The insurance organization developed in different forms with the advancement of insurance practices. Some of the forms are discussed below.
The plan by which an individual or concern sets up a private fund out of which to pay losses is termed “Self-insurance”.
The person lays aside periodically certain sum to meet the losses of any contemplated risk.
While it may be called “self-insurance”, it is not, as a matter of fact, insurance at all because there is no hedge, no shifting or distributing of the burden of risk among larger persons.
It is merely a provision for meeting the contingency. Here the insured becomes his own insurer for the particular risk.
But, it can be successfully worked only when there is wide distribution of risks subject to the same hazard.
It may be less expensive, provided the amount of loss is tremendous. The fund, as it accumulates, belongs to the insured and he can invest it as he may deem prudent.
He pays no commission to agents, no extra expenses for maintaining office. So, on the other hand, the return of an investment will be higher and on the other, the cost of operation will be lesser.
The self-insurance will be successfully operated where
(i) there are several properties such as, machine, motor vehicle, house factories, etc.,
(ii) the properties or units are widely distributed,
(iii) these are under the influence of varies risks, and
(iv) the risks are greater at one place and lesser at another place.
So a shipping company owning a large number of ships can profitably employ this scheme or an automobile firm having numerous motor vehicles can successfully operate this scheme.
Certainly a concern of limited risks and resources should not attempt to operate this scheme.
The self-insurance cannot be effectively utilized by those concerns where the loss cannot be easily estimated, no proper management of the accumulated funds can be practiced, and the accumulated funds prove to be inadequate at the contingency.
2. Individual Insurer
An individual like other business can perform the business of insurer provided he has sufficient resources and talent of insurance business. The individual organization has been rare in the field of insurance.
A partnership firm can also carry on the insurance business for the sake of profit.
Since it is not an entity distinct from the persons composing it, the personal liability of partners in respect of the partnership debts is unlimited.
In case of huge loss the partners have to pay from their own personal funds and it will not be profitable to them to start insurance business.
In the early period before the advent of joint stock companies many insurance undertakings were partnerships or unincorporated companies.
They were constituted by deed of partnerships which regulated the business.
Before formation of joint stock companies, the crown had empowered to grant an application letters patent to such unincorporated companies to operate the business with limited liabilities.
Sometimes, the policy-holders were permitted to share the management of the concern.
These forms of insurance had been completely disappeared with the advent of joint stock companies.
4. Joint Stock Companies
The joint stock companies are those which are organized by the share-holders who subscribe the necessary capital to star the business, are formed for earning profits for the stock-holders who are the real owners of the companies.
The management of a company is entrusted to a Board of Directors who are elected by the share-holders from among themselves.
The company can operate insurance and the policy-holders have nothing to do with the management of the concern. But, in life insurance, it is the practice to share certain portion of profit among the certain policy-holders.
The participating policy-holders are getting the bonus. Before nationalization, according to Insurance Act, 1938, the policy-holders had a right to elect their representatives to the Board of Directors to the extent of one-fourth of the total number of directors of the company.
The provision enabled the policy-holders to have an effective voice in the management of the company.
Most of the insurance businesses were done on joint stock basis before nationalization.
They were operating within the memorandum of association and articles of association framed by them.
They used to distribute only 5 per cent of divisible profit to the share-holders and more than 95 per cent of the divisible profit was distributed amongst the policy-holders.
5. Mutual Companies
The mutual companies were co-operative associations formed for the purpose of effecting insurance on the property of its members.
The policy-holders were themselves the share-holders of the companies, each members was insurer as well as insured.
They had power to participate in, management and in profit to the full extent.
When even the income was more than the expenses and claims, it was accumulated in the form of saving and was entitled in reducing the rate of premium.
Since the insured were insurers also, they always tried to reduce the management expenses and to keep the business at sound level.
The theoretical base of the mutual companies, is issuing of participating policies, i.e., the policy-holders had full power in management and profit, whereas the joint-stock companies, strictly were to issue non-participating policies.
But, in practice, the joint-stock companies were also issuing participating policies. It made them mixed companies i.e., where the features of joint stock companies and of mutual companies were present.
6. Co-operative Insurance Organization
Co-operative insurance organization are those concerns which are incorporated and registered under Indian Co-operative Societies.
The concerns are also called ‘Co-operative Insurance Societies’. These societies like mutual companies are non-profit organization.
The aim is to provide insurance protection to its members at the lowest reasonable, net cost.
The Indian Insurance Act, 1938, has provided special provisions for the co-operative insurance societies, but after nationalization the societies have been ceased.
IRDA has also permitted cooperative insurance organization in 2005.
7. Lloyd’s Association
Lloyd’s Association is one of the greatest insurance institutions in the world.
Taking its name from the Coffee House of Edward Lloyd, where underwriters assembled to transact business and pick-up news, the organization traces it origin to the latter part of the seventeenth century.
So, it is the oldest insurance organization in existing form in the world.
In 1871, Loyd’s Act was passed incorporating the members of the association into a single corporate body with perpetual succession and a corporate seal.
The powers of Lloyd’s Corporation was extended from the business marine insurance to other insurances and guarantee business.
The Lloyd’s association is an association of individual insurers known as ‘underwriters’. They are also termed as ‘Syndicated’ or ‘Names’.
Any insurer who wants to become a member of such association had to deposit a certain fee as security for the regular payment of his liabilities.
The association before enrolling the insurer as a member of the association will inquire about the financial position of the concern, business reputation and experience.
On satisfactory proof the association admits him in the association. The business is effected by the insurers called underwriters, syndicates, or names.
The association is merely a controlling and guiding body. Anybody desirous of taking insurance will approach to the ‘underwriters’ and not to the association.
Each underwriter will be responsible for his business underwriter of a policy. Thus, a policy will be underwritten by several underwriters but their share or portion of business are fixed individually.
When the policy becomes a claim, the insured realizes money from all the underwriters who had underwritten the policy, according to their respective shared.
If an underwriter fails to pay his share of claim, the association will pay from his security which he had taken at the time of enrolment of the underwriter.
Never is one member or underwriter liable for the losses of other members either on a policy or in a syndicate.
Underwriter assumes liability ‘each for himself and not for another’.
Lloyd’s as a corporation is never liable on a policy. It does supervise the conditions under which its members may issue policies; it undertakes to provide collective protection for the commercial and maritime interest of its members.
The Lloyd’s has done commendable work not only in the field of marine insurance but in other insurances also.
War risk election risk, export risk, aeroplane risk, etc., have been insured by the Lloyd’s Association.
The association also publishes, ‘Lloyd’s List’ and ‘Register of Shipping’ for the information of insuring public and the insurers.
8. State Insurance
The Government of a nation sometimes owns the insurance and runs the business for the benefit of the public.
The state insurance is defined as that insurance which is under public sector put; more specifically it can be stated that when governments have taken over the insurance business particularly life insurance.
France had nationalized large insurance companies in 1946. In Brazil, Japan and Mexico, the insurances are largely nationalized.
Previously, the state undertook only those insurances which were regarded to be very vital for the public interest or where private companies were not able or willing to enter the field of insurance.
Social security, unemployment, crop insurance, war risk insurance, export credit insurance, aeroplane insurance were generally under state insurance.