Wrecks & Fires

Chapter 1

The Insurance Company’s Role

Economic Benefits

  Insurance companies are a vital part of society and our economy.  Agents are often made to feel that they should be ashamed of their profession, but without insurance companies and their agents, lots of people would not have what they do.  Agents like me (your narrator), have been around long enough to realize that our job is worthwhile.  Newer agents sometimes buy into the guys who write books telling people we are dishonest and just want to steal their money.  Those guys writing those books get rich off that stuff.  Meanwhile, the good agents continue saving the financial fannies of their clients.

Financial Intermediaries

  Insurance companies are financial intermediaries which means that they obtain money from one source and redirect it to another.  You guys in the field do that, too.  You pick up premium checks and send them to the insuring company.  The insuring company pools all of the small premium checks into one big pot, allowing them to earn interest off it, make some profit (if they do it right), pay you a commission, and do some investing.  Banks and savings & loan associations do the same thing.  They collect small sums of money and then loan out large sums to businesses and individuals.  This pooled and loaned money allows businesses to hire people and pay them wages.  This all improves our economy.  People expect banks to do this and help them out.  They just don’t realize the extent to which insurance companies also do it, helping out our economy in the process.

  Of course, not all financial intermediaries operate in this exact manner.  Some types of finance companies obtain large sums of money in the commercial paper market and then lend it in smaller sums to individuals and businesses.  However, the basic formula is the same either way; there is merely a difference in the direction of the money.

  There is a need for efficient collectors and distributors of capital because there is a demand for business capital.  This means that you guys in the field are not only insurance salespeople; you are also a part of efficient collection and distribution of business capital.  Business capital is in short supply as any small businessman or woman knows.

  There are many economic aspects of insurance which involves our society.  Many areas of business, besides that of available cash flows, could not exist as it does today without the aid of insurance.  Therefore, the benefit of insurance for society outweighs any social costs that might be involved.

Forms of Insurers

  Many industries take more than one form.  This is also true for insurers.  In the United States insurers are either owned privately or ran by a government unit.

  Within both the privately ran and the government ran insurers, there are additional sub-categories.  For example, a company may be a proprietary or a cooperative company.  There is a general difference between a proprietary and cooperative company.   A proprietary insurer is organized and operated for profit.  A cooperative insurer is formed and operated to furnish insurance at cost to its members. 

  This is an oversimplification to some degree.  For example, a proprietary insurer may be formed and operated by another business to obtain their insurance at cost.  In this situation, the subsidiary insurance company is called a captive insurer.  They may be formed as an alternative to self-insurance.

  This concept is easy for insurance agents to understand because we hope to be operating our insurance business for a profit.  Unfortunately, the bottom line at the end of the year may look more like we ran our business at cost.

End of Chapter 1