Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. There are also companies known as "insurance consultants". Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions.
Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies. Admitted insurance companies are those in the United States that have been admitted or licensed by the state licensing agency. This definition can sometimes be extended to include some of the risks of the parent company's customers. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client. In short, it is an in-house self-insurance vehicle.
Captives may take the form of a "pure" entity which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive which insures the collective risks of members of an industry); and of an "association" captive which self-insures individual risks of the members of a professional, commercial or industrial association. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices. But are allowed to sell insurance under special circumstances when they meet an insurance need that admitted companies cannot or will not meet.
Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. The insurance they sell is called admitted insurance. Non-admitted companies have not been approved by the state licensing agency. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have. The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. A number of independent rating agencies provide information and rate the financial viability of insurance companies.
For that reason, the viability of the insurance carrier is very important. Leaving their policyholders with no coverage or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses. An insurance premium paid currently provides coverage for losses that might arise many years in the future. In recent years, a number of insurance companies have become insolvent. It also rates financial instruments issued by the insurance company, such as bonds, notes, and securitization products. With the continuation of the gradual recovery of the global economy, it is likely the insurance industry will continue to see growth in premium income both in industrialised countries and emerging markets in 2011.