Insurance Broker Certification Practice Exam

What distinguishes a stock insurer from other types of insurance companies?

1. Ownership by policyholders

2. Issuance of participating policies

3. Ownership by stockholders

4. Focus on social insurance programs

The correct answer is: Ownership by stockholders

A stock insurer is distinct from other types of insurance companies primarily due to its ownership structure. In this case, ownership is held by stockholders, who may or may not be policyholders. This contrasts with mutual insurers, for instance, which are owned by the policyholders themselves. The capital for stock insurers is raised through the sale of shares, allowing them to access funding and resources to underwrite and manage risk. Stock insurers can also offer a diverse range of products and services while being accountable to shareholders who expect a return on their investment. This framework often leads to the issuance of non-participating policies, where policyholders do not share in the insurer's profits. Additionally, stock insurers are typically driven by profit motives, making them more inclined to focus on financial performance compared to mutual insurers, which may prioritize policyholder benefits. Understanding this ownership dynamic is crucial for grasping the broader insurance landscape, where different structures serve varying interests and objectives in the marketplace.