The Importance Of Cooperation Between Insurance Companies

It is sometimes said of insurance companies that "they compete in a great spirit of cooperation." The existence of so many different types of associations in the insurance business is partly responsible for this statement.

A complete directory of cooperative life insurance organizations would have to include associations of company executives (the Association of Casualty and Surety Companies, for example); associations of technicians (e.g., the Insurance Accounting and Statistical Association or the various societies of actuaries), associations of insurance agents (e.g., the National Association of Insurance Agents), lobbying groups (e.g., the Insurance Economics Society), and many othersin fact, so many others that the student would lose himself in a complete list.


A few of these associations are not voluntary for, in some states, membership is required by state law, especially in rating organizations. The insurance business is one in which competition can be destructive. The wrong kind of competition can be detrimental to everyone concerned: the companies, the holders of different types of life insurance policies, and the general public. To protect the interest of the companies as well as the interest of the public, competition needs to be controlled either by governmental regulation or by cooperative action among the companies.

As a general rule, the companies prefer the latter method; and they have made efforts to discourage destructive competition. This they have done in spite of strong opposition from those who believe that the only socially desirable alternatives are state control or perfectly free competition.

The more serious obstacles to cooperative action, however, come from within the business itself rather than from outside it. Here, we find those that refuse to cooperateamong them the rugged individualist, the new life insurance company seeking growth, and the company that fails to see the point in cooperating, because they think they are the best life insurance company. It is these carriers which tend to make government regulation the best solution to the problem of protecting the public from undesirable competition.

There are four areas in which competition may exist in the insurance businessareas that are not peculiar to the business of insurance. They are prices (rates), products (policy terms), service, and representation in sales outlets (agencies). Competition can be dangerous in any of these areas except service.

Reasons for cooperative organizations are not all limited to restricting competition, howeveragain, a fact not peculiar to the business of insurance. Most industries maintain one or more trade associations to carry on activities that are best handled on an industry-wide rather than on an individual-company basis.

These associations engage in lobbying activities in behalf of legislation favorable to the industry; they oppose legislation unfavorable to the business; they engage in cooperative advertising and other means to improve the public relations of the industry and to sell the economic system under which they operate; they establish codes of ethics for the business, gather industry-wide statistics which may be put to valuable use, sponsor periodic meetings for the discussion of problems common to the industry of affordable life insurance, and engage in cooperative educational and research activities.

Carriers find that cooperative rate making is essential in most lines of insurance. This cooperation is maintained through rate-making organizations or through some subterfuge when such organizations have been illegal. These rate-making organizations may be independent bodies offering advisory rates to the carriers at a contract price; or they may be cooperative organizations owned, financed, and managed by the member companies (The state of Texas owns and operates its own rating bureau).

In the many states which require membership in a rating bureau and adherence to its rates and rules, rating organizations are closely regulated to assure that they will not be guilty of unfair, discriminatory practices. Where membership in a rating bureau is not required, most companies find it desirable to join one in order to save the expense of making independent filings in all of the states.

Sometimes, however, you'll find a life insurance company that prefers to remain outside the rating bureau and file their own rates independently. These carriers are called "nonconference companies" and sometimes are a thorn in the side of conference companies because of their rate-cutting practices.

Cooperative rating organizations exist in the various lines of insurance. For example, workmen's compensation rates for stock and mutual carriers are made by the National Council on Compensation Insurance; some inland marine insurance rates for stock companies are made by the Inland Marine Insurance Bureau; the Transportation Insurance Rating Bureau makes inland marine rates for mutual companies; rates for many casualty insurance lines are made for stock companies by the Natural Bureau of Casualty Underwriters and for mutual companies by the Mutual Casualty Insurance Rating Bureau.

By: Allison Ryan

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Allison Ryan is a freelance writer from Southern California. She specializes in affordable life insurance, financial planning, and business finance. For the best life insurance and free term life quotes, please visit www.equote.com/.