Insurance companies operate using different business models. These models determine the types of products they offer, and they’re always changing to meet the needs of their customers. Companies that don’t update their business model often get behind and lose their market share. As the world continues to embrace new technology such as blockchain, we may get to see the introduction of newer and more efficient business models for insurance companies. Here are the key models that exist today. If you want to know more, click here for West Bend insurance company.
- Traditional Business Model
Traditional insurance companies are the most common type of insurers, and they offer a variety of products to consumers, including life, disability income, long-term care or nursing home coverage (LTC), short term health plans, or stop-gap policies (STHPs) that can be renewable annually, and health, dental or vision plans. A traditional insurer might work with a number of different agents responsible for helping the prospective customer determine which type of plan is best suited to their needs and how much it will cost based on certain factors such as age, gender, and location. Agents can also help customers with the application process.
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- Captive Business Model
A captive is a wholly-owned subsidiary of a corporation or an organization. The primary reason for creating a captive is to reduce the cost of insurance by operating as a self-insurer. Captives enable companies to transfer their risk to a separate legal entity, thus reducing the corporate tax that would be incurred by self-insuring. Captives also allow for tax-deductible premiums, which can lower the cost of coverage. Captives are often used by large corporations and organizations to reduce liability risk. They provide workers’ compensation insurance and other types of insurance.
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- Direct Writing Business Model
Direct insurance companies sell their products directly to consumers. They are often small and locally based, and they focus on a specific market. Direct insurance companies sell insurance, similar to the way that many companies sell products. They might focus on certain types of insurance, such as homeowners’ or auto insurance, or they may sell a variety of products, such as life insurance, disability insurance, and health insurance.
- Reinsurer Business Model
Reinsurers are insurance companies that specialize in insuring other insurance companies. Reinsurers offer financial support to primary insurance companies, which in turn allows primary insurance companies to write more insurance policies. Reinsurers help primary insurance companies manage their risk by sharing the risk with them, thereby spreading the financial burden. If an insurance company faces a large claim, the reinsurer will usually pay a percentage of the claim, while the primary insurance company pays the remaining percentage. They also help primary insurance companies by assuming risks that the primary insurance company couldn’t or didn’t want to cover. By assuming this risk, the reinsurer can help the primary insurance company reduce premiums.
- Group Model
Group insurance companies are made up of a number of individual members. These group members typically pay premiums to the company, and they receive coverage in return. Group models exist because individuals may have difficulty finding an insurer or getting approved for certain types of insurance on their own due to pre-existing conditions such as cancer or because they need certain types of insurance that most insurers won’t offer (like dental coverage) but still want to receive benefits.
Group models can be beneficial for both the group and its members. Group policies typically cost less than individual plans, as there are more people paying into them, so the risk of paying out a large claim is spread among many people.
- Medical Underwriting Business Model
Medical underwriters are insurance companies that focus on offering health and life coverage to individuals who have been rejected by most other insurers due to their pre-existing conditions (such as cancer). These types of policies tend to be more expensive than individual plans offered through a group because the premiums are higher due to the increased risk of paying out a claim.
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Staying in business means constantly innovating, and the insurance industry has begun looking into better models that reflect the needs of today’s businesses and individuals. There has been a rise of specialty insurers targeting specific niches since today’s society demands the personalization of services. Advances in data have also enabled the growth of global reinsurers that partner with alternative capital providers to provide coverage to previously unexplored markets and secondary markets. As technology gets better, new dominant insurance models may emerge that will shape how insurance coverage is offered.
