policyholders to help cover their costs.
In 1601 a law was passed in the United Kingdom that spawned the modern insurance industry. Since that time, marine insurance has been used to insure ships. There are two basic types of insurance companies: surplus lines insurers and standard lines insurers. Surplus lines insurers face less regulation than standard lines companies. They are not regulated by state insurance departments, but instead are regulated by surplus lines offices. Furthermore, they are not backed by a state-guaranty fund. As such, they may fail, and you could lose your money.
Different types of insurance companies offer different kinds of coverage. Some are direct sellers, while others are standard lines. Direct sellers of insurance products have more freedom and flexibility to offer more diverse products. Standard lines insurers sell specific types of insurance, such as auto insurance. They are also known as admitted carriers and preferred carriers. If you’re looking for auto insurance, you can choose from several large companies, such as Progressive and Nationwide.
Many institutional buyers of insurance opt to purchase their policies through brokers. The broker will appear to represent the buyer, and will advise on appropriate coverage and policy limitations. However, the broker will receive compensation in the form of a commission from the insurance company, which creates a conflict of interest. However, brokers often have relationships with several insurers and can shop the market to find the most competitive rates and best coverage.
