Insurance entity definitions

Why entity definitions matter

The exam expects you to classify an insurer three separate ways: where it was formed, whether it is authorized to do business here, and who owns it. These are independent questions. A single company can be a foreign, authorized, mutual insurer all at once, so answer each question on its own.

1. Where it was formed: domestic, foreign, alien

• Domestic insurer -- formed under the laws of Florida.
• Foreign insurer -- formed under the laws of another U.S. state. A Texas company selling in Florida is foreign here.
• Alien insurer -- formed under the laws of a country outside the United States.

Domicile is fixed by where the company was formed, not by where it keeps offices or sells most of its business.

2. Whether it is authorized: admitted or nonadmitted

• An authorized (admitted) insurer holds a certificate of authority from the state to transact insurance in that state.
• An unauthorized (nonadmitted) insurer has no certificate of authority. It generally may not transact business directly with the public; the main lawful path is placement through a licensed surplus lines agent when coverage cannot be found in the admitted market.

3. Who owns it: forms of insurer organization

• Stock insurer -- owned by stockholders, who elect the board and may receive stock dividends from profits. Policies are usually nonparticipating.
• Mutual insurer -- owned by its policyholders. Policies are usually participating: any policy dividend is a return of unneeded premium and is never guaranteed.
• Reciprocal insurer (reciprocal exchange) -- an unincorporated group of subscribers who insure one another, run by an attorney-in-fact.
• Fraternal benefit society -- a nonprofit organization with a lodge system and a representative form of government that provides insurance benefits to its members.
• Lloyd's-type association -- not an insurer itself, but a marketplace in which individual underwriters or syndicates accept risks and are personally liable for the share they write.
• Risk retention group -- a liability insurer owned by its members, who are businesses with similar liability exposures.
• Self-insurer -- an employer or group that retains its own risk instead of buying a policy. Florida allows employer groups to self-insure workers' compensation collectively, and the members stay liable for the group's premiums and assessments.

Florida-specific points in the Code

• Kinds of insurance are grouped into "lines of insurance." The Financial Services Commission adopts the list by rule, consistent with the National Association of Insurance Commissioners' reporting requirements.
• Definitions can be section-specific. For the premium tax only, "insurer" includes any entity subject to that tax. A defined term can mean something broader in one section than in the rest of the Code.
• Self-insurers' groups do not escape their debts. When trustees of a workers' compensation self-insurers group petition, the Department orders members and former members to pay delinquent premiums and assessments. The money goes to the trustees to pay claims.
• Not every health-coverage entity is an insurer. The Florida Healthy Kids Corporation is a private not-for-profit corporation. Its board is chaired by the Chief Financial Officer, and the insurers under contract with it are payors of last resort.

Exam tip: first ask where the company was formed, then whether it is authorized, then who owns it. Each question has its own answer.