Distribution of Insurance

The distribution structure in private insurance consists of insurers, field organizations, and associations. Insurers assume and pool risks, collect premiums, and pay losses. Field organizations sell insurance to the public and handle losses. Associations are either inter-company concerned with a variety of functions including activities designed to promote directly or indirectly, the interest of insurer representatives who sells insurance to the public.

Insurers may be classified into two broad categories: first, those organized as proprietary enterprises including individual underwriters, syndicates of underwriters, and corporations organized as cooperative enterprises, including cooperatives organized on mutual basis, associations, and reciprocals, or inter-insurance exchanges. The capital stock and mutual insurers are the dominant organization providing all forms of private insurance. a mutual company is owned, operated, and controlled by its policyholders.

A number of agency arrangements have evolved for distributing insurance. Most life insurer contract with an agent to represent them exclusively and compensate him with commissions. In the life insurance field this is sometimes referred to as the "American agency system." many companies using this system do not insist that their company be the only represented by the agent, but some do. Some life insurance companies do not use commission agents but employ salaried representatives. Although few life insurance companies rely on them exclusively, many companies place business through brokers.

In additions to selling, field organization inspects property, to some extent handle underwriting and investigate and settle claims. Home offices of insurers may, of course, maintain direct contact with the public through their own salaried employees.

The tendency toward associates is highly developed in the insurance business. this tendency arises from the highly technical character of various aspects of insurance operations and form the desire of groups within the business to establish and maintain standards. Further, a desire to provide protection against damaging legislation leads to insurer and agent association activities. Such associations have service provided by the insurance business and in lowering insurance costs to the public.