RMIN Chapter 5 up to pg 100 1 The financial services industry is changing rapidly Two trends clearly stand out consolidation and convergence of financial products and services Consolidation means that the number of firms in the financial services industry has declined over time because of mergers and acquisitions 2 Convergence means that financial institutions can now sell a wide variety of financial products that earlier were outside their core business area 3 At the end of 2007 1009 life and health insurers were doing business in the US 4 In 2007 2743 property and casualty insurers were also doing business in the US 5 Stock insurer is a corporation owned by stock holders The objective is to earn profits for the 6 Mutual insurer is a corporation owned by the policyowners There are no stockholders a A mutual insurer may pay dividends to the policyowners or give a rate reduction in stock holders advance 7 An advance premium mutual is owned by the policyowners there are no stockholders and the insurer does not issue assessable policies 8 Assessment mutual has the right to assess policyowners an additional amount if the insurer s 9 Fraternal Insurer is a mutual insurer that provides life and health insurance to members of a financial operations are unfavorable social or religious organization a To qualify as a fraternal benefit society under the state s insurance code the insurer must have some type of social or religious organization in existence 10 The corporate structure of mutual insurers especially life insurers is changing rapidly Three trends are clearly evident Increase in company mergers a b Demutualization a mutual insurer is converted into a stock insurer i ii In a pure conversion a mutual insurer amends its articles of incorporation and is reorganized as a stock insurer In a merger a mutual insurer and stock insurer are joined together as a single company and the stock insurer is the surviving company c Mutual holding company i As an alternative many states have enacted legislation that allows a mutual insurer to form a holding company A holding company is a company that directly or indirectly controls an authorized insurer A mutual insurer is reorganized as a holding company that owns or acquires control of stock insurance companies that can issue common stock 11 Lloyd s of London a Lloyd s of London is not an insurer but is the world s leading insurance market that provides services and physical facilities for its members to write specialized lines of insurance b First Lloyd s technically is not an insurance company but is a society of members c corporations and individuals who underwrite insurance in syndicates Second as noted earlier the insurance is written by the various syndicates that belong to lloyd s d Each syndicate is headed by a managing agent who manages the syndicate on behalf of the members who receive profits or bear losses in proportion to their share in the syndicate e Third new individual members or Names who belong to the various syndicates now f have limited legal liability Corporations with limited legal liability and limited liability partnerships are also members of Lloyd s of London g Members must also meet stringent financial requirements h Finally Lloyd s is licensed only inn a small number of jurisdictions in the US Captive Insurer Agents 1 As noted in Chapter 3 a captive insurer is an insurer owned by a parent firm for the purposes of insuring the parent firm s loss exposures 2 A single parent captive also called a pure captive is an insurer owned by one parent such as a corporation The captive can be an association captive which is owned by several parents 1 An agent is someone who legally represents the principal and has the authority to act on the principal s behalf The principal represented is the insurance company 2 An agent has the authority to represent the insurer based on express authority implied authority and apparent authority Express authority refers to the specific powers that the agent receives from the insurer Implied authority means that the agent has the authority to perform all incidental acts necessary to exercise the powers that are expressly given 3 4 Apparent authority is the authority the public reasonably believes the agent possesses 5 There is an important difference between a property and casualty insurance agent and a life based on the actions of the principal insurance agent a A property and casualty agent has the power to bind the insurer immediately with respect to certain types of coverage This relationship can be created by a binder which is temporary insurance until the policy is actually written Binders can be oral or written In contrast a life insurance agent normally does not have the authority to bind the insurer The agent is merely a soliciting agent who induces persons to apply for life insurance b Brokers 1 In contrast to an agent who represents the insurer a broker is someone who legally represents the insured A broker legally does not have the authority to bind the insurer Instead he or she can solicit or accept applications for insurance and then attempt to place the coverage with an appropriate insurer 2 A broker is paid a commission from the insurers where the business is placed