A good independent insurance agents is likely to be the best place for most insurance consumers to start. By employing an independent agent, you preserve the maximum number of options for yourself. And, you are less likely to find yourself in a situation in which you have insufficient limits or unexpected gaps in insurance coverage in the event of a major loss.

This is particularly true if you are the owner of a small business. The underwriting of commercial insurance policies is inherently more complex than is the underwriting of personal lines policies. Independent agents are much more likely than captive agents to have a substantial volume of commercial business in addition to their personal lines book of business. (more…)

Each state has an insurance guaranty fund. Each operates in substantially the same way. In the event of insolvency of an insurer whose policies are covered by the guaranty fund (i.e., an admitted insurer in that state), policyholders of that insolvent insurer are covered up to the statutory limit. This limit varies from state to state, but is sufficient to cover most anticipated property claims and all the genuinely catastrophic liability claims. In addition, the guaranty fund statutes provide for defense of liability claims in addition to paying judgments or settlements up to the amount of the statutory limit. (more…)

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As our economy and markets have changed, other insurance marketing channels have developed. While these alternate marketing channels for insurance initially focused on motor vehicle insurance, more recently they have expanded to include homeowners insurance as well. (more…)

Captive agents represent only a single insurer. In some instances, they may even be employees of the insurer. Examples of captive agents are agents who sell State Farm, Allstate, Nationwide, and Farmers policies. A State Farm agent, for example, is limited to offering the policies offered by the State Farm companies. If a given customer seeks a type of insurance not offered by a captive agent insurer, the customer will end up having to go to another agent or broker to obtain a quote or a policy. (more…)

As seen thus far, the total risk of the insurance portfolio affects the probability of insurer bankruptcy. Insurers may offset an increase in bankruptcy risk by increasing the amount of surplus or equity they hold. To the extent that purchasers of insurance recognize a change in the probability of ruin, at least in the idealized world of competition, this will affect their willingness to pay for the insurance. (more…)

Alternative organizational forms involve different mechanisms for managing the company and controlling the managers. In almost any enterprise, one or more persons, the principals, engage another person or persons, the agents, to act on their behalf. In the simplest case, the principal delegates some decision-making authority to the agent by means of a contract. Principals and agents often have conflicting insurance incentives, and such conflicts are controlled at a cost. Agents with more latitude may be more likely to act in their own rather than in the principals’ interest. Yet monitoring the agents is costly to the principal. Some organizational forms are likely to be more efficient in monitoring and controlling insurance incentive conflicts among the parties than others. (They may have other advantages as well.) (more…)

Almost all insurance is organized on a state-by-state basis, for insurance regulation is traditionally a function of state government, and firms must generally be state licensed to do business. Typically, however, insurers operate on a regional or larger scale. Here, too, malpractice is unusually state specific, especially the physician companies, almost all of which operate only in their home states (PIAA 1987). Several explanations beyond state licensure exist. (more…)

The core of the insurance business is assuming (or “underwriting”) the risk of uncertain future events in exchange for a premium. Insurers’ profits consist, first, of underwriting profits, the difference between premiums and what is paid out in claims plus other costs incurred in this process. Insurers are also in the investment business, however, for they invest cash flow from the sale of insurance, from which they also derive a return in the lag between collecting premiums and paying claims. Investment income is the second source of an insurer’s profits. (more…)

The Browns’ case stresses the dangers of not understanding your insurance coverage, not having a copy of your life insurance policy on hand to review, and most importantly, counting on anyone a mortgage lender, a personal attorney, a financial adviser or an accountant to make decisions about life insurance coverage for you. (more…)

Older Americans have significant disposable income, especially since most already own their own homes and thus aren’t strapped by large mortgage payments. Financial services, insurance and travel, in addition to health care, make up the bulk of senior spending, according to the Dallas-based Senior Citizens Marketing Group, Inc. And when you add up your auto, homeowners, life, health, and supplemental insurance premiums, you might find insurance is one of your biggest expenses. (more…)