Private insurer
Also known as: private insurance company, commercial insurer
A private insurer is a non-governmental company that sells insurance coverage, as opposed to government programs like Medicare, Medicaid, and Social Security. Private insurers include stock companies, mutual companies, and fraternal benefit societies.
A private insurer is an insurance company owned and operated by private parties rather than a government. Private insurers write the bulk of life, health, and property and casualty coverage in the United States, in contrast to government (public) insurance programs such as Medicare, Medicaid, Social Security disability benefits, and the National Flood Insurance Program.
Private insurers come in several ownership forms. Stock insurers are owned by shareholders, who receive profits as taxable dividends. Mutual insurers are owned by their policyholders, who may receive dividends treated as a nontaxable return of excess premium. Fraternal benefit societies sell insurance to members of a lodge or association, and reciprocal exchanges are unincorporated groups whose members insure one another. Some private insurers are "participating" (policyholders share in divisible surplus) and others "nonparticipating."
The distinction between private and government insurance matters because each fills a different role. Private insurers accept risks they can underwrite profitably; government programs cover risks the private market handles poorly — old-age income, health care for the elderly and low-income populations, and catastrophic flood exposure. Private insurers are also classified by domicile (domestic, foreign, or alien) and by authorization: an admitted (authorized) insurer holds a certificate of authority in the state where it transacts insurance, while a nonadmitted insurer does not and may write only through the surplus lines market.
State insurance licensing exams, including the health insurance exam, test insurance sources directly: be able to sort insurers into private versus government categories and distinguish stock from mutual companies, including who owns each and how their dividends are treated.
Key takeaways
- Private insurers are non-governmental companies, unlike public programs such as Medicare, Medicaid, and Social Security.
- Stock insurers are owned by shareholders; mutual insurers are owned by policyholders.
- Stock company dividends are taxable to shareholders, while mutual policy dividends are generally a nontaxable return of premium.
- An admitted insurer holds a certificate of authority in the state where it transacts business; a nonadmitted insurer does not and writes through surplus lines.
- Licensing exams test the classification of insurers by ownership, domicile, and private versus government status.