Written by An insurance market is any medium through which the buying and selling of insurance products take place.,
An insurance market is made up of four major components, which are the buyers, the sellers, the intermediaries, and the regulators.
Buyers in the Insurance Market
The buyers of insurance are the various individuals, groups, organizations, and businesses who may demand insurance products due to one reason or the other.
In the UK, the US, and other developed countries, there are usually three major buyers of insurance products, namely; commerce and industry, the general public, and the government.
1. Commerce and industry: This consist majorly of businesses, that buy insurance to protect their properties or protect themselves from legal liability incurred in compensating employees, consumers and third parties.
Commerce and industry represent the largest buyers of insurance products.
The demand for insurance products by this group of insurance buyers is a function of the business cycle.
That is, when there is an economic boom, more businesses will demand more insurance products whereas fewer insurance products will be demanded when there is an economic depression.
2. General public: This consist of individuals, households, clubs, and societies who buy insurance coverage for non-business reasons.
The demand for insurance protection by this group of insurance buyers is highly dependent on the disposal income.
For example, If the disposable income of an individual increases, his purchasing power increases so that he can provide more financial security for himself and purchase an insurance policy.
3. The government: This consist of the government and all its agencies.
Government and public agencies may buy insurance policies for the benefit of their employees.
Sellers in the Insurance Market
The sellers of insurance products are companies and organizations that have been duly registered and licensed to provide insurance coverage.
The sellers in the insurance market are insurance companies, the state, and reinsurance companies.
1. Insurance companies: These are the major suppliers of insurance products worldwide.
They offer various types of insurance policies to individuals, businesses, and other organizations, typically in exchange for a premium payment.
Insurance companies protect people against a specified risk and they serve as the biggest sellers of insurance products in the insurance market.
2. State (or government): The government also serve as a seller of insurance product when it provides insurance services directly to citizens through a state-run insurance program.
State-run insurance programs are usually put in place to ensure that people who are low-income earners or those who have special needs are adequately covered by an insurance program.
A good example of a state-run insurance program is Medicare in the USA, which primarily provides health insurance to people of 65 or older age.
3. Reinsurance companies: These sell insurance products to insurance companies.
Reinsurance companies are insurance companies that provide insurance coverage to other insurance companies.
They ensure that an insurance company can reinsure an already insured risk.
Reinsurance companies allow insurance companies to buy an insurance policy and provide financial protection for themselves.
It is important to note that reinsurance companies do not provide insurance coverage directly to customers.
Rather, they only deal with insurance companies.
Intermediaries in the Insurance Market
In the insurance market, intermediaries are individuals or groups who have some degree of independence from the insurer, who stands between the buyer and seller of the insurance products.
Insurance intermediaries act as matchmakers, matching the needs of the policyholders with the insurance products of the insurers.
There are three main intermediaries in the insurance market, namely; insurance brokers, agents, and insurance consultants.
1. Insurance brokers: This is an individual (or firm) who advises prospective policyholders on insurance matters.
An insurance broker is a person or company registered as an adviser on matters of insurance and as an arranger of insurance cover with an insurer on behalf of a client.
Oxford Dictionary
Insurance brokers typically represent the policyholder (not the insurance companies), as they work with a number of different insurance companies to find the best coverage options for their clients.
An insurance broker is expected to be an independent professional, who has acquired the required qualification and has duly registered with the professional association.
For example, in the UK, an insurance broker is expected to be duly registered with the Insurance Brokers Registration Council.
2. Insurance agents: An insurance agent is an individual( or firm) that is authorized to solicit and procure insurance business on behalf of one insurance company or multiple companies.
Insurance agents can be categorized into independent agents and employed agents.
An independent insurance agent is a self-employed agent who represents multiple insurance companies and earns a commission on the policies they help to underwrite.
On the other hand, an employed agent is an individual or firm authorized to solicit and procure insurance business on behalf of one insurance company.
He usually represents only one insurance company and sells insurance products on behalf of the company.
Employed insurance agents are usually paid a monthly salary, but they may also earn additional commission on the insurance policies they write.
One thing to note about insurance agents is that they typically serve as an intermediary between the prospective policyholders and the insurance company, linking the insurance company and the policyholders together.
3. Consultants: These are professionals who work with clients or insurance companies to assess their insurance needs and provide guidance on how to address the needs.
Consultants differ from insurance brokers and agents because they do not sell insurance policies.
Examples of consultants in the insurance market are:
- Loss adjusters: These assess and investigate claims made in insurance policies.
- Risk analysts: These asses the likelihood of a particular risk occurring and help clients determine the appropriate insurance coverage required to protect against those risks.
- Pension scheme planners: These help their clients plan for retirement by recommending appropriate pension and insurance products that suit their needs.
Regulators in the Insurance Market
Another player in the insurance market is the regulators.
The regulators in the insurance market are government and other agencies that set rules and regulations that guide the activities of other players in the insurance market.
Governments worldwide usually established guidelines, rules, policies and standards to guide the operation of insurance businesses.
Indeed, most countries usually have laws to guide the insurance industry.
For example, in Nigeria, the National Insurance Commission Act established the National Insurance Commission(NAICOM) in 1997 to administer, supervise, regulate and control the insurance business in Nigeria.
In the US, the insurance business is regulated by the McCarran-Ferguson Act.
In India, two laws guide the insurance business, which is the Insurance Act of 1938 and the Insurance Regulatory and Development Authority Act of 1999
Objectives of Regulating the Insurance Market
- To promote the insurance market as an effective analyst to enhance economic growth.
- To promote orderly growth of the insurance industry through the establishment of standards and prescriptions to guide insurance operations in and out of the insurance market.
- To serve as a means of mobilizing national savings and development.
- To develop efficient, cost-effective, comprehensive, and customer-driven insurance services.
Summary
We just look at the four components of insurance markets. Here are the things you should note:
- There are four main components of insurance markets, Viz: Buyers, sellers, intermediaries, and regulators.
- The buyers in an insurance market can be grouped into commerce and industry( (or business buyers), the general public (or household buyers), and the government.
- In the insurance markets, Insurance companies, reinsurance companies, and the government are the sellers or suppliers of insurance.
- Intermediaries in the insurance market can be categorized into three: insurance brokers, insurance agents, and consultants.
- The government, through its regulatory agencies, also serves as the regulator of the insurance market.
- The government serves as the buyer, seller, and regulator in the insurance market.
