Why Are Insurance Companies Different From Other Financial Institutions?

1822 Words 8 Pages
Insurance companies do not generally set out to make deliberate, bad decisions when deciding whether to honor a claim, or pay for a procedure. Most insurance companies in today’s world are for-profit corporations, and their desire to increase profits frequently results in the implementation of business practices that adversely affect the insured. Although insurance companies are in the business of making money, they are not normal businesses. Why are insurance companies different from other financial institutions? This simple question is extremely important when trying to understand the current structure of insurance companies doing business, as well as its evolution into the modern business model. Many modern business models for financial institutions have converged banking, asset management, and insurance activities together to form a varied portfolio of monetary activities, molded into one stop shopping for the consumer. Fashionable examples involve: application of new asset management techniques to manage reserves of traditional insurance companies, increasing cross-selling efforts of insurance and financial products by both insurance companies and banks, and modification of products sold by insurance companies to include financial elements which could traditionally be found only in products offered by banks and investment houses. (Why are Insurance Companies Different, 2008)
Insurance companies, by law, do have mandated guidelines to follow requiring them to…

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