Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Law is a system of rules enforced through a set of Institutions used as an instrument to underpin civil obedience politics economics and society Economics is the social science that studies the production distribution, and consumption of goods and services. For non-business risks see Risk or the disambiguation page Risk analysis. In Finance, a hedge is an investment that is taken out specifically to reduce or cancel out the Risk in another investment Risk is a Concept that denotes the precise probability of specific eventualities Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. An insurer is a company selling the insurance. The insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. For non-business risks see Risk or the disambiguation page Risk analysis.

Contents 1 Principles of insurance 2 Indemnification 3 Insurer’s business model 4 History of insurance 5 Types of insurance 5.1 Health 5.2 Disability 5.3 Casualty 5.4 Life 5.5 Property 5.6 Liability 5.7 Credit 5.8 Other types 5.9 Insurance financing vehicles 6 Insurance companies 7 Global insurance industry 8 Controversies 8.1 Insurance insulates too much 8.2 Closed community self-insurance 8.3 Complexity of insurance policy contracts 8.4 Redlining 8.5 Insurance patents 8.6 The insurance industry and rent seeking 8.7 Criticism of insurance companies 9 Glossary 10 See also 11 Notes 12 External links

Principles of insurance

Financial market participants

Investors Hedge funds Private equity Venture capital

Speculation

Institutional investors Banks Building societies Trusts Collective investment schemes Credit Unions Insurance companies Investment banks Pension funds Prime Brokers Trusts

Finance series Financial market Participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation

v • d • e

Commercially insurable risks typically share seven common characteristics. There are two basic financial market participant categories Investor vs See Investor AB for the Swedish investment company An investor is any party that makes an Investment. A hedge fund is a private Investment fund open to a limited range of investors which is permitted by regulators to undertake a wider range of activities than other investment In Finance, private equity is an Asset class consisting of equity Securities in operating companies that are not Publicly traded on Venture capital (also known as VC or Venture) is a type of Private equity capital typically provided to immature high-potential growth companies Speculation, in a financial context is making an investment that increases the overall risk in a portfolio Institutional investors are organizations which pool large sums of money and invest those sums in companies A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money A building society is a financial institution owned by its members, that offers banking and other Financial services, especially mortgage lending A trust company is a Corporation, especially a Commercial bank, organized to perform the Fiduciary functions of trusts and agencies A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than those feasible for most individual investors A credit union is a Cooperative Financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift providing credit Investment banks profit from companies and governments by raising money through issuing and selling Securities in the Capital markets (both equity and A pension fund is a pool of assets forming an independent legal entity that are bought with the contributions to a Pension plan for the exclusive purpose of financing pension Prime brokerage is the generic name for a bundled package of services offered by Investment banks and securities firms to Hedge funds and other professional investors A trust company is a Corporation, especially a Commercial bank, organized to perform the Fiduciary functions of trusts and agencies The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds There are two basic financial market participant categories Investor vs Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Financial regulations are a form of Regulation or supervision which subjects Financial institutions to certain requirements restrictions and guidelines aiming to ^[1]

1. A large number of homogeneous exposure units. The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004. ^[2] The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. The law of large numbers (LLN is a theorem in Probability that describes the long-term stability of the mean of a Random variable. There are exceptions to this criterion. Lloyd's of London is famous for insuring the life or health of actors, actresses and sports figures. For the film see Lloyd's of London (film. Lloyd's of London is a British Insurance market Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable.
2. Definite Loss. The event that gives rise to the loss that is subject to insurance should, at least in principle, take place at a known time, in a known place, and from a known cause. The classic example is death of an insured 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.
3. 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, are generally not considered insurable.
4. 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 little point in paying such costs unless the protection offered has real value to a buyer.
5. 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, it is not likely that anyone will buy insurance, even if on offer. Further, 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, the transaction may have the form of insurance, but not the substance. (See the U. S. Financial Accounting Standards Board standard number 113)
6. Calculable Loss. The Financial Accounting Standards Board (FASB is a private Not-for-profit organization whose primary purpose is to develop generally accepted accounting principles This article is a list of Financial Accounting Standards Board (FASB pronouncements, including Statements Concepts Statements Interpretations and Technical Bulletins which 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.
7. Limited risk of catastrophically large losses. The essential risk is often aggregation. If the same event can cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their exposure to a loss from a single event to some small portion of their capital base, on the order of 5 percent. In Mathematics, a percentage is a way of expressing a number as a Fraction of 100 ( per cent meaning "per hundred" Where the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital constraint will restrict an insurers appetite for additional policyholders. The classic example is earthquake insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the policies that it has already underwritten. Wind insurance in hurricane zones, particularly along coast lines, is another example of this phenomenon. In extreme cases, the aggregation can affect the entire industry, since the combined capital of insurers and reinsurers can be small compared to the needs of potential policyholders in areas exposed to aggregation risk. 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. Reinsurance is a means by which an Insurance company can protect itself against the risk of losses with other insurance companies

Indemnification

Main article: Indemnity

The technical definition of "indemnity" means to make whole again. An indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B. There are two types of insurance contracts; 1) an "indemnity" policy and 2) a "pay on behalf" or "on behalf of"^[3] policy. The difference is significant on paper, but rarely material in practice.

An "indemnity" policy will never pay claims until the insured has paid out of pocket to some third party; i. e. a visitor to your home slips on a floor that you left wet and sues you for $10,000 and wins. Under an "indemnity" policy the homeowner would have to come up with the $10,000 to pay for the visitors fall and then would be "indemnified" by the insurance carrier for the out of pocket costs (the $10,000)^[4].

Under the same situation, a "pay on behalf" policy, the insurance carrier would pay the claim and the insured (the homeowner) would not be out of pocket for anything. Most modern liability insurance is written on the basis of "pay on behalf" language^[5].

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'. A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law Generally, an insurance contract includes, at a minimum, the following elements: the 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 events covered in the policy. An indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B.

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. In business overhead, overhead cost or overhead expense refers to an ongoing Expense of operating a business So long as an insurer maintains adequate funds set aside for anticipated losses (i. e. , reserves), the remaining margin is an insurer's profit.

Insurer’s business model

Profit = earned premium + investment income - incurred loss - underwriting expenses. Earned premium is the portion of an Insurance written premium which is considered "earned" by the insurer based on the part of the policy period that the

Insurers make money in two ways: (1) through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks and (2) by investing the premiums they collect from insureds.

The most complicated aspect of the insurance business is the underwriting of policies. Using a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. To this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge to assume them. Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in the Insurance and Finance Data is analyzed to fairly accurately project the rate of future claims based on a given risk. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurer's overall exposure. Statistics is a mathematical science pertaining to the collection analysis interpretation or explanation and presentation of Data. Probability is the likelihood or chance that something is the case or will happen Upon termination of a given policy, the amount of premium collected and the investment gains thereon minus the amount paid out in claims is the insurer's underwriting profit on that policy. Underwriting profit is a term used in the Insurance industry It consists of the Earned premium remaining after losses have been paid and administrative expenses Of course, from the insurer's perspective, some policies are winners (i. e. , the insurer pays out less in claims and expenses than it receives in premiums and investment income) and some are losers (i. e. , the insurer pays out more in claims and expenses than it receives in premiums and investment income).

An insurer's underwriting performance is measured in its combined ratio. The loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium) is added to the expense ratio (underwriting expenses divided by net premium written) to determine the company's combined ratio. The combined ratio is a reflection of the company's overall underwriting profitability. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss.

Insurance companies also earn investment profits on “float”. Investment or investing is a term with several closely-related meanings in Business management, Finance and Economics, related to saving “Float” or available reserve is the amount of money, at hand at any given moment, that an insurer has collected in insurance premiums but has not been paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest on them until claims are paid out.

In the United States, the underwriting loss of property and casualty insurance companies was $142. The United States of America —commonly referred to as the Property is any physical or virtual entity that is owned by an individual Casualty insurance policies are written to cover loss that is the direct result of Accident. 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. Maurice R "Hank" Greenberg (born May 4, 1925 in New York City) is an American Businessman and former chairman and CEO of 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. “The tendency to swing between profitable and unprofitable periods over time is commonly known as the "underwriting" or "insurance" cycle ^[6]

Property and casualty insurers currently make the most money from their auto insurance line of business. Generally better statistics are available on auto losses and underwriting on this line of business has benefited greatly from advances in computing. Additionally, property losses in the US, due to natural catastrophes, have exacerbated this trend. The United States of America —commonly referred to as the

Finally, claims and loss handling is the materialized utility of insurance. In managing the claims-handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages. As part of this balancing act, fraudulent insurance practices are a major business risk that must be managed and overcome. Insurance fraud is any act committed with the intent to Fraudulently obtain payment from an insurer.

History of insurance

Main article: History of insurance

In some sense we can say that insurance appears simultaneously with the appearance of human society. History of insurance refers to the development of a modern laws and market in Insurance against risks We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread (for example countries in the territory of the former Soviet Union).

Turning to insurance in the modern sense (i. e. , insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. China ( Wade-Giles ( Mandarin) Chung¹kuo² is a cultural region, an ancient Civilization, and depending on perspective a National Babylonia was an Amorite state in lower Mesopotamia (modern southern Iraq) with Babylon as its capital The 3rd millennium BC spans the Early to Middle Bronze Age. It represents a period of time in which Imperialism, or the desire to conquer grew to prominence The 2nd millennium BC marks the transition from the Middle to the Late Bronze Age. A millennium (pl millennia) is a period of Time equal to one thousand Years (from Latin la mille, thousand and la annum 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. The Code of Hammurabi ( Codex Hammurabi) is the best-preserved ancient Law code, created ca 1750 BC, and practiced by early Mediterranean sailing merchants. Merchants function as professionals who deal with Trade, dealing in commodities that they do not produce themselves in order to produce Profit. 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.

Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.

The purpose of registering was that whenever the person who presented the gift registered by the court was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of his books on ancient Iran: "[W]henever the owner of the present is in trouble or wants to construct a building, set up a feast, have his children married, etc. the one in charge of this in the court would check the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice as much. "[1]

A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Rhodes (Ρόδος Ródos, ˈɾo̞ðo̞s Rodi ردوس Rodos; Ladino: Rodi or Rodes) is a Greek island The law of general average is a legal principle of Maritime law according to which all parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage.

The Greeks and Romans introduced the origins of health and life insurance c. The term ancient Greece refers to the period of Greek history lasting from the Greek Dark Ages ca Ancient Rome was a Civilization that grew out of a small agricultural community founded on the Italian Peninsula as early as the 10th century BC 600 AD when they organized guilds called "benevolent societies" which cared for the families and paid funeral expenses of members upon death. Family denotes a group of People affiliated by consanguinity affinity or co-residence A funeral is a Ceremony marking a person's Death. Funerary customs comprise the complex of Beliefs and practices used by a Culture to remember Death is the termination of the biological functions that define living Organisms It refers both to a specific Guilds in the Middle Ages served a similar purpose. A guild is an association of craftsmen in a particular trade The earliest guilds were formed as confraternities of workers The Talmud deals with several aspects of insuring goods. The Talmud ( Hebrew: he תַּלְמוּד is a record of Rabbinic discussions pertaining to Jewish law, ethics, customs and history Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.

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. Genoa ( Genova, ˈdʒɛːnova in Italian; Zena in Genoese and Ligurian; Genua in Latin and archaically in English These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post-Renaissance Europe, and specialized varieties developed. The Renaissance (from French Renaissance, meaning "rebirth" Italian: Rinascimento, from re- "again" and nascere

Toward the end of the seventeenth century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance. For the film see Lloyd's of London (film. Lloyd's of London is a British Insurance market

Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. This article is about the Great Fire of 1666 For other great fires in London see Early fires of London or Second Great Fire of London. In the aftermath of this disaster, Nicholas Barbon opened an office to insure buildings. Nicholas Barbon (c 1640 - 1698 (Full name Nicholas Unless-Jesus-Christ-Had-Died-For-Thee-Thou-Hadst-Been-Damned Barbon) was an English Economist, In 1680, he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.

The first insurance company in the United States underwrote fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina, in 1732. The United States of America —commonly referred to as the Charleston is a city in Charleston county in the US state of South Carolina. South Carolina ( is a state in the southern region ( Deep South) of the United States of America. Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. Benjamin Franklin ( April 17 1790 was one of the Founding Fathers of the United States of America. Fire is the heat and light energy released during a Chemical reaction, in particular a combustion reaction. Perpetual insurance is a type of Homeowners insurance policy written to have no term or date when the policy expires In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses. In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. This article is for the legal term For regulation of genes see Regulation of gene expression. Balkanization is a geopolitical term originally used to describe the process of fragmentation or division of a region or state into smaller regions or states that are often A US state is any one of the fifty subnational entities of the United States of America that share Sovereignty with the federal government Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization. The National Association of Insurance Commissioners (NAIC is an Internal Revenue Code Section 501(c(3 Non-profit organization which seeks to organize the regulatory In recent years, some have called for a dual state and federal regulatory system for insurance similar to that which oversees state banks and national banks.

Types of insurance

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 are 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 forth below. For example, auto insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from causing an accident). A homeowner's insurance policy in the U. Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI) is the type of S. typically includes property insurance covering damage to the home and the owner's belongings, liability insurance covering certain legal claims against the owner, and even a small amount of health insurance for medical expenses of guests who are injured on the owner's property.

Business insurance can be any kind of insurance that protects businesses against risks. Insurance, in Law and Economics, is a form of Risk management primarily used to hedge against the Risk of a contingent loss Some principal subtypes of business insurance are (a) the various kinds of professional liability insurance, also called professional indemnity insurance, which are discussed below under that name; and (b) the business owners policy (BOP), which bundles into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners insurance bundles the coverages that a homeowner needs. ^[7]

Health

Main articles: Health insurance and Dental insurance

Health insurance policies will often cover the cost of private medical treatments if the National Health Service in the United Kingdom (NHS) or other publicly-funded health programs do not pay for them. The term health insurance is generally used to describe a form of Insurance that pays for medical expenses Dental Insurance in the United States is Insurance designed to pay the costs associated with Dental care. The National Health Service is the name commonly used to refer to the four Publicly-funded healthcare systems of the United Kingdom collectively or individually (although The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located It will often result in quicker health care where better facilities are available. Dental insurance, like medical insurance, is coverage for individuals to protect them against dental costs. In the U. S. , dental insurance is often part of an employer's benefits package, along with health insurance. Most countries rely on public funding to ensure that all citizens have universal access to health care. Universal health care is health care coverage which is extended to all eligible residents of a governmental region

Disability

• Disability insurance policies provide financial support in the event the policyholder is unable to work because of disabling illness or injury. Disability insurance, often called disability income insurance, is a form of Insurance that insures the beneficiary's earned income against the risk that disability It provides monthly support to help pay such obligations as mortgages and credit cards.
• Total permanent disability insurance 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. Total Permanent Disability (TPD is a phrase used in the Insurance industry and in Law.
• Disability overhead insurance allows business owners to cover the overhead expenses of their business while they are unable to work. Business overhead expense (BOE Disability insurance pays the insured’s business overhead expenses if he or she becomes disabled
• Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expense incurred because of a job-related injury. Workers' compensation (colloquially known as workers' comp in North America or compo in Australia) a form of Insurance that provides A wage is a compensation workers receive in exchange for their labor.

Casualty

Main article: Casualty insurance

Casualty insurance insures against accidents, not necessarily tied to any specific property. Casualty insurance policies are written to cover loss that is the direct result of Accident.

• 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.
• 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 will result in a loss. Political risk insurance is a type of Insurance that can be taken out by businesses of any size against Political risk —the risk that revolution or other political In Political geography and International politics, a country is a Political division of a geographical entity A revolution (from the Latin revolutio, "a turnaround" is a fundamental change in power or organizational structures that takes place in a relatively Politics Politics is the process by which groups of people make decisions

Life

Main article: Life insurance

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 or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the Burial, also called interment and inhumation, is the act of placing a person or object into the ground A funeral is a Ceremony marking a person's Death. Funerary customs comprise the complex of Beliefs and practices used by a Culture to remember 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.

Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires. An annuity contract is a Financial product typically offered by a Financial institution, that may accumulate value and take a current value and pay it out over 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. A pension is a steady income given to a person upon Retirement, typically in the form of a guaranteed annuity. Retirement is the point where a person stops employment completely 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. Cash usually refers to Money in the form of Currency, such as Banknotes and Coins In Bookkeeping and Finance, Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed. Traditional With Profits Endowments There is an amount guaranteed to be paid out called the sum assured Wealth derives from the old English word "weal" which means "well-being

In many countries, such as the U. S. and the UK, the tax law provides that the interest on this cash value is not taxable under certain circumstances. "Tax code" redirects here For the term as used in the United Kingdom PAYE system see Tax code (PAYE. 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 common usage saving generally means putting money aside for example by putting money in the bank or investing in a Pension plan

In U. S. , 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. A combination of low-cost term life insurance and a higher-return tax-efficient retirement account may achieve better investment return.

Property

Main article: Property insurance

Property insurance provides protection against risks to property, such as fire, theft or weather damage. Property insurance provides protection against most risks to Property, such as fire theft and some weather damage A tornado is a violent rotating column of air which is in contact with both the surface of the earth and a Cumulonimbus cloud or in rare cases the base of a Cumulus The State of Illinois ( roughly ill-i-NOY is a state of the United States of America, the 21st to be admitted to the Union. Act of God is a legal term for events outside of human control such as sudden Floods or other Natural disasters for which no one can be held responsible In Criminal law, theft (also known as stealing or filching) is the illegal taking of another person's Property without that person's freely-given The weather is a set of all the phenomena occurring in a given Atmosphere at a given Time. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance. Property insurance provides protection against most risks to Property, such as fire theft and some weather damage Flood insurance denotes the specific Insurance coverage against property loss from Flooding To determine risk factors for specific properties insurers will often Earthquake insurance is a form of property Insurance that pays the policyholder in the event of an Earthquake that causes damage to the property Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI) is the type of Boiler Insurance (Boiler Cover is a type of Insurance that covers repairs and in some cases the replacement of your home boiler

• Automobile insurance, known in the UK as motor insurance, is probably the most common form of insurance and may cover both legal liability claims against the driver and loss of or damage to the insured's vehicle itself. Vehicle insurance (also known as auto insurance, car insurance, or motor insurance) is Insurance purchased for cars, Trucks The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located Driving is the controlled operation of a land Vehicle, usually a Motor vehicle such as a Truck or a car. Vehicles, derived from the Latin word vehiculum, are non-living Means of transport. Throughout the United States auto insurance policy is required to legally operate a motor vehicle on public roads. The United States of America —commonly referred to as the In some jurisdictions, bodily injury compensation for automobile accident victims has been changed to a no-fault system, which reduces or eliminates the ability to sue for compensation but provides automatic eligibility for benefits. In its broadest sense no-fault insurance is a term used to describe any type of Insurance contract under which Insureds are indemnified for losses by their own Credit card companies insure against damage on rented cars. Damage Waiver, or as it is normally referred to collision damage waiver (CDW is an optional Collision Coverage available while renting a vehicle
  • Driving School Insurance insurance provides cover for any authorized driver whilst under going tuition, cover also unlike other motor policies provides cover for instructor liability where both the pupil and driving instructor are both equally liable in the event of a claim.
• Aviation insurance insures against hull, spares, deductible, hull wear and liability risks. History Aviation Insurance was first introduced in the early years of the 20th Century
• Boiler insurance (also known as boiler and machinery insurance or equipment breakdown insurance) insures against accidental physical damage to equipment or machinery. Boiler Insurance (Boiler Cover is a type of Insurance that covers repairs and in some cases the replacement of your home boiler
• Builder's risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is a special type of Property insurance which indemnifies against damage to buildings while they are under construction Builder's risk insurance is typically written on an "all risk" basis covering damage due to any cause (including the negligence of the insured) not otherwise expressly excluded.
• Crop insurance "Farmers use crop insurance to reduce or manage various risks associated with growing crops. Crop insurance is purchased by agricultural producers including Farmers ranchers and others to protect themselves against either the loss of their crops due to Natural Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease, for instance. "^[8]
• Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Earthquake insurance is a form of property Insurance that pays the policyholder in the event of an Earthquake that causes damage to the property An earthquake is the result of a sudden release of energy in the Earth 's crust that creates Seismic waves Earthquakes are recorded with a Seismometer Most ordinary homeowners insurance policies do not cover earthquake damage. Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI) is the type of Most earthquake insurance policies feature a high deductible. In an Insurance policy the deductible (North American term or excess (UK term is the portion of any claim that is not covered by the insurance provider Rates depend on location and the probability of an earthquake, as well as the construction of the home.
• A fidelity bond is a form of casualty insurance that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. A fidelity bond is a form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals It usually insures a business for losses caused by the dishonest acts of its employees.
• Flood insurance protects against property loss due to flooding. Flood insurance denotes the specific Insurance coverage against property loss from Flooding To determine risk factors for specific properties insurers will often Many insurers in the US do not provide flood insurance in some portions of the country. In response to this, the federal government created the National Flood Insurance Program which serves as the insurer of last resort. The National Flood Insurance Program (NFIP was created by the Congress of the United States in 1968 through the National Flood Insurance Act of 1968 (P
• Home insurance or homeowners insurance: See "Property insurance".
• Marine insurance and marine cargo insurance cover the loss or damage of ships at sea or on inland waterways, and of the cargo that may be on them. Marine Insurance covers the loss or damage of ships cargo terminals and any transport or property by which cargo is transferred acquired or held between the points of origin and final 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.
• Surety bond insurance is a three party insurance guaranteeing the performance of the principal. A surety bond is a Contract among at least three parties The principal - the primary party who will be performing a contractual obligation The obligee
• Terrorism insurance provides protection against any loss or damage caused by terrorist activities. Terrorism insurance is Insurance purchased by property owners to cover their potential losses and liabilities that might occur due to terrorist activities Terrorism is the systematic use of terror especially as a means of coercion
• Volcano insurance is an insurance that covers volcano damage in Hawaii.
• Windstorm insurance is an insurance covering the damage that can be caused by hurricanes and tropical cyclones.

Liability

Main article: Liability insurance

Liability insurance is a very broad superset that covers legal claims against the insured. Liability insurance is a part of the general Insurance system of Risk financing 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.

• 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: See "Professional liability insurance" under "Liability insurance".
• Professional liability insurance, also called professional indemnity insurance, protects professional practitioners such as architects, lawyers, doctors, and accountants against potential negligence claims made by their patients/clients. Professional liability insurance, also called Professional Indemnity Insurance, protects professional practitioners such as Architects Lawyers Physicians 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 malpractice insurance. Notaries public may take out errors and omissions insurance (E&O). Other potential E&O policyholders include, for example, real estate brokers, home inspectors, appraisers, and website developers.
• Directors and officers liability insurance protects an organization (usually a corporation) from costs associated with litigation resulting from mistakes incurred by directors and officers for which they are liable. Directors and Officers Liability Insurance (often called D&O) is insurance payable to the directors and officers of a company or to the corporation itself to cover damages In the industry, it is usually called "D&O" for short.
• Prize indemnity insurance protects the insured from giving away a large prize at a specific event. Prize indemnity insurance is indemnification Insurance for a promotion in which the participants are offered the chance to win Prizes Instead of keeping 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.

Credit

Main article: Credit insurance

Credit insurance repays some or all of a loan back when certain things happen to the borrower such as unemployment, disability, or death. Credit Insurance is a term used to describe both Trade Credit Insurance and Credit Life Insurance A loan is a type of Debt. This article focuses exclusively on monetary loans although in practice any material object might be lent Unemployment occurs when a person is available to work and currently seeking work but the person is without work. Death is the termination of the biological functions that define living Organisms It refers both to a specific 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.

• Mortgage insurance insures the lender against default by the borrower. Mortgage Life Insurance refers to an Insurance policy that guarantees repayment of a Mortgage Loan in the event of death or possibly disability of the

Other types

• Collateral protection insurance or CPI, insures property (primarily vehicles) held as collateral for loans made by lending institutions. Collateral Protection Insurance, or CPI, insures property (primarily vehicles held as Collateral for loans made by lending institutions
• Defense Base Act Workers' compensation or DBA Insurance insurance provides coverage for civilian workers hired by the government to perform contracts outside the US and Canada. DBA is required for all US citizens, US residents, US 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. Expatriate Insurance policies are designed to cover financial and other losses incurred while living and working in a country other than one's own
• Financial loss insurance protects individuals and companies against various financial risks. For example, a business might purchase cover to protect it from loss of sales if a fire in a factory prevented it from carrying out its business for a time. A business (also called firm or an enterprise) is a legally recognized organizational entity designed to provide goods and/or services to A factory (previously manufactory) or manufacturing plant is an industrial Building where workers manufacture goods Insurance might also cover the failure of a creditor to pay money it owes to the insured. A creditor is a party (eg person organization company or government that has a claim to the services of a second party Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. This type of insurance is frequently referred to as "business interruption insurance. " Fidelity bonds and surety bonds are included in this category, although these products provide a benefit to a third party (the "obligee") in the event the insured party (usually referred to as the "obligor") fails to perform its obligations under a contract with the obligee. A fidelity bond is a form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals A surety bond is a Contract among at least three parties The principal - the primary party who will be performing a contractual obligation The obligee
• Kidnap and ransom insurance
• Locked funds insurance is a little-known hybrid insurance policy jointly issued by governments and banks. Kidnap and Ransom Insurance or K&R Insurance is designed to protect individuals and corporations operating in high-risk areas around the world such as Locked Funds Insurance is a little known hybrid Insurance policy jointly issued by governments and banks It is used to protect public funds from tamper by unauthorized parties. In special cases, a government may authorize its use in protecting semi-private funds which are liable to tamper. The terms of this type of insurance are usually very strict. Therefore it is used only in extreme cases where maximum security of funds is required.
• Nuclear incident insurance covers damages resulting from an incident involving radioactive materials and is generally arranged at the national level. (For the United States, see the Price-Anderson Nuclear Industries Indemnity Act. The Price-Anderson Nuclear Industries Indemnity Act (commonly called the Price-Anderson Act) is a United States Federal law, first passed in )
• Pet insurance insures pets against accidents and illnesses - some companies cover routine/wellness care and burial, as well. Pet Insurance pays the veterinary costs if one's pet becomes ill or is injured in an accident
• Pollution Insurance. A first-party coverage for contamination of insured property either by external or on-site sources. Coverage 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.
• 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. Title insurance in the United States is Indemnity Insurance against financial loss from defects in title to Real property and from the invalidity In the Common law, real property (or realty) refers to one of the two main classes of Property, the other class being Personal property ( A mortgage is the pledging of a property to a Lender as a security for a Mortgage loan. In Law, a lien is a form of Security interest granted over an item of Property to secure the payment of a Debt or performance of some other It is usually issued in conjunction with a search of the public records performed at the time of a real estate transaction. Real estate is a legal term (in some jurisdictions notably in the USA, United Kingdom
• Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, lost of personal belongings, travel delay, personal liabilities, etc. Travel insurance is Insurance that is intended to cover medical expenses financial (such as money invested in nonrefundable pre-payments and other losses incurred while

Insurance financing vehicles

• 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. Retrospectively rated insurance is a type of Insurance that uses Retrospective rating 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.
• Fraternal insurance is provided on a cooperative basis by fraternal benefit societies or other social organizations. A benefit society or mutual aid society is an Organization or Voluntary association formed to provide Mutual aid, benefit or Insurance ^[9]
• Formal self insurance is the deliberate decision to pay for otherwise insurable losses out of one's own money. Self insurance is a Risk management method in which a calculated amount of money is set aside to compensate for the potential future loss 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 loadings 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.
• No-fault insurance is a type of insurance policy (typically automobile insurance) where insureds are indemnified by their own insurer regardless of fault in the incident. In its broadest sense no-fault insurance is a term used to describe any type of Insurance contract under which Insureds are indemnified for losses by their own
• Reinsurance is a type of insurance purchased by insurance companies or self-insured employers to protect against unexpected losses. Reinsurance is a means by which an Insurance company can protect itself against the risk of losses with other insurance companies Financial reinsurance is a form of reinsurance that is primary used for capital management rather than to transfer insurance risk. Financial Reinsurance (or fin re) is a form of Reinsurance which is focused more on capital management than on risk transfer
• 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.
• Social insurance can be many things to many people in many countries. Social insurance is any Government -sponsored program with the following four characteristics the benefits eligibility requirements and other aspects of the program But a summary of its essence is that it is a collection of insurance coverages (including components of life insurance, disability income insurance, unemployment insurance, health insurance, and others), plus retirement savings, that mandates 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 article refers specifically to the Welfare state of the United Kingdom. This is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):
  • Social welfare provision
  • Social security
  • Social safety net
  • National Insurance
  • Social Security (United States)
  • Social Security debate (United States)

Insurance companies

Insurance companies may be classified into two groups:

• Life insurance companies, which sell life insurance, annuities and pensions products. "Social welfare" redirects here For other uses see Welfare A social welfare provision refers to any program which seeks to provide Social security primarily refers to a Social insurance program providing social protection or protection against socially recognized conditions including poverty old The social safety net is a term used to describe a collection of services provided by The state, such as welfare, Unemployment benefit, Universal healthcare National Insurance (NI is a system of taxes and related Social security benefits in the United Kingdom. Social Security, in the United States currently refers to the federal Old-Age Survivors and Disability Insurance ( OASDI) program This article concerns proposals to change the Social Security system in the United States.
• Non-life, General, 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. Accountancy or accounting is the measurement statement or provision of assurance about financial information primarily used by Lenders managers, 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. A decade is a period of 10 Years (since 1594 a factor of 10 difference between two numbers, or sometimes a set or a group of ten (since 1451 By contrast, non-life insurance cover usually covers a shorter period, such as one year.

In the United States, standard line insurance companies are your "main stream" insurers. These are the companies that typically insure your auto, home or business. They use pattern or "cookie-cutter" policies without variation from one person to the next. They usually have lower premiums than excess lines and can sell directly to individuals. They are regulated by state laws that can restrict the amount they can charge for insurance policies.

Excess line insurance companies (aka Excess and Surplus) typically insure risks not covered by the standard lines market. They are broadly referred as being all insurance placed with non-admitted insurers. Non-admitted insurers are not licensed in the states where the risks are located. These companies have more flexibility and can react faster than standard insurance companies because they are not required to file rates and forms as do the "admitted" carriers do. However, they still have substantial regulatory requirements placed upon them. State laws generally require insurance placed with surplus line agents and brokers to not be available through standard licensed insurers.

Insurance companies are generally classified as either mutual or stock companies. Mutual insurance is a type of Insurance where those protected by the insurance (policyholders also have certain "ownership" rights in the organization. This is more of a traditional distinction as true mutual companies are becoming rare. Mutual companies are owned by the policyholders, while stockholders (who may or may not own policies) own stock insurance companies. Other possible forms for an insurance company include reciprocals, in which policyholders 'reciprocate' in sharing risks, and Lloyds organizations.

Insurance companies are rated by various agencies such as A. M. Best. A M Best Company Inc, headquartered in Oldwick New Jersey, is Rating agency designated as an Nationally Recognized Statistical Rating Organization 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 securitization 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. Reinsurance is a means by which an Insurance company can protect itself against the risk of losses with other insurance companies The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer 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. Captive insurance companies are Insurance companies established with the specific objective of financing risks emanating from their parent group or groups but they sometimes 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 percent 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 products 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 amongst many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst 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 claims 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 purchasing 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, such as Best's, Fitch, Standard & Poor's, and Moody's Investors Service, provide information and rate the financial viability of insurance companies.

Global insurance industry

Global insurance premiums grew by 8. 0% in 2006 (or 5% in real terms) to reach $3. 7 trillion due to improved profitability and a benign economic environment characterised by solid economic growth, moderate inflation and strong equity markets. Profitability improved in both life and non-life insurance in 2006 compared to the previous year. Life insurance premiums grew by 10. 2% in 2006 as demand for annuity and pension products rose. Non-life insurance premiums grew by 5. 0% due to growth in premium rates. Over the past decade, global insurance premiums rose by more than a half as annual growth fluctuated between 2% and 11%.

Advanced economies account for the bulk of global insurance. With premium income of $1,485bn, Europe was the most important region, followed by North America ($1,258bn) and Asia ($801bn). The top four countries accounted for nearly two-thirds of premiums in 2006. The US and Japan alone accounted for 43% of world insurance, much higher than their 7% share of the global population. Emerging markets accounted for over 85% of the world’s population but generated only around 10% of premiums. The volume of UK insurance business totalled $418bn in 2006 or 11. 2% of global premiums. ^[10]

Controversies

Insurance insulates too much

By creating a "security blanket" for its insureds, an insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer). This problem is known to the insurance industry as moral hazard. Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk 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 the insured. An intentional tort is a category of Torts that describes a civil wrong resulting from an intentional act on the part of the Tortfeasor. Even if a provider were so irrational as to desire 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.

Closed community 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. A religion is a set of Tenets and practices often centered upon specific Supernatural and moral claims about Reality, the Cosmos The Amish (ˈɑːmɪʃ are members of an Anabaptist Christian denomination best known for Simple living, Plain dress and resisting modern conveniences In biological terms a community is a group of interacting Organisms sharing an environment. A disaster is the impact of a natural or human-made hazard that negatively affects society or environment. 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. Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk

In the United Kingdom The Crown (which, for practical purposes, meant the Civil service) did not insure property such as government buildings. The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located Throughout the Commonwealth realms The Crown is an abstract metonymic concept which represents the legal authority for the existence of any government See also Bureaucrat The term civil service has two distinct meanings Branch of governmental service in which individuals are hired on the basis 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.

Complexity of insurance policy contracts

Insurance policies can be complex and some policyholders may not understand all the fees and coverages 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. Advertising is a form of Communication that typically attempts to persuade potential Customers to Purchase or to consume more of a particular Brand

Many institutional insurance purchasers buy insurance through an insurance broker. Brokers represent the buyer (not the insurance company), and typically counsel the buyer on appropriate coverages, policy limitations. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible. Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information

Insurance may also be purchased through an agent. Unlike a broker, who represents the policyholder, an agent represents the insurance company from whom the policyholder buys. An agent can represent more than one company.

Redlining

Redlining is the practice of denying insurance coverage in specific geographic areas, purportedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Redlining is the practice of denying or increasing the cost of services such as Banking, Insurance, access to jobs access to health care or even Supermarkets Racial profiling or redlining has a long history in the property insurance industry in the United States. Racial profiling is the inclusion of racial or ethnic characteristics in determining whether a person is considered likely to commit a particular type of crime or Redlining is the practice of denying or increasing the cost of services such as Banking, Insurance, access to jobs access to health care or even Supermarkets 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. ^[11]

In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. A credit score is a numerical expression based on a statistical analysis of a person's credit files to represent the Creditworthiness of that person Gender comprises a range of differences between men and women extending from the biological to the social The term profession is applied to those persons who have specialized and technical skill or knowledge which they apply for a fee to certain tasks that ordinary and unqualified people cannot A person's marital status describes their relationship with a significant other Education encompasses both the Teaching and Learning of Knowledge, proper conduct, and technical competency 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. Unlike most discrimination policies discrimination between, which is the discernment of qualities and recognition of the differences focused here discrimination against is

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. Thus, "discrimination" against (i. e. , differential treatment of) potential insureds 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 than 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 insureds differently when there is no actuarially sound reason for doing so is unlawful discrimination.

What is often missing from the debate is that prohibiting the use of legitimate, actuarially sound factors means that an insufficient amount is being charged for a given risk, and there is thus a deficit in the system. The failure to address the deficit may mean insolvency and hardship for all of a company's insureds. The options for addressing the deficit seem to be the following: Charge the deficit to the other policyholders or charge it to the government (i. e. , externalize outside of the company to society at large).

Insurance patents

Further information: Insurance patent

New insurance products can now be protected from copying with a business method patent in the United States. Under some patent laws, patents may be obtained for Insurance -related Inventions. Business method patents are a class of Patents which disclose and claim new Methods of doing business. The United States of America —commonly referred to as the

A recent example of a new insurance product that is patented is telematic auto insurance. Vehicle insurance (also known as auto insurance, car insurance, or motor insurance) is Insurance purchased for cars, Trucks It was independently invented and patented by a major U. S. auto insurance company, Progressive Auto Insurance (U.S. Patent 5,797,134 ) and a Spanish independent inventor, Salvador Minguijon Perez (EP patent 0700009). The Progressive Corporation (PGR Progressive Casualty Insurance Company through its subsidiaries provides personal Automobile insurance, and other specialty property-casualty

The basic idea of telematic auto insurance is that a driver's behavior is monitored directly while he or she drives and the information is transmitted to the insurance company. The insurance company uses the information to assess the likelihood that a driver will have an accident and adjusts premiums accordingly. A driver who drives great distances at high speeds, for example, might be charged a different rate than a driver who drives short distances at low speeds. The precise effect on charges is not known as it is not clear that a high speed long distance driver incurs greater risk to an insurance pool than the slow around-town driver.

A British auto insurance company, Norwich Union, has obtained a license to both the Progressive patent and Perez patent. Norwich Union is an Insurance company in the UK. It is the biggest life-insurer in the UK and has a strong position in motor insurance They have made investments in infrastructure and developed a commercial offering called "Pay As You Drive" or PAYD.

Recent theoretical economic research on the social welfare effects of Progressive's telematics technology business process patents have questioned whether the business process patents are pareto efficient for society. Preliminary results suggest that they are not, but more work is needed. ^{[12] [13]}

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 percent 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. The Hartford Financial Services Group Inc, ( usually known as The Hartford, is a Fortune 100 company and one of America’s largest investment and Insurance

There are currently about 150 new patent applications on insurance inventions filed per year in the United States. The rate at which patents have issued has steadily risen from 15 in 2002 to 44 in 2006. ^[14]

The insurance industry and rent seeking

Certain insurance products and practices have been described as rent seeking by critics. In Economics, rent seeking occurs when an individual organization or firm seeks to make money by manipulating the economic and/or legal environment rather than by trade and 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. In the US an annuity contract is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner Variable Universal Life Insurance (often shortened to VUL is a type of Life insurance that builds a cash value Sometimes this tax deferral is the only reason people use these products. 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. Estate tax and Death duty redirect here Inheritance tax, estate tax and death duty are the names given to various taxes which

Criticism of insurance companies

Some people believe that modern insurance companies are money-making businesses which have little interest in insurance. They argue that the purpose of insurance is to spread risk so the reluctance of insurance companies to take on high-risk cases (e. g. houses in areas subject to flooding, or young drivers) runs counter to the principle of insurance.

Other criticisms include:

• Insurance policies contain too many exclusion clauses. An exclusion clause is a term in a Contract that seeks to restrict the rights of the parties to the Contract. For example, some house insurance policies do not cover damage to garden walls.

• Most insurance companies now use call centres and staff attempt to answer questions by reading from a script. A call centre or call center (see spelling differences) is a centralized office used for the purpose of receiving and transmitting a large volume of requests by It is difficult to speak to anybody with expert knowledge.

Glossary

• 'Combined ratio' = loss ratio + expense ratio. Loss ratio is calculated by dividing the amount of losses (sometimes including loss adjustment expenses) by the amount of earned premium. Expense ratio is calculated by dividing the amount of operational expenses by the amount of earned premium. A lower number indicates a better return on the amount of capital placed at risk by an insurer.
• 'URIE' = unincorporated reciprocal inter-insurance exchange.
• 'SSA' = subscriber savings account.
• 'AIF' = attorney in fact.

See also

• List of finance topics
• List of insurance topics
• List of United States insurance companies

• ACORD
• Compulsory insurance This page links here and is a redirect with possibilities. Topics in Finance include Fundamental financial concepts Finance an overview Arbitrage Topics in Finance include Fundamental financial concepts Finance an overview Arbitrage This is a list of Insurance companies in the United States. These are companies with strong national or regional presence ACORD, the Association for Cooperative Operations Research and Development is the Insurance industry's nonprofit standards developer a resource for information about Object Insurance, in Law and Economics, is a form of Risk management primarily used to hedge against the Risk of a contingent loss You can help by eliminating the redirect command in the redirecting page and expanding it. URL redirection, also called URL forwarding, domain redirection and domain forwarding, is a technique on the World Wide Web for making a

• Financial services (broader industry to which insurance belongs)
• Five for One
• Geneva Association, The (the International Association for the Study of Insurance Economics)
• Global assets under management
• Insurance law
• Intergovernmental Risk Pool
• Insurance Hall of Fame
• Subrogation
• Uberrima fides
• Social security
• Universal health care
• Welfare state

Country Specific Articles

• Insurance in Australia
• Insurance in India
• Insurance in the United States

Notes

External links

• Federation of European Risk Management Associations
• Insurance Information Institute
• National Association of Insurance Commissioners
• The British Library - finding information on the insurance industry (UK bias)
• Insurance Bureau of Canada
• Museum of Insurance - displays thousands of antique insurance policies and ephemera
• Congressional Research Service (CRS) Reports regarding the U.S. Insurance industry
• Insurance at the Open Directory Project

The Open Directory Project ( ODP) also known as dmoz (from directory

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