Now that the insurance industry is a few centuries old, it has become a very complicated industry with many layers and a variety of players. Insurance premiums for many different types of insurance have increased, while others have dropped considerably. Competition has created expectations from consumers for more types of coverage in addition to competitive pricing.
This has led to consumers and businesses demanding new, less expensive policies, or other ways to save money. They have also asked for easier ways to do business and to find information about their policies when they need it, which has led to more sophisticated access portals and Web transactions online.
New insurance products designed to meet the continually changing needs of consumers and businesses are also creating change in the industry. Pinning down the current structure of the insurance industry is like shooting a moving target. However, there are two convenient ways to look at the structure of the industry—by type of insurance the company sells and by type of company. Examining each as it stands today and how these segments interact with each other provides a good overall view of how the insurance industry is continuing to evolve and adapt.
While most people think of insurance as a consumer product, businesses also need insurance for a variety of reasons, but mostly to protect their assets in the event of lawsuits, disasters, thefts, and so on. Thus insurance can be divided into two primary types: individual or personal policies and commercial or business policies. Once this categorization has occurred, they can be divided further into four additional types of insurance:
- Health insurance: Covers expenses in the event of illness, hospitalization, etc. Individuals can purchase their own policies, and companies provide health insurance benefits for their employees.
- Life insurance: Pays benefits to a designated beneficiary when the policyholder dies. Like health insurance, life insurance is purchased by both individuals for personal use and by businesses as a benefit to their employees.
- Liability insurance: Protects individuals and businesses in the event of a lawsuit, and other specific insurances, such as executive insurance.
- Property insurance: Insures properties such as homes, cars, boats, and business buildings and inventory.
An insurance company can be licensed for life and health insurance or property and liability insurance. Life and health companies offer protection to individuals directly or through companies (e.g., group insurance). Property and casualty companies offer policies only to individuals and families (e.g., GEICO and Progressive) or to individuals and families as well as businesses (e.g., Nationwide, Travelers, Allstate).
Workers from different companies typically do not interact with each other unless attending an industry or trade event, seminar, or educational seminar. However, independent brokers and agents often develop relationships with several insurance companies in order to provide their buyers with the best coverage at the lowest price. Historically, companies that didn’t have their own sales agents cultivated relationships with independent brokers. As the result of automation of the personal insurance process, companies that market primarily to individuals are relying less on these relationships and more on marketing their services directly to consumers or on the Internet.
Insurance companies are privately owned, publicly owned and traded on a stock exchange, or mutually owned (mutual insurance companies). A mutual insurance company is owned by its policyholders, who receive profits in the form of reduced premiums or dividends. In addition to these categories, there are also independent brokers or very small individual or family-owned insurance agencies. Brokers serve the insurance buyer, and search for the best insurance policy that fits the buyer’s budget. Typically, brokers work with larger commercial/business customers. Agents work with individuals and families. Independent agents represent a number of different carriers and believe this independence allows them to best match coverage and prices to carriers for their clients. In that way, independent agents are similar to brokers. This is a minor but important distinction since the requirements to be an agent are lower than for a broker due to the highly complex nature of the risks brokers deal with.
Insurance companies provide the product and support it, and sales agents operate independently, buying into the company franchise. Agents that franchise with a specific company are representing the seller of the products and are looking for buyers. They receive commissions on what they sell from the company. Independent brokers, on the other hand, represent the buyers and work with several different suppliers or providers in order to find the policy that meets the buyer’s needs at a price he or she can afford.