F.A. Peabody Insurance

The insurance industry is typified by insurers with a number of different organizational forms. Stock insurers are corporations owned by the shareholders of the firm. The shareholders hire managers to run the company and the insurance product is sold to customers who may or may not be shareholders in the firm. Mutual insurers are companies that are owned by their customers. Any policy owner of the company also owns a portion of the company. Reciprocal insurers or reciprocal exchanges are insurance companies where the policy owners of the exchange agree to insure one another. They are very similar to mutual companies.

From the customer’s point of view, the company which offers you the product and service you want, at the quality you desire, for the lowest cost should be the company you purchase insurance from regardless of their organizational form. Economists have tried in numerous studies to identify which one of its organizational forms can provide the insurance product at the lowest cost and the answers are mixed. Therefore, potential customers should probably base their purchasing decisions on other factors such as the financial quality of the firm.

Insurers deliver their insurance products to policy owners primarily through independent agents or through exclusive agents. Historically, almost all insurance agents were independent business people paid on commission. More recently, many insurance companies have adopted a system where the agent is a paid employee of the firm rather than an independent business person. These agents are referred to as exclusive agents.

Many property-casualty and life insurance products can be purchased without the use of an agent. Typically potential policyholders will either be contacted through mail or Internet ads, or they can call an 800 number to apply for the insurance product. These companies claim to have better pricing, but many times they do not. They claim to save you money by “cutting out the middleman”, but what they do not tell the consumer is they are spending hundreds of millions of dollars on TV, radio, mail, and newspaper ads on their distribution system, as well as employee expenses. Instead of receiving personal, customized, quality local service from a highly trained insurance professional, the consumer is many times buying an inferior product that is based on price only and impersonal service from distant and minimally trained employees. By purchasing one’s insurance from an independent agent, a consumer can talk to the same people every time.

Insurance is a product where the insurance company promises to make future loss payments in return for a premium you pay today. It is therefore important that you know the financial health of the insurer when you are deciding how much you are willing to pay for the product. For example, holding all other things equal, people should pay slightly more for a life insurance policy from an insurance company with a higher financial rating or should pay slightly less for the same policy from a company that is not as financially strong.

The monthly publication Best’s Review (Life and Health Edition) periodically contains information on assets, premium income, and products sold by most of the largest life insurance companies operating in the U.S. The sister publication, Best’s Review (Property and Casualty Edition) provides certain statistical information on large property-casualty companies. Both magazines are published by the A. M. Best Company in Oldwick, NJ. Public libraries in cities of medium to large size frequently subscribe to one or both of these magazines.

When you apply for an insurance policy, you will be asked a number of questions. For example, the agent will ask you a number of demographic questions such as your name, age, sex, address, etc. In addition to these demographic questions, you will be asked a number of other questions that will be used to determine what type of risk you are. For example, when an insurance company is deciding whether or not to offer auto insurance to a potential policy owner, it will want to know about the person’s previous driving record, whether there have been any recent accidents or tickets, what type of car is to be insured and various other types of information.

Be sure to talk to your insurance agent about available discounts on car or auto insurance such as multi-car, renewal, claim-free, student discounts, driver training, defense driver course, anti-lock brakes, airbags, anti-theft devices, and auto/home discounts. Ask how much you can save by increasing your deductibles.

Insurers frequently award lower rates to homeowners who guard against theft, accidents, and other losses. Companies may provide discounts on the premium for customers with multiple policies (home and auto). Here are some things you can do that generally qualify for lower premiums:

Safety Equipment Discounts are available for safety equipment. If your boat is equipped with any of the following, check with your agent or broker to see if you qualify: GPS, Ship to Shore, VHF, Depth Sounder, Halon system, Fume detector, Alarm System Loran, and Boating Safety Courses. If you have taken the Coast Guard certification course, check with your current company as to the availability of a discount.

The term “full coverage” is a term that means the legally required or most commonly requested coverages. The term “full coverage” does not mean that everything is covered no matter what happens. “Full coverage” typically includes Bodily Injury, Property Damage, Uninsured and Underinsured Motorist, Damage to a covered vehicle (also known as Comprehensive and Collision), and any other coverages available such as rental car, towing, road service, or additional equipment coverage. Your auto insurance policy declaration page lists the coverages you have selected.

The coverage provided varies from state to state, and you should consult with your insurance agent for details. Generally, you are covered only for liability to the third parties unless the owner is a resident of your household, or the vehicle is furnished for your regular use. In many states, you are not covered for physical damage to the borrowed vehicle. Any coverage provided is over and above the collectible coverage provided by the owner of the vehicle.