Complete Guide to 8 Types of Insurance Organizations

Complete Guide to 8 Types of Insurance Organizations

Insurance is a type of agreement between you and the insurance company. You have to pay a fixed amount of premium at certain intervals of time and in return, the insurance company is going to pay you back when you are in trouble. There are many types of insurance organizations. In this article, we are going to discuss each of the organizations to give you a clear idea. To be specific there are 8 types of insurance organizations available in the market.


8 Major Types of Insurance organizations

Depending on the structure and the working procedure we can divide the Insurance Organization into 8 types. The 8 types of insurance organizations are:


1. Self-Insurance

Self-Insurance is a type of insurance where an individual or private organization makes a fund that helps him to cover up his loss. In this type of fund, the individual saves money periodically so that if any loss occurs this emergency fund can help him to recover. You can hardly consider this as insurance because it doesn’t have a hedge. There is no mitigating or distribution of the risk. It is only a fund to meet up the loss.

In this case, the insured is insuring himself. He doesn’t have to pay any commission to the agent, there is no office maintenance cost for the insurance. The fund that he has created belongs to him. He can use this fund in other areas if he wishes to. He will get total funds and there is no operational cost. It is more like savings.

You can successfully operate self-insurance if your property is widely distributed. You have a lot of business like transport business, factories, food chains, etc.  Some of your businesses are risky and some of them are not. In this case, your self-insurance policy is going to work.

You cannot utilize self-insurance with limited resources. If you are not able to calculate the losses that you may have in the near future then this is not for you.


2. Individual Insurer

If you have enough money, other resources and capability, you can start your own Insurance Company. Although it is very rare in the insurance sector, you can do it. You can always start a new business so why not an Insurance Company. But you have to first know every part of the company. Like, how it works? What is the basic structure? What type of Insurance Company do you want to run? How much it’s going to cost?

So if you are rich enough and have enough courage then you can start your own insurance company.


3. Partnership

The next type of insurance organization is the partnership firms. In the early days, the partnership firms were able to form up an Insurance Company for profit. An insurance company was not profitable at the start. With the increase in the number of customers, the company starts gaining. If there is a loss, the personal funds of the partners are used to cover for it. The businesses ran on contracts. Which was important to run the business. Before Joint Stock Companies arrived, there were many insurance companies of this type. But now these types of companies have completely disappeared.


4. Joint Stock Companies

These companies are the type of companies where shareholders provide the required capital to run the business. The owners of the company are the stock-holders. The shareholders nominate the BoD. The directors run the company. The company operates on its own and the policyholders do not interfere with the management. But in some cases like life insurance, the company shares a part of the profit to the policyholders. It is a bonus for the policyholders.


5. Mutual Companies

The next type of insurance organization is mutual companies. These can set up a co-operative association to form an insurance organization for their members. In this type of Insurance Company, the policyholders also own the shares of the company. They can participate in decision making, running the management, and get profit.

Also read: Purpose Of Business Insurance And What Does It Cover?

Whenever there is profit the members can decide to reduce the price of premiums by merging the profit with the contingency fund. As the insured are insures the organization always tries to reduce their management costs. All the policyholders are entitled to the profit and all of them have right over the Insurance Company.


6. Co-Operative Insurance Organization

These are the type of insurance companies that are registered under the co-operative societies act. Just like Mutual Companies, their main motive is to protect its members and reducing the rate of premiums whenever there is profit. These types of organizations are also non-profitable organizations.


7. Lloyd’s Association

These are one of the largest insurance companies around the world. The company dates back to the 17th century. Lloyd’s act was passed in 1871. This act incorporated all the members of the Llyod’s Association under a single body. In this association, individual insurers undertake writing policies, and these are known as ‘underwriters’. If an insurer wants to join the association, he deposits a certain amount of fee. This payment is done so that his liabilities are paid at the right time. The Lloyd’s association inquires everything about the insurer. Like, his financial position, his business reputation, and his experience before making him a member. If everything looks satisfactory the association makes him a member of the association.

Also read: The Complete Guide To Individual And Family Health Insurance

The association basically controls and guides all the members. If anybody wants to take insurance they will contact the ‘underwriters’. The underwriters are responsible for their business. Several underwriters write the policy but their business is governed by how much share they have in that particular policy. And at the time of claim, when you need to give the money. Then also, all the underwriters reimburse the insured according to their shares only.

The corporation itself is never liable to pay for any policy. It only supervises the conditions in which its members can underwrite policies. So, that their interests are protected all the time.


8. State Insurance

The last type of insurance organization is state insurance. The nation’s government owns an insurance company and runs it for public benefit. We call it State Insurance. Earlier insurance companies didn’t take interest in some non-profitable sectors like health insurance, accidental insurance, etc. So it became necessary for the government to start its own insurance company to help its citizens. Social security, crop insurance, unemployment, export credit insurance, war risk insurance, airplane insurance are generally covered under this type of insurance. Some examples of state insurance are Medicaid and Medicare.


Final Words

These are the eight types of insurance organizations. They all have different working procedures and structures. The purpose of the organizations is not similar. Each organization has a different role to play. But the main motive is to save its customers from difficult situations. Insurance plays an important part in our life. So it is better to be insured. If you like this article share it with friends and family. For further queries comment in our comment box below.