Insurance companies charge premiums for covering the cost of the risks they insure. After thorough research, they set the premiums at certain levels that make them profitable. However, there is little information available to consumers about the types of various insurance companies. For instance, we often hear the terms: Domestic Insurer, Foreign Insurer, and Alien Insurer, but we have little understanding of what they mean. In this blog, we will talk about the Alien Insurers in detail and compare its definition with that of Domestic and Foreign insurance companies.
Domestic insurance company:
It refers to the company which has its base and home office in the same place as that of its clients. It is governed by the laws of the state that it functions in and is chartered in the same territory. For example, if the insurance company, located in Texas, is incorporated under the laws of Texas and caters to the demands of Texas’ people, it will be known as a Domestic Insurance Company.
Foreign insurance company:
This terminology was coined with respect to distinguish them from an Alien insurance company. In the United States, insurance companies have to abide by the laws of a particular state in which it’s functioning. Since the state laws in different states vary, the foreign company will have to take the local laws into consideration.
For example, an insurance company in Texas that sells policies to people staying in Florida or has its home office in Florida will be treated as a foreign insurance company in Florida. Hence, that particular company will have to abide by the laws and regulations of the state of Florida.
Alien Insurance Company:
When a domiciled company which has been incorporated in a different country and is selling policies to the common public beyond its geographical territory, is known as Alien insurance company. Every Alien insurer must abide by the laws and regulations of the country its agents are selling policies in.
For example, a country based in Texas (USA) is selling policies to its clients in London (UK), then it would be an alien insurer for its buyers in London. During the course of its proceedings, the insurer will be bound to follow the regulations or policies defined by the law in London and have to comply with it. Alien insurance companies are required to file financial statements, audit reports and meet the requirements of the country where it desires to function.
We would understand it better with a real-life example. Lloyd’s of London specializes in insuring unusual high-risk entities. It’s 41% of the total business amounting to more than $150 USD, which comes from selling policies in the United States.
Why Alien Companies thrive?
There can be various reasons by which an alien company can thrive. In the case of Lloyds of London, it is known for insuring the unusual. For instance, it has insured the vocal cords of Bob Dylan and Beyonce to cover the risk of prospective business the artists would have got. Apart from that, it can be the brand or the investment capacity of the insurance company. An established brand that has huge capital and knows how to woo its customers by providing better service at lower prices result in alien companies making space for themselves.