There are essentially two types of insurance companies: stock companies owned by shareholders and mutual companies owned by policyholders. (Blue Cross and Blue Shield are nonprofit associations which policyholders join.) Although the largest life insurance companies are of the mutual type, the total amount of life insurance protection in force is about equally divided between stock and mutual companies. In the property and liability insurance business, the largest company is also a mutual company, but stock companies account for over 70 percent of premium volume.
Multiple-line insurance institutions are those with affiliate companies writing both life and health and property and liability coverages. The largest property and liability insurers are affiliates of multiple-line institutions, as are the largest life insurers since the expansion of some mutual companies into property and liability lines.
Companies sell insurance in four ways: by direct mail; through an exclusive agent; through an independent agent; or through a broker. While the exclusive agent represents only one company, the independent agent may have agreements with several companies, and the broker is a legal representative of his clients rather than the companies with which he places business. Agents are paid commissions or fees by companies rather than by clients. For simplicity of discussion, however, all will here be referred to as agents.
From a privacy protection viewpoint, insurers differ more significantly in terms of product line than they do in terms of ownership and company structure. The application form for the simpler types of life and health insurance sold by direct mail typically asks for little information. Name, address, age, sex, occupation, a statement certifying that the applicant has not had certain illnesses within a stated period of time and is currently in good health, and the beneficiary's name usually suffice. This is possible because policies sold by direct mail are relatively small ones, the population buying them is comparatively large, and they tend to be for limited coverages. Thus, the spread of risk of illness and death on which the premium rates are predicated is maintained.
In contrast, insurance sold through agents typically requires more information from and about the applicant and other insureds. Such coverages tend to be broader, more varied, and often need to be tailored to the particular needs of the applicant. Of all insurance sold through agents, the type requiring the least personal information is group insurance, which is underwritten on an aggregate rather than an individual basis, i.e., over time the premium rate is determined by the illness and death experience of the entire group.
Because the experience of large groups is statistically more reliable, the experience of many small groups may often be combined in determining premium rates. Doing so, however, demands more care in offering group insurance to smaller firms than in offering it to larger ones, lest the people in low-risk groups inadvertently subsidize those in high-risk ones. Care is also exercised in soliciting large accounts, but only as to the aggregate mix of occupations or other gross characteristics of the members of the group. Thus, while group insurance by its nature is markedly less dependent on information about the individual than on any other types of insurance, the amount of detail that can be dispensed with will depend on the size of the group involved.
As to individual life, health, and property and liability insurance that is sold through agents, the amount of information collected about individual applicants and insureds can be extensive. Moreover, the way it is collected, used, and disclosed is somewhat different in life and health underwriting than in property and liability underwriting. These differences, and the privacy protection problems they create, are principal themes of this chapter.