Assignment
Please answer each of the following and all parts of your answers must be in your own words. Any plagiarism will result in a grade of zero for all students involved. Please use your own words even if you are using the textbook for answers and provide a citation for all of your answers.
1. Most types of insurance, including property and casualty insurance, can be provided under different marketing systems. Compare the independent agency system with the exclusive agency system with respect to each of the following:
a. Number of insurers represented by the agent
b. Ownership of policy expirations
c. Differences in the payment of commissions
2. PredatorGeneral Insurance Company (PGIC) is a large stock property and liability insurer that specializes in the writing of commercial lines of insurance. The board of directors has appointed a committee to determine the feasibility of forming a new subsidiary insurer that would sell only personal lines of insurance, primarily homeowners and auto insurance. The new insurance company would have to meet certain management objectives. One member of the board of directors believes the new insurer should be a mutual insurer rather than a stock insurer. Assume you are an insurance consultant who is asked to serve on the committee. To what extent, if any, would each of the following objectives of the board of directors be met by formation of a mutual property and casualty insurer? Treat each objective separately.
a. PGIC must legally own the new insurer.
b. The new insurer should be able to sell common stock periodically in order to raise capital and expand into new markets.
c. The policies sold should pay dividends to the policyholders.
d. The new insurer should be licensed to do business in all states.
3. a. Describe three basic characteristics of stock insurers.
b. Describe three basic features of mutual insurers.
c. Identify three major types of mutual insurers.
4. A recent news article stated that "the number of life insurers has declined sharply during the past decade because of the increase in company mergers and acquisitions, demutualization of insurers, and formation of mutual holding companies."
a. Why have mergers and acquisitions among insurers increased over time?
b. What is the meant by demutualization?
c. Briefly explain the advantages of demutualization of a mutual life insurer.
d. What is a mutual holding company?
e. What are the advantages of a mutual holding company to an insurer?