Insurance News - Monday, February 29, 2016

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Monday, February 29, 2016:

• Bramalea-Gore-Malton MPP Jagmeet Singh wants industry profits used to drive down auto insurance rates.
• The U.S. National Highway Transportation and Safety Administration told Google that the artificial intelligence system that controls its self-driving car can be considered a driver under federal law.
• Uber has agreed to pay $28.5 million to about 25 million passengers to settle two San Francisco class actions over the way it advertises its services.
• Google is killing off the car-insurance comparison tool that it rolled out last year.
• Uber's popularity is prompting Canadian insurance companies to introduce coverage for drivers carrying paying passengers in their personal vehicles.

Solar Panel Installation USA

Save money since it is cheaper to buy solar panels over 5-12 years than to pay the electric bill without panels - so you save MONEY and the environment - just choose the best deal, they got 12 year loans for 2-3% interest rate - plus after 12 years you get free electricity for the next 30 years or longer if panels last 50 years.  

You fell in love with your new house on sight. You loved the spacious rooms and the huge yard. Everything was perfect, until your first power bill arrived. Storm windows and low-wattage lighting will only go so far to save energy. Storm windows will not power your computers or your entertainment system, and we have yet to see a low-wattage PC. If you want a way to help lower your power bill and turn your house green, consider adding solar panels. We will install the panels and wiring so that you can enjoy a renewable power source and do something good for the planet at the same time. Year after year, as you watch your energy savings, you will see that the investment is well worth it. Contact us today for an estimate and let us get you started on a greener home.

 Electric car batteries and solar panels are far greener than alternatives.  Battery recycling for today's oil car lead batteries is happening at a 97% rate globally. It will be even better for the far safer lithium car batteries.   Lithium Ion batteries are classified by the federal government as non-hazardous waste.  Lithium ion batteries are made from nontoxic lithium carbonate (used in ovenware), nontoxic cobalt oxide (in pottery glaze), nontoxic graphite (in pencils), and a polymer (plastic) membrane. The most toxic components are the electrolyte and lithium cobalt oxide, neither of which are persistent in the environment and both of which are increasingly being replaced by safer compounds.  Wang Chuan-Fu, CEO of BYD, demonstrated the safety of the electrolyte in their lithium ion batteries by drinking it. Zero Motorcycles founder Neal Saiki said that the Lithium Ion batteries they use are safe to eat. 

Solar is way better than coal, oil or natural gas which spew 100-1000 times more carcinogens in the environment per unit of energy produced, besides far more CO2.  How long does a solar panel system have to operate to recover the energy used for making the panel? Energy payback for rooftop panels is 1-4 years depending on type.   Assuming a life of 30 years for a panel, that means that most energy produced will be free from pollution of any sort.

Electronic Proof...Still Not in Canada

Three years ago, I wrote an article about the status of electronic insurance cards.  Despite the fact that smartphones, tablets and other technological gadgets are now part of everyday life, providing proof of auto insurance coverage is like a nostalgic trip back to the days of our parents or grandparents.  In Canada,insurance companies and brokerages continue to mail, fax and e-mail copies of the standard pink insurance slips to policyholders upon renewal or policy changes.

Back in 2012, the Property Casualty Insurers Association of America (PCIAA) reported that 11 U.S. states had laws or regulations on the books that allow for electronic insurance cards to be used for both vehicle registration and when being pulled over by the police.  The PCIAA now reports that 43 U.S. states have enacted legislation which permits some form of electronic proof of insurance including electronic delivery and the use of an electronic image as evidence of coverage.  Clearly, electronic insurance cards are well accepted in the U.S.

Why is the U.S. and Canadian experience so different?

For one thing, not all Canadian jurisdictions use the standard 'pink slip.'   The public insurers in British Columbia, Manitoba and Saskatchewan have combined the insurance card with and the provincial motor vehicle registration card.  Quebec is a little different because private insurers sell physical damage coverage and must provide an insurance certificate.  There is no colour requirement and the document can be emailed, although electronic proof of insurance is still not permitted.

In Canada, there has been a perception that electronic delivery of insurance cards or electronic proof of insurance might be more at risk to fraud.  In fact, the paper insurance card is quite susceptible to fraud.  Police officers have no way to validate whether a pink slip provided by a driver is valid and unexpired, and therefore are inclined to just accept it.  

There are also concerns regarding privacy and liability.  When a driver hands over his or her mobile device to a police officer to show proof of insurance, can the officer access other information on the device?  What happens if the police officer drops and damages a mobile device while verifying insurance coverage?  Who Is liable for damages?

The U.S. experiences provide numerous examples of statutory or regulatory approaches to addressing these issues.  In Canada, many legal barriers to e-commerce have been eliminated.  Yet the insurance sector has clung to paper insurance cards. 

In Ontario, there is no legislative requirement that insurance cards be in paper form.   The Compulsory Automobile Insurance Act (sections 3 and 6) requires that a driver must always have an insurance card in their vehicle and must make it available to a police officer for inspection.  It does not stipulate what the card is to look like.  The Ontario Superintendent of Financial Services sets out the content, size and colour of the insurance card through a bulletin.  Consequently, the Superintendent has the authority to approve an electronic insurance card.  No statutory amendment is likely required.

It is inevitable that electronic proof of insurance will come to Canada. The technology exists.  It just seems that no one particularly wants to be the first to make the move.

Education Loan from USA

Education Loan from India or USA

With everyone trying to get into the best universities of the world, top universities in USA get a pool of talent every year. But the competition is so acute that only the ones who perform exceptionally well get the scholarships and the rest are left to finance their studies themselves. The value of talent in these universities, however, is high. So much so that most USA universities have done tie ups with banks to offer education loans to international students at subsidized rates to study at their university. Also, many banks have taken individual steps to ensure international students have access to education loans, without being recommended by a university.

 But before you proceed any further, know your loan options upfront and save yourself a lot of time, money and hassles. When it comes to Indian students there are plenty of Indian banks providing education loan to students to study abroad. However, you must educate yourself and know all the options you can benefit from. It is known for a fact that the rate of interest charged by Indian banks is usually higher than what is charged by USA banks for education loan programmers.

Things to know before applying for an education loan in the United States

But to be able to compare one bank to another you must have the basic understanding of how banks charge interest on education loans. Here we will break down some bank jargon for you. A good understanding of the following important concepts will help you to evaluate education loans better:

Fixed Rate vs.

Variable (Floating) Interest Rate: If you opt for Fixed interest rate, you will have a constant rate of time and the payment amount will never change during the course of your repayment. Whereas, variable interest rate is subject to market risk and hence the interest rate (and your periodic payment) goes up or down over the course of your repayment.

Immediate or Deferred Repayment: Here you have the choice to either start repaying the loan immediately after taking it or wait until after the completion of your degree. The interest rate of your education loan varies accordingly.

Now that you can comprehend the bank jargon, you should know the wide gamut of options available for you to pay your student loans. A lot of people use an amalgamation of different kinds of investments or savings that they have been investing in for a long while. For instance, Fixed Deposits, part-time jobs and even borrowing money from relatives. Though bank loan is the most preferred and hassle free option, it is advised to explore all your options before finalizing one. Because the money borrowed has to be repaid by you only, over a specific time period and not to forget with interest.

Canadian Mortgage Calculators

Canadian Mortgage Calculators

Whether or not to apply for a mortgage is probably one of the most important financial decisions in a person’s life. There are many choices that must be made and a lot of terminology to learn, especially if it is the consumer’s first time purchasing a home. That is why the right advice can have a significant financial impact. It is best to be prepared and many mortgage seekers will look for pre-approved mortgages before they start shopping for the home. This allows them to establish a budget on their purchase. By knowing how much is pre-approved will help the consumer narrow down the number of homes in the search. There are also hundreds of lenders in Canada that will help the consumer in the pre-approval process and will help the consumer lock in the best interest rate possible. One such way to make the process easier is through the internet because it has changed the way people shop for their mortgages, especially with the availability of tools such as mortgage calculators to aid in the process.

Toronto.

Renting Versus Buying Calculator

Through a Canadian mortgage calculator, the consumer can determine whether renting or buying is more economical based on the accommodation information and the payments.

light-bulb. Our Canadian mortgage calculator estimates your monthly payments. light-bulb.

There are several aspects that are to be considered when making the decision to rent or buy a piece of property. Below explains various advantages of renting that the consumer should consider:

To rent a home or apartment, the initial investment is rather low. The buyer often needs anywhere from 5 to 10 times the amount of cash to move into a home than simply rent an apartment.

Renting does become rather costly. The funds that are used for the down payment could be invested into accounts with high returns. This is especially true in situations where the renter remains a resident of the property less than four years.

The renter has less responsibility. The renter does not have to worry about repairs because it is the landlord’s responsibility. When living in a home, the consumer is responsible for all repairs and their costs.

When renting, budgeting is a bit easier because the rent is a fixed amount that may include various expenses such as utilities. When owning a home, all utilities are separate from the mortgage payment.

The renter has more flexibility to move. Leases can be short-term, which means the renter is free to move frequently.

Renting consists of lower insurance costs. The entire structure does not have to be insured, just the contents of the rented property.

The cost of moving in is low. There may be lower deposits required and no down payment may be required.

However, buying has advantages to consider:

There are savings that are available for the buyer depending on the situation. The cost of ownership can be less than the overall cost of renting.

The buyer has leverage because the buyer has control over the property and is aware of the capital gains from the beginning.

If the buyer plans on paying the principal balance down by a considerable amount, savings are forced. This can be rather advantageous.

The buyer also experiences various tax advantages such as property taxes can be tax deductible when itemized.

The buyer experiences personal freedom. The property is owned, which means the buyer can do whatever they like with the property without a landlord telling them they can or cannot do it.

The buyer has fewer restrictions. There are few rules that the buyer must obey, which usually includes restrictions regarding noise, children, and pets.

With mortgage payments made on time, home ownership can actually improve credit .

Mortgage Analyzer Calculator

Through the use of Canadian Mortgage Calculators, the payment and the balance summary can be calculated and the results can be seen in an amortization schedule by using the Mortgage Analyzer Calculator.

Complete Aticals of Insurance

Insurance

This article is about the risk management method. For insurance in blackjack, see Blackjack.

An advertising poster for an insurance company from ca. 1900-1918 depicts an armored knight.

Financial market participants

Assorted United States.

Credit unions Insurance companies Investment banks Investment funds Pension funds Prime brokers Trusts

Finance Financial market Participants Corporate finance Personal finance Public finance Banks and banking financial regulation Fund governance

Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. An insurer, or insurance carrier (often called an "insurance company), is sells the insurance policy to customers. The customers, who are called the insured or policyholder, is the person or entity (which may be a private company or other organization) buying the insurance policy. The amount of money to the customer pays for a certain amount of insurance coverage is called the "premium". Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

The transaction involves the insured making a payment to the insurer in exchange for the insurer's promise to compensate (indemnity) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. In the event that the insured experiences a financial or personal loss which is covered by the insurance policy, the insured makes an insurance claim to the insurer. Insurance company claims adjusters and other insurance company employees assess the claim. Insurance policies typically set out certain circumstances or actions which will void the insurance policy; if the insurance policy is voided, then the insurer may not have to pay out the claim.

Some typical examples of insurance purchased by individuals include house insurance (which may protect the insured against loss or damage to the home due to fire or other hazards); car insurance (which protects the driver against damage to her car, other vehicles she may have a collision with, liability for damages suffered by others in a collision, etc.) and life insurance.

Contents: 

01         History

02         Early methods

03          Modern insurance

04         Principles

05         Insurability

06         Legal

07          Indemnification

08         Social effects

09         Methods of insurance

10         Insurers' business model

11         Underwriting and investing

12         Claims

13         Marketing

14         Types

15         Auto insurance

16         Gap insurance

17         Health insurance

18         Income protection insurance

19         Casualty

20         Life

21         Burial insurance

22         Property

23         Liability

24         Credit

25         Other types

26         Insurance financing vehicles

27         Closed community and governmental self-insurance

28         Insurance companies

29         Across the world

30         Regulatory differences

31         Controversies

32         Does not reduce the risk

33         Insurance insulates too much

34         Complexity of insurance policy contracts

35         Limited consumer benefits

36         Redlining

37         Insurance patents

38         Insurance industry and rent-seeking

39         Religious concerns

40         See also

41         Notes

42         Bibliography

43         External links

History

Main article

History of insurance Early methods

Merchants have sought methods to minimize risks since early times. Methods for transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively.[1] Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen or lost at sea.

At some point in the 1st millennium BC, the inhabitants of Rhodes created the 'general average'. This allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether to storm or sink age.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. The first known insurance contract dates from Genoa in 1347, and in the next century maritime insurance developed widely and premiums were intuitively varied with risks.[3] These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance.

Modern insurance

Insurance became far more sophisticated in Enlightenment era Europe, and specialized varieties developed.

Lloyd's Coffee House was the first marine insurance company.

Property insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses. The devastating effects of the fire converted the development of insurance "from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his new plan for London in 1667". A number of attempted fire insurance schemes came to nothing, but in 1681, economist Nicholas Bar bon and eleven associates established the first fire insurance company, the "Insurance Office for Houses", at the back of the Royal Exchange to insure brick and frame homes. Initially, 5,000 homes were insured by his Insurance Office.

At the same time, the first insurance schemes for the underwriting of business ventures became available. By the end of the seventeenth century, London's growing importance as a center for trade was increasing demand for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house, which became the meeting place for parties in the shipping industry wishing to insure cargoes and ships, and those willing to underwrite such ventures. These informal beginnings led to the establishment of the insurance market Lloyd's of London and several related shipping and insurance businesses.

Leaflet promoting the National Insurance Act 1911.

The first life insurance policies were taken out in the early 18th century. The first company to offer life insurance was the Amicable Society for a Perpetual Assurance Office, founded in London in 1706 by William Talbot and Sir Thomas Allen.Edward Rowe Mores established the Society for Equitable Assurances on Lives and Survivorship in 1762.

It was the world's first mutual insurer and it pioneered age based premiums based on mortality rate laying "the framework for scientific insurance practice and development" and "the basis of modern life assurance upon which all life assurance schemes were subsequently based".

In the late 19th century, "accident insurance" began to become available. This operated much like modern disability insurance.The first company to offer accident insurance was the Railway Passengers Assurance Company, formed in 1848 in England to insure against the rising number of fatalities on the nascent railway system.

By the late 19th century, governments began to initiate national insurance programs against sickness and old age. Germany built on a tradition of welfare programs in Prussia and Saxony that began as early as in the 1840s. In the 1880s Chancellor Otto von Bismarck introduced old age pensions, accident insurance and medical care that formed the basis for Germany's welfare state. In Britain more extensive legislation was introduced by the Liberal government in the 1911 National Insurance Act. This gave the British working classes the first contributory system of insurance against illness and unemployment. This system was greatly expanded after the Second World War under the influence of the Beverage Report, to form the first modern welfare state.

Principles

Insurance involves pooling funds from many insured entities (known as exposures) to pay for the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be an insurable risk, the risk insured against must meet certain characteristics. Insurance as a financial intermediary is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure through saving money for possible future losses.

Inseparability

Main article: Inseparability

Risk which can be insured by private companies typically shares seven common characteristics

Large number of similar exposure units: Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses. Exceptions include Lloyd's of London, which is famous for insuring the life or health of actors, sports figures, and other famous individuals. However, all exposures will have particular differences, which may lead to different premium rates.

Definite loss: The loss takes place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place, or cause is identifiable. Ideally, the time, place, and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.

Accidental loss: The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be pure, in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements such as ordinary business risks or even purchasing a lottery ticket are generally not considered insurable.

Large loss: The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses, these latter costs may be several times the size of the expected cost of losses. There is hardly any point in paying such costs unless the protection offered has real value to a buyer.

Affordable premium: If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, then it is not likely that the insurance will be purchased, even if on offer. Furthermore, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, then the transaction may have the form of insurance, but not the substance (see the U.S. Financial Accounting Standards Board pronouncement number 113: "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts").

Calculable loss: There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.

Limited risk of catastrophically large losses: Insurable losses are ideally independent and non-catastrophic, meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer; insurers may prefer to limit their exposure to a loss from a single event to some small portion of their capital base. Capital constrains insurers' ability to sell earthquake insurance as well as wind insurance in hurricane zones. In the United States, flood risk is insured by the federal government. In commercial fire insurance, it is possible to find single properties whose total exposed value is well in excess of any individual insurer's capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.

Legal

When a company insures an individual entity, there are basic legal requirements and regulations. Several commonly cited legal principles of insurance include

Indemnity – the insurance company indemnifies, or compensates, the insured in the case of certain losses only up to the insured's interest.

Benefit insurance – as it is stated in the study books of The Chartered Insurance Institute, the insurance company doesn't have the right of recovery from the party who caused the injury and is to compensate the Insured regardless of the fact that Insured had already sued the negligent party for the damages (for example, personal accident insurance)

Insurable interest – the insured typically must directly suffer from the loss. Insurable interest must exist whether property insurance or insurance on a person is involved. The concept requires that the insured have a "stake" in the loss or damage to the life or property insured. What that "stake" is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons. The requirement of an insurable interest is what distinguishes insurance from gambling.

Utmost good faith – (Uberrima fides) the insured and the insurer are bound by a good faith bond of honesty and fairness. Material facts must be disclosed.

Contribution – insurers which have similar obligations to the insured contribute in the indemnification, according to some method.

Subrogation – the insurance company acquires legal rights to pursue recoveries on behalf of the insured; for example, the insurer may sue those liable for the insured's loss. The Insurers can waive their subrogation rights by using the special clauses.

Cause proximal, or proximate cause – the cause of loss (the peril) must be covered under the insuring agreement of the policy, and the dominant cause must not be excluded

Mitigation – In case of any loss or casualty, the asset owner must attempt to keep loss to a minimum, as if the asset was not insured.

Indemnification

Main article: Indemnity

To "indemnify" means to make whole again, or to be reinstated to the position that one was in, to the extent possible, prior to the happening of a specified event or peril. Accordingly, life insurance is generally not considered to be indemnity insurance, but rather "contingent" insurance (i.e., a claim arises on the occurrence of a specified event). There are generally three types of insurance contracts that seek to indemnify an insured:

A "reimbursement" policy

A "pay on behalf" or "on behalf of policy"

An "indemnification" policy

From an insured's standpoint, the result is usually the same: the insurer pays the loss and claims expenses.

If the Insured has a "reimbursement" policy, the insured can be required to pay for a loss and then be "reimbursed" by the insurance carrier for the loss and out of pocket costs including, with the permission of the insurer, claim expenses.

Under a "pay on behalf" policy, the insurance carrier would defend and pay a claim on behalf of the insured that would not be out of pocket for anything. Most modern liability insurance is written on the basis of "pay on behalf" language which enables the insurance carrier to manage and control the claim.

 "indemnification"

Under an "indemnification" policy, the insurance carrier can generally either "reimburse" or "pay on behalf of", whichever is more beneficial to it and the insured in the claim handling process.

An entity seeking to transfer risk (an individual, corporation, or association of any type, etc.) becomes the 'insured' party once risk is assumed by an 'insurer', the insuring party, by means of a contract, called an insurance policy. Generally, an insurance contract includes, at a minimum, the following elements: identification of participating parties (the insurer, the insured, the beneficiaries), the premium, the period of coverage, the particular loss event covered, the amount of coverage (i.e., the amount to be paid to the insured or beneficiary in the event of a loss), and exclusions (events not covered). An insured is thus said to be "indemnified" against the loss covered in the policy.

When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a claim against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the premium. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims – in theory for a relatively few claimants – and for overhead costs. So long as an insurer maintains adequate funds set aside for anticipated losses (called reserves), the remaining margin is an insurer's profit.

Social effects

Insurance can have various effects on society through the way that it changes who bears the cost of losses and damage. On one hand it can increase fraud; on the other it can help societies and individuals prepare for catastrophes and mitigate the effects of catastrophes on both households and societies.

Insurance can influence the probability of losses through moral hazard, insurance fraud, and preventive steps by the insurance company. Insurance scholars have typically used moral hazard to refer to the increased loss due to unintentional carelessness and moral hazard to refer to increased risk due to intentional carelessness or indifference. Insurers attempt to address carelessness through inspections, policy provisions requiring certain types of maintenance, and possible discounts for loss mitigation efforts. While in theory insurers could encourage investment in loss reduction, some commentators have argued that in practice insurers had historically not aggressively pursued loss control measures—particularly to prevent disaster losses such as hurricanes—because of concerns over rate reductions and legal battles. However, since about 1996 insurers have begun to take a more active role in loss mitigation, such as through building codes.

Methods of insurance

In accordance with study books of The Chartered Insurance Institute, there are the following types of insurance:

Co-insurance – risks shared between insurers

Dual insurance – risks having two or more policies with same coverage

Self-insurance – situations where risk is not transferred to insurance companies and solely retained by the entities or individuals themselves

Reinsurance – situations when Insurer passes some part of or all risks to another Insurer called

 Reinsurer

Insurers' business model

will happen William-H.-Watson-Universal-Star-Featurette-1922-EYE FLM1205-OB 687097-720x404.ogv.webm

Accidents will happen (William H. Watson, 1922) is a slapstick silent film about the methods and mishaps of an insurance broker. Collection EYE Film Institute Netherlands.

Underwriting and investing

The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept. Profit can be reduced to a simple equation:

Profit = earned premium + investment income – incurred loss – underwriting expenses.

Insurers make money in two ways:

Through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks

By investing the premiums they collect from insured parties

The most complicated aspect of the insurance business is the actuarial science of ratemaking (price-setting) of policies, which uses statistics and probability to approximate the rate of future claims based on a given risk. After producing rates, the insurer will use discretion to reject or accept risks through the underwriting process.

At the most basic level, initial rate making involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils. Thereafter an insurance company will collect historical loss data, bring the loss data to present value, and compare these prior losses to the premium collected in order to assess rate adequacy. Loss ratios and expense loads are also used. Rating for different risk characteristics involves at the most basic level comparing the losses with "loss relativistic"—a policy with twice as many losses would therefore be charged twice as much. More complex multivariate analyses are sometimes used when multiple characteristics are involved and a uni variate analysis could produce confounded results. Other statistical methods may be used in assessing the probability of future losses.

Upon termination of a given policy, the amount of premium collected minus the amount paid out in claims is the insurer's underwriting profit on that policy. Underwriting performance is measured by something called the "combined ratio", which is the ratio of expenses/losses to premiums. A combined ratio of less than 100% indicates an underwriting profit, while anything over 100 indicates an underwriting loss. A company with a combined ratio over 100% may nevertheless remain profitable due to investment earnings.

Insurance companies earn investment profits on "float". Float, or available reserve, is the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out. The Association of British Insurers (gathering 400 insurance companies and 94% of UK insurance services) has almost 20% of the investments in the London Stock Exchange.

In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held.

Naturally, the float method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards, so a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the underwriting, or insurance, cycle.

Claims

Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insured’s directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form, such as those produced by ACORD.

Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes an investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment.

The policyholder may hire their own public adjuster to negotiate the settlement with the insurance company on their behalf. For policies that are complicated, where claims may be complex, the insured may take out a separate insurance policy add-on, called loss recovery insurance, which covers the cost of a public adjuster in the case of a claim.

Adjusting liability insurance claims is particularly difficult because there is a third party involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket. The adjuster must obtain legal counsel for the insured (either inside "house" counsel or outside "panel" counsel), monitor litigation that may take years to complete, and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge.

If a claims adjuster suspects under-insurance, the condition of average may come into play to limit the insurance company's exposure.

In managing the claims handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims over payment leakages. As part of this balancing act, fraudulent insurance practices are a major business risk that must be managed and overcome. Disputes between insurers and insured’s over the validity of claims or claims handling practices occasionally escalate into litigation (see insurance bad faith).

Marketing

Insurers will often use insurance agents to initially market or underwrite their customers. Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies. The existence and success of companies using insurance agents is likely due to improved and personalized service.

Types

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as perils. An insurance policy will set out in detail which perils are covered by the policy and which is not. Below are non-exhaustive lists of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set out below. For example, vehicle insurance would typically cover both the property risk (theft or damage to the vehicle) and the liability risk (legal claims arising from an accident). A home insurance policy in the United States typically includes coverage for damage to the home and the owner's belongings, certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property.

Business insurance can take a number of different forms, such as the various kinds of professional liability insurance, also called professional indemnity (PI), which are discussed below under that name; and the business owner's policy (BOP), which packages into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners' insurance packages the coverage’s that a homeowner needs.

Auto insurance

Main article: Vehicle insurance

A wrecked vehicle in Copenhagen

Auto insurance protects the policyholder against financial loss in the event of an incident involving a vehicle they own, such as in a traffic collision.

Coverage typically includes:

Property coverage, for damage to or theft of the car

Liability coverage, for the legal responsibility to others for bodily injury or property damage

Medical coverage, for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses

Gap insurance

Main article: Gap insurance

Gap insurance covers the excess amount on your auto loan in an instance where your insurance company does not cover the entire loan. Depending on the company's specific policies it might or might not cover the deductible as well. This coverage is marketed for those who put low down payments, have high interest rates on their loans, and those with 60-month or longer terms. Gap insurance is typically offered by a finance company when the vehicle owner purchases their vehicle, but many auto insurance companies offer this coverage to consumers as well.

Health insurance

Main articles: Health insurance and Dental insurance 

Great Western Hospital, Swanson

Health insurance policies cover the cost of medical treatments. Dental insurance, like medical insurance, protects policyholders for dental costs. In most developed countries, all citizens receive some health coverage from their governments, paid for by taxation. In most countries, health insurance is often part of an employer's benefits.

Income protection insurance

Workers' compensation, or employers' liability insurance, is compulsory in some countries

Disability insurance policies provide financial support in the event of the policyholder becoming unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgage loans and credit cards. Short-term and long-term disability policies are available to individuals, but considering the expense, long-term policies are generally obtained only by those with at least six-figure incomes, such as doctors, lawyers, etc. Short-term disability insurance covers a person for a period typically up to six months, paying a stipend each month to cover medical bills and other necessities.

Long-term disability insurance covers an individual's expenses for the long term, up until such time as they are considered permanently disabled and thereafter Insurance companies will often try to encourage the person back into employment in preference to and before declaring them unable to work at all and therefore totally disabled.

Disability overhead insurance allows business owners to cover the overhead expenses of their business while they are unable to work.

Total permanent disability insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance.

Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expenses incurred because of a job-related injury.

Casualty

Main article: Casualty insurance

Casualty insurance insures against accidents, not necessarily tied to any specific property. It is a broad spectrum of insurance that a number of other types of insurance could be classified, such as auto, workers compensation, and some liability insurances.

Crime insurance is a form of casualty insurance that covers the policyholder against losses arising from the criminal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft or embezzlement.

Terrorism insurance provides protection against any loss or damage caused by terrorist activities. In the United States in the wake of 9/11, the Terrorism Risk Insurance Act 2002 (TRIA) set up a federal program providing a transparent system of shared public and private compensation for insured losses is resulting from acts of terrorism. The program was extended until the end of 2014 by the Terrorism Risk Insurance Program Re authorization Act 2007 (TRIPRA).

Kidnap and ransom insurance is designed to protect individuals and corporations operating in high-risk areas around the world against the perils of kidnap, extortion, wrongful detention and hijacking.

Political risk insurance is a form of casualty insurance that can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions could result in a loss.

LIFE

Main article: Life insurance

Amicable Society for a Perpetual Assurance Office, Sergeants' Inn, Fleet Street, London, 1801

Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. In most states, a person cannot purchase a policy on another person without their knowledge.

Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies, are regulated as insurance, and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance.

Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed.

In many countries, such as the United States and the UK, the tax law provides that the interest on this cash value is not taxable under certain circumstances. This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death.

In the United States, the tax on interest income on life insurance policies and annuities is generally deferred. However, in some cases the benefit derived from tax deferral may be offset by a low return. This depends upon the insuring company, the type of policy and other variables (mortality, market return, etc.). Moreover, other income tax saving vehicles (e.g., IRAs, 401(k) plans, Roth IRAs) may be better alternatives for value accumulation.

Burial insurance

Burial insurance is a very old type of life insurance which is paid out upon death to cover final expenses, such as the cost of a funeral. The Greeks and Romans introduced burial insurance c. 600 CE when they organized guilds called "benevolent societies" which cared for the surviving families and paid funeral expenses of members upon death. Guilds in the middle Ages served a similar purpose, as did friendly societies during Victorian times.

Property

Main article: Property insurance

This tornado damage to an Illinois home would be considered an "Act of God" for insurance purposes

Property insurance provides protection against risks to property, such as fire, theft or weather damage. This may include specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance. The term property insurance may, like casualty insurance, be used as a broad category of various subtypes of insurance, some of which are listed below:

US Airways Flight 1549 was written off after ditching into the Hudson River

Aviation insurance protects aircraft hulls and spares, and associated liability risks, such as passenger and third-party liability. Airports may also appear under this subcategory, including air traffic control and refueling operations for international airports through to smaller domestic exposures.

Boiler insurance (also known as boiler and machinery insurance, or equipment breakdown insurance) insures against accidental physical damage to boilers, equipment or machinery.

Builder's risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage arising from any cause (including the negligence of the insured) not otherwise expressly excluded. Builder's risk insurance is coverage that protects a person's or organization's insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from an insured peril.

Crop insurance may be purchased by farmers to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease.

Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary home insurance policies do not cover earthquake damage. Earthquake insurance policies generally feature a high deductible. Rates depend on location and hence the likelihood of an earthquake, as well as the construction of the home.

Fidelity bond is a form of casualty insurance that covers policyholders for losses incurred as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.

Hurricane Katrina caused over $80 billion of storm and flood damage

Flood insurance protects against property loss due to flooding. Many U.S. insurers do not provide flood insurance in some parts of the country. In response to this, the federal government created the National Flood Insurance Program which serves as the insurer of last resort.

Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI), and provides coverage for damage or destruction of the policyholder's home. In some geographical areas, the policy may exclude certain types of risks, such as flood or earthquake that require additional coverage. Maintenance-related issues are typically the homeowner's responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent housing. In some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.

Landlord insurance covers residential and commercial properties which are rented to others. Most homeowners' insurance covers only owner-occupied homes.

Marine insurance and marine cargo insurance cover the loss or damage of vessels at sea or on inland waterways, and of cargo in transit, regardless of the method of transit. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss.

Supplemental natural disaster insurance covers specified expenses after a natural disaster renders the policyholder's home uninhabitable. Periodic payments are made directly to the insured until the home is rebuilt or a specified time period has elapsed.

Surety bond insurance is a three-party insurance guaranteeing the performance of the principal.

The demand for terrorism insurance surged after 9/11

Volcano insurance is a specialized insurance protecting against damage arising specifically from volcanic eruptions.

Windstorm insurance is an insurance covering the damage that can be caused by wind events such as hurricanes.

Liability

Main article: Liability insurance

Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property. The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the negligence of the insured, and will not apply to results of willful or intentional acts by the insured.

The subprime mortgage crisis was the source of many liability insurance losses

Public liability insurance covers a business or organization against claims should its operations injure a member of the public or damage their property in some way.

Directors and officers liability insurance (D&O) protects an organization (usually a corporation) from costs associated with litigation resulting from errors made by directors and officers for which they are liable.

Environmental liability insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of pollutants.

Errors and omissions insurance (E&O) is business liability insurance for professionals such as insurance agents, real estate agents and brokers, architects, third-party administrators (TPAs) and other business professionals.

Prize indemnity insurance protects the insured from giving away a large prize at a specific event. Examples would include offering prizes to contestants who can make a half-court shot at a basketball game, or a hole-in-one at a golf tournament.

Professional liability insurance, also called professional indemnity insurance (PI), protects insured professionals such as architectural corporations and medical practitioners against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called medical malpractice insurance.

CREDIT

Main article: Payment protection insurance

Credit insurance repays some or all of a loan when the borrower is insolvent.

Mortgage insurance insures the lender against default by the borrower. Mortgage insurance is a form of credit insurance, although the name "credit insurance" more often is used to refer to policies that cover other kinds of debt.

Many credit cards offer payment protection plans which are a form of credit insurance.

Trade credit insurance is business insurance over the accounts receivable of the insured. The policy pays the policy holder for covered accounts receivable if the debtor defaults on payment.

Collateral protection insurance (CPI) insures property (primarily vehicles) held as collateral for loans made by lending institutions.

OTHER TYPES

All-risk insurance is an insurance that covers a wide range of incidents and perils, except those noted in the policy. All-risk insurance is different from peril-specific insurance that cover losses from only those perils listed in the policy. In car insurance, all-risk policy includes also the damages caused by the own driver.

High-value horses may be insured under a bloodstock policy

Bloodstock insurance covers individual horses or a number of horses under common ownership. Coverage is typically for mortality as a result of accident, illness or disease but may extend to include infertility, in-transit loss, veterinary fees, and prospective foal.

Business interruption insurance covers the loss of income, and the expenses incurred, after a covered peril interrupts normal business operations.

Defense Base Act (DBA) insurance provides coverage for civilian workers hired by the government to perform contracts outside the United States and Canada. DBA is required for all U.S. citizens, U.S. residents, U.S. Green Card holders, and all employees or subcontractors hired on overseas government contracts. Depending on the country, foreign nationals must also be covered under DBA. This coverage typically includes expenses related to medical treatment and loss of wages, as well as disability and death benefits.

Expatriate insurance provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits.

Legal expenses insurance covers policyholders for the potential costs of legal action against an institution or an individual. When something happens which triggers the need for legal action, it is known as "the event". There are two main types of legal expenses insurance: before the event insurance and after the event insurance.

Livestock insurance is a specialist policy provided to, for example, commercial or hobby farms, aquariums, fish farms or any other animal holding. Cover is available for mortality or economic slaughter as a result of accident, illness or disease but can extend to include destruction by government order.

Media liability insurance is designed to cover professionals that engage in film and television production and print, against risks such as defamation.

Nuclear incident insurance covers damages resulting from an incident involving radioactive materials and is generally arranged at the national level. (See the nuclear exclusion clause and for the US the Price-Anderson Nuclear Industries Indemnity Act.)

Pet insurance insures pets against accidents and illnesses; some companies cover routine/wellness care and burial, as well.

Pollution insurance usually takes the form of first-party coverage for contamination of insured property either by external or on-site sources. Coverage is also afforded for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically 

excluded.

Purchase insurance is aimed at providing protection on the products people purchase. Purchase insurance can cover individual purchase protection, warranties, guarantees, care plans and even mobile phone insurance. Such insurance is normally very limited in the scope of problems that are covered by the policy.

Tax insurance is increasingly being used in corporate transactions to protect taxpayers in the event that a tax position it has taken is challenged by the IRS or a state, local, or foreign taxing authority

Title insurance provides a guarantee that title to real property is vested in the purchaser and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a real estate transaction.

Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, loss of personal belongings, travel delay, and personal liabilities.

Tuition insurance insures students against involuntary withdrawal from cost-intensive educational institutions

Interest rate insurance protects the holder from adverse changes in interest rates, for instance for those with a variable rate loan or mortgage Divorce insurance is a form of contractual liability insurance that pays the insured a cash benefit if their marriage ends in divorce.

Insurance financing vehicles

Fraternal insurance is provided on a cooperative basis by fraternal benefit societies or other social organizations.

No-fault insurance is a type of insurance policy (typically automobile insurance) where insured’s are indemnified by their own insurer regardless of fault in the incident.

Protected self-insurance is an alternative risk financing mechanism in which an organization retains the mathematically calculated cost of risk within the organization and transfers the catastrophic risk with specific and aggregate limits to an insurer so the maximum total cost of the program is known. A properly designed and underwritten Protected Self-Insurance Program reduces and stabilizes the cost of insurance and provides valuable risk management information.

Retrospectively rated insurance is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based partially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract. Formula: retrospective premium = converted loss + basic premium × tax multiplier. Numerous variations of this formula have been developed and are in use.

Formal self-insurance is the deliberate decision to pay for otherwise insurable losses out of one's own money.[citation needed] This can be done on a formal basis by establishing a separate fund into which funds are deposited on a periodic basis, or by simply forgoing the purchase of available insurance and paying out-of-pocket. Self-insurance is usually used to pay for high-frequency, low-severity losses. Such losses, if covered by conventional insurance, mean having to pay a premium that includes loading for the company's general expenses, cost of putting the policy on the books, acquisition expenses, premium taxes, and contingencies. While this is true for all insurance, for small, frequent losses the transaction costs may exceed the benefit of volatility reduction that insurance otherwise affords.

Reinsurance is a type of insurance purchased by insurance companies or self-insured employers to protect against unexpected losses. Financial reinsurance is a form of reinsurance that is primarily used for capital management rather than to transfer insurance risk

Social insurance can be many things to many people in many countries. But a summary of its essence is that it is a collection of insurance coverage’s (including components of life insurance, disability income insurance, unemployment insurance, health insurance, and others), plus retirement savings, that requires participation by all citizens. By forcing everyone in society to be a policyholder and pay premiums, it ensures that everyone can become a claimant when or if he/she needs to. Along the way this inevitably becomes related to other concepts such as the justice system and the welfare state. This is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):

Social safety net

Social security

Social Security debate (United States)

Social Security (United States)

Social welfare provision

Stop-loss insurance provides protection against catastrophic or unpredictable losses. It is purchased by organizations who do not want to assume 100% of the liability for losses arising from the plans. Under a stop-loss policy, the insurance company becomes liable for losses that exceed certain limits called deductibles.

Closed community and governmental self-insurance

Some communities prefer to create virtual insurance amongst themselves by other means than contractual risk transfer, which assigns explicit numerical values to risk. A number of religious groups, including the Amish and some Muslim groups, depend on support provided by their communities when disasters strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard of explicit insurance contracts.

In the United Kingdom, The Crown (which, for practical purposes, meant the civil service) did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether.

In the United States, the most prevalent form of self-insurance is governmental risk management pools. They are self-funded cooperatives, operating as carriers of coverage for the majority of governmental entities today, such as county governments, municipalities, and school districts. Rather than these entities independently self-insure and risk bankruptcy from a large judgment or catastrophic loss, such governmental entities form a risk pool. Such pools begin their operations by capitalization through member deposits or bond issuance. Coverage (such as general liability, auto liability, professional liability, workers compensation, and property) is offered by the pool to its members, similar to coverage offered by insurance companies. However, self-insured pools offer members lower rates (due to not needing insurance brokers), increased benefits (such as loss prevention services) and subject matter expertise. Of approximately 91,000 distinct governmental entities operating in the United States, 75,000 are members of self-insured pools in various lines of coverage, forming approximately 500 pools. Although a relatively small corner of the insurance market, the annual contributions (self-insured premiums) to such pools have been estimated up to 17 billion dollars annually.

Insurance companies

Certificate issued by Republic Fire Insurance Co. of New York c. 1860

Insurance companies may be classified into two groups:

Life insurance companies, which sell life insurance, annuities and pensions products.

Non-life or property/casualty insurance companies, which sell other types of insurance.

General insurance companies can be further divided into these sub categories.

Standard lines

Excess lines

In most countries, life and non-life insurers are subject to different regulatory regimes and different tax and accounting rules. The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature – coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year.

In the United States, standard line insurance companies are insurers that have received a license or authorization from a state for the purpose of writing specific kinds of insurance in that state, such as automobile insurance or homeowners' insurance. They are typically referred to as "admitted" insurers. Generally, such an insurance company must submit its rates and policy forms to the state's insurance regulator to receive his or her prior approval, although whether an insurance company must receive prior approval depends upon the kind of insurance being written. Standard line insurance companies usually charge lower premiums than excess line insurers and may sell directly to individual insureds. They are regulated by state laws, which include restrictions on rates and forms, and which aim to protect consumers and the public from unfair or abusive practices.These insurers also are required to contribute to state guarantee funds, which are used to pay for losses if an insurer becomes insolvent.

The subscription room at Lloyd's of London in the early 19th century.

Excess line insurance companies (also known as Excess and Surplus) typically insure risks not covered by the standard lines insurance market, due to a variety of reasons (e.g., new entity or an entity that does not have an adequate loss history, an entity with unique risk characteristics, or an entity that has a loss history that does not fit the underwriting requirements of the standard lines insurance market). They are typically referred to as non-admitted or unlicensed insurers.Non-admitted insurers are generally not licensed or authorized in the states in which they write business, although they must be licensed or authorized in the state in which they are domiciled.These companies have more flexibility and can react faster than standard line insurance companies because they are not required to file rates and forms.However, they still have substantial regulatory requirements placed upon them.

Most states require that excess line insurers submit financial information, articles of incorporation, a list of officers, and other general information. They also may not write insurance that is typically available in the admitted market, do not participate in state guarantee funds (and therefore policyholders do not have any recourse through these funds if an insurer becomes insolvent and cannot pay claims), may pay higher taxes, only may write coverage for a risk if it has been rejected by three different admitted insurers, and only when the insurance producer placing the business has a surplus lines license.Generally, when an excess line insurer writes a policy, it must, pursuant to state laws, provide disclosure to the policyholder that the policyholder's policy is being written by an excess line insurer.

On July 21, 2010, President Barack Obama signed into law the No admitted and Reinsurance Reform Act of 2010 ("NRRA"), which took effect on July 21, 2011, and was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The NRRA changed the regulatory paradigm for excess line insurance. Generally, under the NRRA, only the insured's home state may regulate and tax the excess line transaction.

Insurance companies are generally classified as either mutual or proprietary companies.[38] Mutual companies are owned by the policyholders, while shareholders (who may or may not own policies) own proprietary insurance companies.

Demoralization of mutual insurers to form stock companies, as well as the formation of a hybrid known as a mutual holding company, became common in some countries, such as the United States, in the late 20th century. However, not all states permit mutual holding companies.

Other possible forms for an insurance company include reciprocals, in which policyholders reciprocate in sharing risks, and Lloyd's organizations.

Insurance companies are rated by various agencies such as A. M. Best. The ratings include the company's financial strength, which measures its ability to pay claims. It also rates financial instruments issued by the insurance company, such as bonds, notes, and secularization products.

Reinsurance companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A re insurer may also be a direct writer of insurance risks as well.

Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices.

The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance.

Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background:

Heavy and increasing premium costs in almost every line of coverage

Difficulties in insuring certain types of fortuitous risk

Differential coverage standards in various parts of the world

Rating structures which reflect market trends rather than individual loss experience

Insufficient credit for deductibles and/or loss control efforts

There are also companies known as "insurance consultants". Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy among-st many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy among-st many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client.

Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claim handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.

The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies provide information and rate the financial viability of insurance companies.

Across the world 

Life insurance premiums written in 2005

Non-life insurance premiums written in 2005

Global insurance premiums grew by 2.7% in inflation-adjusted terms in 2010 to $4.3 trillion, climbing above pre-crisis levels. The return to growth and record premiums generated during the year followed two years of decline in real terms. Life insurance premiums increased by 3.2% in 2010 and non-life premiums by 2.1%. While industrialized countries saw an increase in premiums of around 1.4%, insurance markets in emerging economies saw rapid expansion with 11% growth in premium income. The global insurance industry was sufficiently capitalized to withstand the financial crisis of 2008 and 2009 and most insurance companies restored their capital to pre-crisis levels by the end of 2010. With the continuation of the gradual recovery of the global economy, it is likely the insurance industry will continue to see growth in premium income both in industrialized countries and emerging markets in 2011.

Advanced economies account for the bulk of global insurance. 

With premium income of $1.62 trillion, Europe was the most important region in 2010, followed by North America $1.409 trillion and Asia $1.161 trillion. Europe has however seen a decline in premium income during the year in contrast to the growth seen in North America and Asia. The top four countries generated more than a half of premiums. The United States and Japan alone accounted for 40% of world insurance, much higher than their 7% share of the global population. Emerging economies accounted for over 85% of the world's population but only around 15% of premiums. Their markets are however growing at a quicker pace.The country expected to have the biggest impact on the insurance share distribution across the world is China. According to Sam Radwan of ENHANCE International LLC, low premium penetration (insurance premium as a % of GDP), an ageing population and the largest car market in terms of new sales, premium growth has averaged 15–20% in the past five years, and China is expected to be the largest insurance market in the next decade or two.

Regulatory differences

Main article: Insurance law

In the United States, insurance is regulated by the states under the McCarran-Ferguson Act, with "periodic proposals for federal intervention", and a nonprofit coalition of state insurance agencies called the National Association of Insurance Commissioners works to harmonize the country's different laws and regulations. The National Conference of Insurance Legislators (NCOIL) also works to harmonize the different state laws.

In the European Union, the Third Non-Life Directive and the Third Life Directive, both passed in 1992 and effective 1994, created a single insurance market in Europe and allowed insurance companies to offer insurance anywhere in the EU (subject to permission from authority in the head office) and allowed insurance consumers to purchase insurance from any insurer in the EU.As far as insurance in the United Kingdom, the Financial Services Authority took over insurance regulation from the General Insurance Standards Council in 2005 laws passed include the Insurance Companies Act 1973 and another in 1982, and reforms to warranty and other aspects under discussion as of 2012.

The insurance industry in China was nationalized in 1949 and thereafter offered by only a single state-owned company, the People's Insurance Company of China, which was eventually suspended as demand declined in a communist environment. In 1978, market reforms led to an increase in the market and by 1995 a comprehensive Insurance Law of the People's Republic of China was passed, followed in 1998 by the formation of China Insurance Regulatory Commission (CIRC), which has broad regulatory authority over the insurance market of China.

In India IRDA is insurance regulatory authority. As per the section 4 of IRDA Act 1999, Insurance Regulatory and Development Authority (IRDA), which was constituted by an act of parliament? National Insurance Academy, Pane is apex insurance capacity builder institute promoted with support from Ministry of Finance and by LIC, Life & General Insurance companies.

Controversies

Does not reduce the risk

Some analysts argue that insurance does not reduce the risk, because insurance costs the policyholder, due to the premiums that they have to pay. Insurance is a risk for both the insurance company and the insured. The insurance company understands the risk involved and will perform a risk assessment when writing the policy. As a result, the premiums may go up if they determine that the policyholder will file a claim. If a person is financially stable and plans for life's unexpected events, they may be able to go without insurance. However, they must have enough to cover a total and complete loss of employment and of their possessions. Some states will accept a surety bond, a government bond, or even making a cash deposit with the state.

Insurance insulates too much

An insurance company may inadvertently find that its insured’s may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer), a concept known as moral hazard. This 'insulates' many from the true costs of living with risk, potentially negating measures that can mitigate or adapt to risk and leading some to describe insurance schemes as potential manipulative. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability.

For example, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports. Liability insurance providers do not provide coverage for liability arising from intentional torts committed by or at the direction of the insured. Even if a provider desired to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal.

Complexity of insurance policy contracts

9/11 was a major insurance loss, but there were disputes over the World Trade Center's insurance policy

Insurance policies can be complex and some policyholders may not understand all the fees and coverage’s included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.

For example, most insurance policies in the English language today have been carefully drafted in plain English; the industry learned the hard way that many courts will not enforce policies against insured’s when the judges themselves cannot understand what the policies are saying. Typically, courts construe ambiguities in insurance policies against the insurance company and in favor of coverage under the policy.

Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer (not the insurance company), and typically counsels the buyer on appropriate coverage and policy limitations, in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.

Insurance may also be purchased through an agent. A tied agent, working exclusively with one insurer, represents the insurance company from whom the policyholder buys (while a free agent sells policies of various insurance companies). Just as there is a potential conflict of interest with a broker, an agent has a different type of conflict. Because agents work directly for the insurance company, if there is a claim the agent may advise the client to the benefit of the insurance company. Agents generally cannot offer as broad a range of selection compared to an insurance broker.

An independent insurance consultant advises insured’s on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers and/or agents. However, such a consultant must still work through brokers and/or agents in order to secure coverage for their clients.

Limited consumer benefits

In United States, economists and consumer advocates generally consider insurance to be worthwhile for low-probability, catastrophic losses, but not for high-probability, small losses. Because of this, consumers are advised to select high deductibles and to not insure losses which would not cause a disruption in their life. However, consumers have shown a tendency to prefer low deductibles and to prefer to insure relatively high-probability, small losses over low-probability, perhaps due to not understanding or ignoring the low-probability risk. This is associated with reduced purchasing of insurance against low-probability losses, and may result in increased inefficiencies from moral hazard.

Redlining

Redlining is the practice of denying insurance coverage in specific geographic areas, supposedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Racial profiling or redlining has a long history in the property insurance industry in the United States. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.

In July 2007, The Federal Trade Commission (FTC) released a report presenting the results of a study concerning credit-based insurance scores in automobile insurance. The study found that these scores are effective predictors of risk. It also showed that African-Americans and Hispanics are substantially over represented in the lowest credit scores, and substantially underrepresented in the highest, while Caucasians and Asians are more evenly spread across the scores. The credit scores were also found to predict risk within each of the ethnic groups, leading the FTC to conclude that the scoring models are not solely proxies for redlining. The FTC indicated little data was available to evaluate benefit of insurance scores to consumers. The report was disputed by representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice, for relying on data provided by the insurance industry.

All states have provisions in their rate regulation laws or in their fair trade practice acts that prohibit unfair discrimination, often called redlining, in setting rates and making insurance available.

In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used.

An insurance underwriter's job is to evaluate a given risk as to the likelihood that a loss will occur. Any factor that causes a greater likelihood of loss should theoretically be charged a higher rate. This basic principle of insurance must be followed if insurance companies are to remain solvent.[citation needed] Thus, "discrimination" against (i.e., negative differential treatment of) potential insured’s in the risk evaluation and premium-setting process is a necessary by-product of the fundamentals of insurance underwriting. For instance, insurers charge older people significantly higher premiums than they charge younger people for term life insurance. Older people are thus treated differently from younger people (i.e., a distinction is made, discrimination occurs). The rationale for the differential treatment goes to the heart of the risk a life insurer takes: Old people are likely to die sooner than young people, so the risk of loss (the insured's death) is greater in any given period of time and therefore the risk premium must be higher to cover the greater risk. However, treating insured’s differently when there is no actuarial sound reason for doing so is unlawful discrimination.

Insurance patents

Further information: Insurance patent

New assurance products can now be protected from copying with a business method patent in the United States.

A recent example of a new insurance product that is patented is Usage Based auto insurance. Early versions were independently invented and patented by a major US auto insurance company, Progressive Auto Insurance (U.S. Patent 5,797,134) and a Spanish independent inventor, Salvador Minguijon Perez (EP 0700009).

Many independent inventors are in favor of patenting new insurance products since it gives them protection from big companies when they bring their new insurance products to market. Independent inventors account for 70% of the new U.S. patent applications in this area.

Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.

There are currently about 150 new patent applications on insurance inventions filed per year in the United States. The rate at which patents have been issued has steadily risen from 15 in 2002 to 44 in 2006.

Inventors can now have their insurance US patent applications reviewed by the public in the Peer to Patent program.The first insurance patent to be granted was [58] including another example of an application posted was US2009005522 "risk assessment company". It was posted on March 6, 2009. This patent application describes a method for increasing the ease of changing insurance companies.

Insurance industry and rent-seeking

Certain insurance products and practices have been described as rent-seeking by critics. That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events. Under United States tax law, for example, most owners of variable annuities and variable life insurance can invest their premium payments in the stock market and defer or eliminate paying any taxes on their investments until withdrawals are made. Sometimes this tax deferral is the only reason people use these products.[citation needed] Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds themselves are immune from the estate tax.

Religious concerns

Muslim scholars have varying opinions about life insurance. Life insurance policies that earn interest (or guaranteed bonus/NAV) are generally considered to be a form of riba (usury) and some consider even policies that do not earn interest to be a form of gharar (speculation). Some argue that gharar is not present due to the actuarial science behind the underwriting. Jewish rabbinical scholars also have expressed reservations regarding insurance as an avoidance of God's will but most find it acceptable in moderation.

Some Christians believe insurance represents a lack of faith[citation needed] and there is a long history of resistance to commercial insurance in Anabaptist communities (Mennonites, Amish, Hunt rites, Brethren in Christ) but many participate in community-based self-insurance programs that spread risk within their communities.