What Are the Different Types of Insurance Companies?

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When you shop for insurance and consider your options for buying a policy, you may receive multiple insurance quotes for coverage from different types of insurance companies. If you know what type of insurance company you’re dealing with, you might have a better idea of whether you’re getting the best value.

Some of the types of insurance companies are:

  • Standard lines
  • Surplus lines
  • Captives
  • Direct sellers
  • Domestic
  • Alien
  • Lloyd’s of London
  • Mutual companies
  • Stock companies

Here is a brief explanation of each of these types of insurance companies.

Key Takeaways

  • Standard lines insurance companies are regulated by the states where they’re licensed to operate.
  • Surplus lines insurance companies are more loosely regulated than standard lines insurance companies, meaning they’ve got more flexibility in the types of insurance they can sell.
  • Direct sellers are some of the most recognizable names in the insurance business, such as State Farm, Allstate, and GEICO.

Standard Lines

A standard lines insurance company is licensed to operate and sell certain types, or lines, of insurance in a particular state. This type of insurer is also known as an “admitted” or “preferred” carrier. State laws and state insurance departments govern standard lines insurers, including the rates that these insurers charge.

A standard lines insurer must contribute money to a state guaranty fund. This fund pays claims if an insurance company becomes insolvent.

Note

Modern insurance is rooted in a law passed in 1601 by legislators in the United Kingdom. The law pertained to marine insurance, which has been used for centuries to insure ships and cargo.

Surplus Lines

A “surplus lines” insurer is also called an “excess lines” or “non-admitted” insurer.

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Surplus lines companies face much less regulatory scrutiny than standard lines companies do. They are not regulated by a state’s insurance department but, instead, by a state’s surplus lines office. This gives surplus lines companies more flexibility with the kinds of insurance they sell. However, these companies aren’t backed by a state guaranty fund, meaning claims could go unpaid if one of these companies goes out of business. 

Surplus lines insurers cover things that standard insurers cannot or will not cover, such as property in a flood, hurricane, or earthquake zone, an extremely old home, a collection of rare art, or a valuable racehorse.

Surplus lines companies don’t sell auto liability, life, or health insurance policies.

Note

Policies from surplus lines insurers typically cost more than policies from standard lines insurers because surplus lines insurers are assuming greater risk.

Captives

A captive insurer is generally a wholly owned subsidiary of a company that’s been set up solely to insure risks taken on by the parent company’s owner. Captive insurance is a form of self-insurance.

Typically, this form of insurance is cheaper and easier to get than if the parent company shopped for coverage in the general insurance marketplace. A company might turn to captive insurance if, say, it has racked up a lot of insurance claims or it operates in a high-risk industry.

Direct Sellers

When working with a direct seller, a customer buys a policy directly from the insurer rather than through an independent broker or agent. Some direct sellers operate local offices, but many sell their policies online or over the phone.

Rather than getting quotes, buying a policy, or changing a policy through an independent agent or broker, a customer deals directly with an insurer. Independent agents and brokers sell policies from more than one insurer.

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Familiar brands among direct sellers of home and auto policies include State Farm, GEICO, Progressive, Liberty Mutual, Allstate, Farmers, and Nationwide.

Note

Agents who work exclusively for one insurance company are known as captive agents (not to be confused with captive insurance companies).

Domestic

A domestic insurance company operates and is licensed in the state where it is domiciled. An insurer is “domiciled” in the state where it holds its primary license, and therefore is “domestic” to that state. The company can be licensed to operate in other states but is considered a “foreign” carrier in those states.

Alien

An insurer that is incorporated in another country is called an “alien” insurer in the U.S. states where it’s licensed to do business. For example, an insurance company that was incorporated in France would be viewed as an alien insurer in the U.S.

Lloyds of London

Lloyd’s of London is the world’s largest insurance and reinsurance marketplace. It technically is not an insurance company, though. Instead, Lloyd’s of London brings together insurance buyers and sellers who are seeking to cover big or unique risks. Insurance has been obtained through Lloyd’s of London to cover, for instance, the voice of American rocker Bruce Springsteen and the legs of British soccer star David Beckham.

Did you know?

Lloyd’s of London has racked up a number of firsts. Its underwriters issued the first auto insurance policy in 1904, the first aviation insurance policy in 1911, and the first spacecraft insurance policy in 1965.

Mutual Companies

Mutual companies are owned entirely by their policyholders, who are considered shareholders. They can receive dividend payment distributions and might not be penalized by premium increases stemming from claim losses.

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Stock Companies

Stock companies are corporations with shareholders. One of the main goals of a stock company that sells insurance is to boost profits and return those gains to shareholders. Unlike a policyholder of a mutual company, a policyholder of a stock company has no say in how the company is run.

What It Means to You

The insurance industry is filled with a lot of lingo. Understanding this lingo, including the various types of insurance companies, can help you make better decisions when you’re shopping for insurance.

Frequently Asked Questions (FAQs)

Who started the U.S. insurance industry?

Ben Franklin is credited with being the father of the U.S. insurance industry. In 1752, he and fellow firefighters founded The Philadelphia Contributionship as a mutual insurance company to insure homes against fire losses.

How many insurance brokerages and insurance agencies are there in the U.S.?

As of 2022, more than 415,000 insurance brokerages and agencies operated in the U.S.

What is the largest property and casualty insurance company in the U.S.?

Based on the dollar amount of premiums, State Farm was the country’s largest property and casualty insurance company in 2021. Property and casualty insurance primarily covers homes and cars.