How do most insurance companies get their start?
I want to start my own eventually, but I don't even know wher to begin.

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Clarification of Question by ericid-ga on 27 Oct 2004 13:56 PDT

Maybe I need to help people understand my question.  I am a business
management student, and I do not want to be a students for the rest of
my life.  Someday I want to work for myself and make money.  My goal
is to someday start my own insurance company.  I really need to know
how an insurance company such as a health insurance company really
works so that I can begin to study the right things and get to where I
want to get in life.  So someone please help me to know how insurance
companies begin.  How they get the money to paty for all of those
hospital bills that they get.

Insurance companies startups are not at all unusual.  Forming an
insurance company first requires you to raise a sufficient amount of
capital to reach regulatory requirements.  Each state has its own
insurance regulations, and you must meet the regulations of each state
you plan to do business in.  MMC Capital, a division of Marsh
McLennan, is one traditional source of capital for new insurance
companies.

After achieving sufficient capital, your insurance company can begin
underwriting policies.  Often, insurance companies choose to
distribute their products through wholesale brokers, such as Marsh
McLennan.  Premiums are collected from policyholders and are used to
pay claims.  Excess returns from premiums that exceed claim payments
result in the firm's profits.

Ensuring profitability requires careful risk management.  First, the
premiums must be adequately priced to generate sufficient funds to pay
claims, business overhead, and provide a reasonable profit while
remaining sufficiently competitive to attract customers.  Actuaries
and statisticians play a critical role by analyzing the firm's
customers and likely claims.  Second, consideration must be given to
how much risk the firm wishes to manage and how much risk the firm
wishes to pass off to others by purchasing reinsurance.  Most
insurance companies choose to pool large risks with other insurance
companies by purchasing reinsurance.  Premiums are also invested in
stocks, bonds, and other instruments to further boost the firm's
profitability and claims paying ability.

Another more recent development is the opportunity to use third
parties to perform a variety of traditional insurance company
functions.  The possibility even exists of operating as a virtual
insurance company, with a third-party handling claims management and
policy design.  Accenture and CSC are examples of firms offering these
services.

As a student, key areas to study are corporate finance and statistics.
 Finding work with a small insurance company startup would also be a
valuable learning experience.  Acquiring experience working in the
financial operations of an insurance company would likely be critical
to having credibility to raise funds to start your own insurance
company.

Sincerely,

Wonko

Sources:

"Virtual Insurance Company" CSC
http://www.csc.com/industries/insurance/offeringdetails/800.shtml

"Governor Warner Announces Insurance Company Selects Henrico County
for Headquarters" Virginia Economic Development Partnership
http://yesvirginia.org/news/news.aspx?newsid=554

"The Cozy Ties Of Marsh May Be Hard To Untangle"  by Gretchen
Morgenson, The New York Times (October 27, 2004)
http://query.nytimes.com/gst/abstract.html?res=F0061FFD3E590C748EDDA90994DC404482

"Spawned a New Sector of the Health Insurance Industry"  Fast Company
(2004) http://www.fastcompany.com/fast50_04/profile/?wiggins1243

"Universal Leven: Outsourcing Back-Office Activities" Accenture
http://www.accenture.com/xd/xd.asp?it=enweb&xd=industries%5Cfinancial%5Cinsurance%5Ccase%5Cinsu_uni.xml

Search Terms: startup new "insurance company"

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Request for Answer Clarification by ericid-ga on 12 Nov 2004 14:40 PST

What is the sufficient amount of
capital to reach regulatory requirements.  and how do most of the
insurance companies raise that money

By the way thank you for th answer it was great that is exactly what I
wanted to know.

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Clarification of Answer by wonko-ga on 12 Nov 2004 15:46 PST

Here is a listing of minimum insurer capital requirements by state:

"STATUTORY MINIMUM CAPITAL AND SURPLUS REQUIREMENTS" National
Association of Insurance Commissioners (August 31,
2004)www.naic.org/ucaa/state_charts/State_
Chart_Minimum_Capital_and_Surplus_Requirements.pdf

As far as sources of funding go, various private equity firms like MMC
Capital and Golden Gate Capital are often used.  Junk bonds can be
issued.  For states requiring minimal capitalization, a bank loan may
even be sufficient.

Sincerely,

Wonko

Source: "Private Equity Firms Stock Up" By Mark Calvey American City
Business Journals Inc.
(September 20, 2002) sanfrancisco.bizjournals.com/
sanfrancisco/stories/2002/09/23/story2.html