How does an insurance company get started writing motorcycle policies?

Answer 1

The business of insurance is regulated by the individual states. In order for an insurer to transact business in a state, it has to become "authorized". This means that it has to submit a business plan, proposed rates, and otherwise follow a statutory scheme to get the authorization from the state insurance regulator. One of the big concerns of the regulator is finances, meaning that the insurer have sufficient assets to pay claims that are expected to arise from the policies that it issues.

Motorcycle policies can be of a few types, including:

1. Those that cover property damage to the insured bike only;

2. Those that cover property damage only to another bike that the insured person carelessly causes;

3. Those that cover medical expenses incurred by the insured person as a result of an incident involving the motorcycle;

4. Those that cover damages for physical injury sustained by another person caused by the insured's negligence.

The proposed insurer has to determine what coverages it wishes to offer. It then applies to the state regulator of each state in which it wants to transact business for authority to do so. This involves completing forms outlining all persons who operate the insurer, attesting to their background, submitting them to investigation, disclosing finances and other business connections.

The proposed insurer also has to itself demonstrate its financial strength and show that it meets standards set by state law. Part of this includes "reinsurance", which is a kind of insurance for the insurer. That is, it is an insurance product bought by an insurer intended to transfer some of the risk that the new insurer assumes from its customers. It is intended to make sure that there is enough money available to pay claims, even if those claims exceed the immediate resources of the insurer.

The new insurer also has to develop "forms". These are essentially the contract documents that define the scope of the risk that the insurer assumes. It also defines the limitations of that undertaking. The forms have to be approved by the state insurance regulator to ensure that they are fair to the consumer and that the coverage outlined in them is commensurate with the premium charged.

The new insurer will also have to develop a method of distributing its insurance product. This could be through a network of independent or captive agents. An independent agent is one who has a contract with the insurer to sell its products, but who can also sell competing products. A captive agent is usually an employee of the insurer, but in all events, one who is prohibited from selling competing products.