In general there are two primary types of insurance companies – Short term insurance companies cover inanimate objects such as vehicles, buildings, businesses, furniture and other belonging. While, long term insurance companies cover damage to health or death of those who buy insurance along with giving out pension, annuities and other financial benefit to the buyer of the insurance after a certain period of time. Long term insurance has to be bought for at least a year.This primary division can be further categorized into standard and excess lines.
Mainstream insurance companies in the US are called standard line insurance companies too. They insure all sorts of inanimate objects including buildings, business, automobile, marine equipment and other property. Most of them have a set package for all customers and have relatively low premium rates as compared to excess line that encourage more retail customers to buy insurance packages. These rates are supervised by laws of the country, province or state in question.
The excess line insurance companies (also sometimes called surplus insurance companies) exist to offer coverage against risks that are not usually covered by the general and relatively generic standard line insurance companies.
They are not legally categorized as insurance companies and are called ‘non-admitted insurers’. Being not listed among other insurance companies helps them evade regulations that generally apply to other insurance companies. Lesser regulation therefore gives excess lines insurance companies significant flexibility and the ability to act quickly because of the lack of legal need to submit rates and other files before transactions.
The worthiness of insurance companies is rated by specialized agencies. This allows both retail and commercial clients to make their choice. Some of the agencies that rate insurance companies are listed below.
Insurance companies exist, both small and large in size in terms of investments and number of clients. The smaller an insurance company is, the more risk it faces because of the lack of financial cushion that comes with high volume. To protect both small and medium insurance companies, the insurance industry came up with the scheme that would provide ‘reinsurance’ to insurance companies. Thus, today reinsurance companies sell policies to small, medium and large sized insurance companies. This prevents insurance companies from going bankrupt in case of very large losses. Reinsurance companies have very huge reserves and under write the risks of several insurance companies at a time. They also sell policies to their clients to help them make decisions that make them evade avoidable risks.
Captive insurance companies are created for very purposes of protecting the financial condition of their parent companies at time the customers of their parent companies as well. The purpose of their existence is to protect the credit ratings of their clients. Also, they help their clients reduce tax payments and increase net earnings and in covering unique risks which no other insurance company does. A captive insurance company may be the subsidiary of just one company or may be a mutually collaborated insurance company which serves more than one companies within the same industry because of the common risks that they face. Moreover, they offer insurance at very reasonable rates obviously because they are governed by their parent companies.
The following risks are covered by captive insurance companies by getting underwritten by them: