Portellus, Inc., a leader in business-user driven change-management solutions, and Technology Alliance Partners LLC (TAP), a cross-industry business and technology consultancy, announced today that they have formed a partnership to combine consulting and technology synergies focused on the delivery of rapid implementations, enterprise flexibility, low total cost of ownership and high return on investment (ROI).
"The formation of a partnership between TAP and Portellus was a natural fit due to the synergies between TAP's solution delivery methodology and experience and Portellus' configurable approach to product design," said Richard Dolman, managing partner at Technology Alliance Partners. "Both companies are dedicated to providing customers with swift solution delivery, client empowerment, process agility and low system maintenance costs. Together, these commonalities make for a complementary partnership in strategic business processes and leading technology that create a powerful competitive advantage."
TAP's business process-centric methodology focuses on creating a sound framework for process optimization, best execution, solution design, implementation best practices, and change management. Portellus' products are architected to be service-oriented and configurable, thus avoiding lengthy and costly coding efforts.
Both companies are well positioned to address the technology and business needs of multiple vertical markets including financial services, communications, insurance, healthcare and manufacturing.
"Our two companies working together on projects in different industries offers prospective clients deep domain experience and highly flexible solutions that translates to a clear-cut ROI, creates competitive advantages, and works to future proof organizations from ever-changing technology shifts," said David Duignan, vice president of worldwide sales at Portellus. "We look forward to engaging with the talented team at TAP on strategic projects."
Companies interested in learning more about the way the two companies work together are encouraged to contact either firm.
About TAP
Technology Alliance Partners, LLC (TAP) is a premiere business and technology consultancy leveraging broad cross-industry experience to provide a full range of consulting services to support the analysis, design and implementation of effective business solutions. Based in Denver, Colorado, TAP is comprised of highly motivated and creative professionals dedicated to improving our customer's business competitiveness and profitability through the design and implementation of optimized business processes and supporting information technology. For more information, visit www.techap.net or call John Tesone at 303-881-7635.
About Portellus
Portellus, Inc. is a leading provider of next-generation technology solutions for industries requiring the automation of numerous complex business decisions. The company's Business Rules Management System (BRMS), Integration Services Hub, Web Portals and vertical market solutions utilize a service-oriented architecture (SOA) to deliver loosely coupled applications and flexible solutions, enabling clients to gain competitive advantages, reduce costs, mitigate risk, increase profitability, comply with regulatory requirements and swiftly respond to marketplace dynamics. Portellus' solutions are in production with, financial institutions, insurance companies, mortgage bankers, investment banks and Wall Street investors. For more information, visit www.portellus.com or call 949-250-9600.
Friday, August 10, 2007
Saturday, July 28, 2007
Judge Rules Employee Benefits Case Against CNA Financial Corporation Will to Go to Trial, According to Meites, Mulder, Mollica & Glink
Judge Holderman of the United States District Court for the Northern District of Illinois ruled that a case against CNA Financial Corporation should to go to trial on claims that the company illegally denied severance benefits to terminated employees.
The suit is brought on behalf of 90 former members of CNA's sales force, whose division was sold to another company. These sales people continued to work until the date of the sale, not knowing that CNA had secretly amended its severance plan months before, cutting them out of more than $4 million in severance benefits. Even though the severance plan required reasonable notice of any changes, CNA's only notice was a clause inserted in the company's internal intranet posting of the plan. The court found that this was not reasonable notice and also found that members of the company's appeals committee, who had determined the notice was reasonable, had a conflict of interest. The court overturned their decision that the notification was timely.
According to Meites, Mulder, Mollica & Glink, co-counsel for the plaintiffs, this decision is groundbreaking. The court held the company's internal appeals committee to a higher standard of scrutiny because it "was acting under a potential conflict of interest." The court found a conflict because a favorable decision by the appeals committee--all of whom were company employees--could ultimately cost the company millions of dollars. The court also allowed a common law fraud claim to go to trial to determine if the company's decision not to give adequate notice was made in bad faith. Judge Holderman dismissed a claim for federal common law breach of contract. The plaintiffs brought their claims under ERISA, the Employee Retirement Income Security Act, 29 U.S.C. ss. 1001, et seq. and federal common law.
Read the entire opinion (Rosenberg, et al. v. CNA Financial Corp and the CNA Severance Pay Plan, No. 04 C 8219) at: www.mmmglaw.com/CM/CurrentCaseUpdates/Summary_Judgment_Ruling1.pdf.
According to its company literature, CNA, based in Chicago, IL, is the country's seventh largest commercial insurance writer and the 13th largest property and casualty company. CNA's insurance products include standard commercial lines, specialty lines, surety, marine and other property and casualty coverages. CNA services include risk management, information services, underwriting, risk control and claims administration.
The plaintiffs are represented by Palmer Freeman of James C. Anders & Associates, 1303 Blanding Street Columbia, SC 29202, Richard D. Ries of the Law Offices of R. Don Ries, 712 Richland Street, Columbia, SC 29201, Thomas R. Meites and Paul W. Mollica of Meites, Mulder, Mollica & Glink, 20 S. Clark Street, Suite 1500, Chicago, IL 60603, and Johanna J. Raimond of the Law Offices of Johanna J. Raimond Ltd., 321 S. Plymouth Court, Suite 1515, Chicago, IL 60604.
CNA is represented by Wilber H. Boies, Aron J. Frakes, Monica Marie Quinn and Nancy G. Ross of McDermott, Will & Emery LLP, 227 West Monroe Street, Chicago, IL 60606.
ABOUT MEITES, MULDER, MOLLICA & GLINK
Meites, Mulder, Mollica & Glink represents plaintiffs in nationwide class actions and multi-party complex litigation in federal and state courts, focusing on employment discrimination, workplace benefits, whistleblower actions, consumer rights, and securities litigation. The firm's guiding principle is to pursue cases that have a positive impact on society by advocating on behalf of classes of employees, investors, consumers, and others whose legal rights have been denied.
Contact:
Meites, Mulder, Mollica & Glink
Thomas R. Meites, 312-263-0272
The suit is brought on behalf of 90 former members of CNA's sales force, whose division was sold to another company. These sales people continued to work until the date of the sale, not knowing that CNA had secretly amended its severance plan months before, cutting them out of more than $4 million in severance benefits. Even though the severance plan required reasonable notice of any changes, CNA's only notice was a clause inserted in the company's internal intranet posting of the plan. The court found that this was not reasonable notice and also found that members of the company's appeals committee, who had determined the notice was reasonable, had a conflict of interest. The court overturned their decision that the notification was timely.
According to Meites, Mulder, Mollica & Glink, co-counsel for the plaintiffs, this decision is groundbreaking. The court held the company's internal appeals committee to a higher standard of scrutiny because it "was acting under a potential conflict of interest." The court found a conflict because a favorable decision by the appeals committee--all of whom were company employees--could ultimately cost the company millions of dollars. The court also allowed a common law fraud claim to go to trial to determine if the company's decision not to give adequate notice was made in bad faith. Judge Holderman dismissed a claim for federal common law breach of contract. The plaintiffs brought their claims under ERISA, the Employee Retirement Income Security Act, 29 U.S.C. ss. 1001, et seq. and federal common law.
Read the entire opinion (Rosenberg, et al. v. CNA Financial Corp and the CNA Severance Pay Plan, No. 04 C 8219) at: www.mmmglaw.com/CM/CurrentCaseUpdates/Summary_Judgment_Ruling1.pdf.
According to its company literature, CNA, based in Chicago, IL, is the country's seventh largest commercial insurance writer and the 13th largest property and casualty company. CNA's insurance products include standard commercial lines, specialty lines, surety, marine and other property and casualty coverages. CNA services include risk management, information services, underwriting, risk control and claims administration.
The plaintiffs are represented by Palmer Freeman of James C. Anders & Associates, 1303 Blanding Street Columbia, SC 29202, Richard D. Ries of the Law Offices of R. Don Ries, 712 Richland Street, Columbia, SC 29201, Thomas R. Meites and Paul W. Mollica of Meites, Mulder, Mollica & Glink, 20 S. Clark Street, Suite 1500, Chicago, IL 60603, and Johanna J. Raimond of the Law Offices of Johanna J. Raimond Ltd., 321 S. Plymouth Court, Suite 1515, Chicago, IL 60604.
CNA is represented by Wilber H. Boies, Aron J. Frakes, Monica Marie Quinn and Nancy G. Ross of McDermott, Will & Emery LLP, 227 West Monroe Street, Chicago, IL 60606.
ABOUT MEITES, MULDER, MOLLICA & GLINK
Meites, Mulder, Mollica & Glink represents plaintiffs in nationwide class actions and multi-party complex litigation in federal and state courts, focusing on employment discrimination, workplace benefits, whistleblower actions, consumer rights, and securities litigation. The firm's guiding principle is to pursue cases that have a positive impact on society by advocating on behalf of classes of employees, investors, consumers, and others whose legal rights have been denied.
Contact:
Meites, Mulder, Mollica & Glink
Thomas R. Meites, 312-263-0272
Sunday, July 15, 2007
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. 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. 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. 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.
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.
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.
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.
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. 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).
Health insurance
Health insurance, which is coverage for individuals to protect them against medical costs, is a highly charged and political issue in the United States, which does not have socialized health coverage. In theory, the market for health insurance should function in a manner similar to other insurance coverages, but the skyrocketing cost of health coverage has disrupted markets around the globe, but perhaps most glaringly in the U.S. See health insurance.
Dental insurance
Dental insurance, like health 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.
Insurance patents
See insurance patent for more details.
New insurance 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 telematic auto insurance. 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 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.[citation needed]
A British auto insurance company, Norwich Union, has obtained a license to both the Progressive patent and Perez patent. They have made investments in infrastructure and developed a commercial offering called "Pay As You Drive" or PAYD.
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 issued has steadily risen from 15 in 2002 to 44 in 2006.
The 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. 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.
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. 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. It is difficult to speak to anybody with expert knowledge.
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. 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. 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. 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.
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.
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.
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.
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. 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).
Health insurance
Health insurance, which is coverage for individuals to protect them against medical costs, is a highly charged and political issue in the United States, which does not have socialized health coverage. In theory, the market for health insurance should function in a manner similar to other insurance coverages, but the skyrocketing cost of health coverage has disrupted markets around the globe, but perhaps most glaringly in the U.S. See health insurance.
Dental insurance
Dental insurance, like health 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.
Insurance patents
See insurance patent for more details.
New insurance 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 telematic auto insurance. 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 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.[citation needed]
A British auto insurance company, Norwich Union, has obtained a license to both the Progressive patent and Perez patent. They have made investments in infrastructure and developed a commercial offering called "Pay As You Drive" or PAYD.
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 issued has steadily risen from 15 in 2002 to 44 in 2006.
The 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. 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.
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. 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. It is difficult to speak to anybody with expert knowledge.
Financial viability of insurance companies
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.
Size of global insurance industry
Life insurance premia written in 2005
Non-life insurance premia written in 2005
Global insurance premiums grew by 9.7% in 2004 to reach $3.3 trillion. This follows 11.7% growth in the previous year. Life insurance premiums grew by 9.8% during the year, thanks to rising demand for annuity and pension products. Non-life insurance premiums grew by 9.4%, as premium rates increased. Over the past decade, global insurance premiums rose by more than a half as annual growth fluctuated between 2% and 10%.[citation needed]
Advanced economies account for the bulk of global insurance. With premium income of $1,217 billion in 2004, North America was the most important region, followed by the EU (at $1,198 billion) and Japan (at $492 billion). The top four countries accounted for nearly two-thirds of premiums in 2004. The United States and Japan alone accounted for a half of world insurance premiums, much higher than their 7% share of the global population. Emerging markets accounted for over 85% of the world’s population but generated only 10% of premiums. The volume of UK insurance business totaled $295 billion in 2004 or 9.1% of global premiums.
Life insurance and saving
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. See life insurance.
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. 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 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.
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. 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 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.
Types of insurance companies
Insurance companies may be classified as
· Life insurance companies, which sell life insurance, annuities and pensions products.
· Non-life or general 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 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 licenced in the states where the risks are located. These companies have more flexibility and can react faster than standard insurance companies because they don't have the same regulations as standard insurance companies. 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. 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. 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. 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. 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 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.
· Life insurance companies, which sell life insurance, annuities and pensions products.
· Non-life or general 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 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 licenced in the states where the risks are located. These companies have more flexibility and can react faster than standard insurance companies because they don't have the same regulations as standard insurance companies. 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. 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. 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. 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. 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 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.
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 is a (non-exhaustive) list 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.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.
· 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. Throughout most of the United States an auto insurance policy is required to legally operate a motor vehicle on public roads. 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.
· Aviation insurance insures against hull, spares, deductible, hull war and liability risks.
· Boiler insurance (also known as boiler and machinery insurance or equipment breakdown insurance) insures against accidental physical damage to 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 due to any cause (including the negligence of the insured) not otherwise expressly excluded.
· Business insurance can be any kind of insurance that protects businesses against risks. 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 businessowners policy (BOP), which bundles into one policy many of the kinds of coverage that a businessowner needs, in a way analogous to how homeowners insurance bundles the coverages that a homeowner needs.[3]
· Casualty insurance insures against accidents, not necessarily tied to any specific property.
· Credit insurance repays some or all of a loan back when certain things happen to the borrower such as unemployment, disability, or death. Mortgage insurance (which see below) 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.
· Crime insurance insures 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.
· Crop insurance "Farmers use crop insurance 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, for instance."[4]
· 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.
· 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. In the industry, it is usually called "D&O" for short.
· Disability insurance policies provide financial support in the event the policyholder is unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgages and credit cards.
o 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.
· Errors and omissions insurance: See "Professional liability insurance" under "Liability insurance".
· Expatriate insurance provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits.
· 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. Insurance might also cover the failure of a creditor to pay money it owes to the insured. 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.
· Fire insurance: See "Property insurance".
· Hazard insurance: See "Property insurance".
· Health insurance policies will often cover the cost of private medical treatments if the National Health Service in the UK (NHS) or other publicly-funded health programs do not pay for them. It will often result in quicker health care where better facilities are available.
· Home insurance or homeowners insurance: See "Property 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.
o 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.
o 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 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.
· Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for 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.
o 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. 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.
· 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 unauthorised parties. In special cases, a government may authorise 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.
· 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. 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.
· Mortgage insurance insures the lender against default by the borrower.
· National Insurance is the UK's version of social insurance (which see below).
· 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.
· Nuclear incident insurance covers damages resulting from an incident involving radioactivive materials and is generally arranged at the national level. (For the United States, see 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.
· Political risk insurance 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.
· 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
· Property insurance provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance.
· 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.
· 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.
· 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 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 is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):
o Social welfare provision
o Social security
o Social safety net
o National Insurance
o Social Security (United States)
o Social Security debate (United States)
· Terrorism insurance provides protection against any loss or damage caused by terrorist activities.
· 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, lost of personal belongings, travel delay, personal liabilities, etc.
· Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expense incurred because of a job-related injury.
Below is a (non-exhaustive) list 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.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.
· 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. Throughout most of the United States an auto insurance policy is required to legally operate a motor vehicle on public roads. 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.
· Aviation insurance insures against hull, spares, deductible, hull war and liability risks.
· Boiler insurance (also known as boiler and machinery insurance or equipment breakdown insurance) insures against accidental physical damage to 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 due to any cause (including the negligence of the insured) not otherwise expressly excluded.
· Business insurance can be any kind of insurance that protects businesses against risks. 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 businessowners policy (BOP), which bundles into one policy many of the kinds of coverage that a businessowner needs, in a way analogous to how homeowners insurance bundles the coverages that a homeowner needs.[3]
· Casualty insurance insures against accidents, not necessarily tied to any specific property.
· Credit insurance repays some or all of a loan back when certain things happen to the borrower such as unemployment, disability, or death. Mortgage insurance (which see below) 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.
· Crime insurance insures 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.
· Crop insurance "Farmers use crop insurance 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, for instance."[4]
· 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.
· 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. In the industry, it is usually called "D&O" for short.
· Disability insurance policies provide financial support in the event the policyholder is unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgages and credit cards.
o 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.
· Errors and omissions insurance: See "Professional liability insurance" under "Liability insurance".
· Expatriate insurance provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits.
· 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. Insurance might also cover the failure of a creditor to pay money it owes to the insured. 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.
· Fire insurance: See "Property insurance".
· Hazard insurance: See "Property insurance".
· Health insurance policies will often cover the cost of private medical treatments if the National Health Service in the UK (NHS) or other publicly-funded health programs do not pay for them. It will often result in quicker health care where better facilities are available.
· Home insurance or homeowners insurance: See "Property 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.
o 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.
o 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 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.
· Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for 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.
o 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. 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.
· 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 unauthorised parties. In special cases, a government may authorise 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.
· 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. 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.
· Mortgage insurance insures the lender against default by the borrower.
· National Insurance is the UK's version of social insurance (which see below).
· 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.
· Nuclear incident insurance covers damages resulting from an incident involving radioactivive materials and is generally arranged at the national level. (For the United States, see 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.
· Political risk insurance 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.
· 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
· Property insurance provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance.
· 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.
· 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.
· 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 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 is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):
o Social welfare provision
o Social security
o Social safety net
o National Insurance
o Social Security (United States)
o Social Security debate (United States)
· Terrorism insurance provides protection against any loss or damage caused by terrorist activities.
· 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, lost of personal belongings, travel delay, personal liabilities, etc.
· Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expense incurred because of a job-related injury.
Risk Limiting Features
An insurance policy should not contain provisions that allow one side or the other to unilaterally void the contract in exchange for benefit. Provisions that void the contract for failure to perform or for fraud or material misrepresentation are ordinary and acceptable.
The policy should have a term of not more than about three years. This is not a hard and fast rule. Contracts of over five years duration are classified as ‘long-term,’ which can impact the accounting treatment, and can obviously introduce the possibility that over the entire term of the contract, no actual risk will transfer. The coverage provided by the contract need not cease at the end of the term (e.g., the contract can cover occurrences as opposed to claims made or claims paid).
The contract should be considered to include any other agreements, written or oral, that confer rights, create obligations, or create benefits on the part of either or both parties. Ideally, the contract should contain an ‘Entire Agreement’ clause that assures there are no undisclosed written or oral side agreements that confer rights, create obligations, or create benefits on the part of either or both parties. If such rights, obligations or benefits exist, they must be factored into the tests of reasonableness and significance.
The contract should not contain arbitrary limitations on timing of payments. Provisions that assure both parties of time to properly present and consider claims are acceptable provided they are commercially reasonable and customary.
Provisions that expressly create actual or notional accounts that accrue actual or notional interest suggest that the contract contains, in fact, a deposit.
Provisions for additional or return premium do not, in and of themselves, render a contract something other than insurance. However, it should be unlikely that either a return or additional premium provision be triggered, and neither party should have discretion regarding the timing of such triggering.
All of the events that would give rise to claims under the contract cannot have materialized prior to the inception of the contract. If this "all events" test is not met, then the contract is considered to be a retroactive contract, for which the accounting treatment becomes complex.
The policy should have a term of not more than about three years. This is not a hard and fast rule. Contracts of over five years duration are classified as ‘long-term,’ which can impact the accounting treatment, and can obviously introduce the possibility that over the entire term of the contract, no actual risk will transfer. The coverage provided by the contract need not cease at the end of the term (e.g., the contract can cover occurrences as opposed to claims made or claims paid).
The contract should be considered to include any other agreements, written or oral, that confer rights, create obligations, or create benefits on the part of either or both parties. Ideally, the contract should contain an ‘Entire Agreement’ clause that assures there are no undisclosed written or oral side agreements that confer rights, create obligations, or create benefits on the part of either or both parties. If such rights, obligations or benefits exist, they must be factored into the tests of reasonableness and significance.
The contract should not contain arbitrary limitations on timing of payments. Provisions that assure both parties of time to properly present and consider claims are acceptable provided they are commercially reasonable and customary.
Provisions that expressly create actual or notional accounts that accrue actual or notional interest suggest that the contract contains, in fact, a deposit.
Provisions for additional or return premium do not, in and of themselves, render a contract something other than insurance. However, it should be unlikely that either a return or additional premium provision be triggered, and neither party should have discretion regarding the timing of such triggering.
All of the events that would give rise to claims under the contract cannot have materialized prior to the inception of the contract. If this "all events" test is not met, then the contract is considered to be a retroactive contract, for which the accounting treatment becomes complex.
"Safe Harbor Exemptions"
The analysis of reasonableness and signifiance is an estimate of the probability of different gain or loss outcomes under different loss scenarios. It takes time and resources to perform the analysis, which constitutes a burden without value where risk transfer is reasonably self-evident.
Guidance exists for insurers and reinsurers, whose CEO's and CFO's attest annually as to the reinsurance agreements their firms undertake. The American Academy of Actuaries, for instance, identifies three categories of contract as outside the requirement of attestation:
· Inactive contracts. If there are no premiums due nor losses payable, and the insurer is not taking any credit for the reinsurance, determining risk transfer is irrelevant.
· Pre-1994 contracts. The attestation requirement only applies to contracts that were entered into, renewed or amended on or after 1 January 1994. Prior contracts need not be analyzed.
· Where risk transfer is "reasonably self-evident."
"Risk transfer is reasonably self-evident in most traditional per-risk or per-occurrence excess of loss reinsurance contracts. For these contracts, a predetermined amount of premium is paid and the reinsurer assumes nearly all or all of the potential variablility in the underlying losses, and it is evident from reading the basic terms of the contract that the reinsurer can incur a significant loss. In many cases, there is no aggregate limit on the reinsurer's loss. The existence of certain experience-based contract terms, such as experience accounts, profit commissions, and additional premiums, generally reduce the amount of risk transfer and make it less likely that risk transfer is reaonably self-evident."
- "Reinsurance Attestation Supplement 20-1: Risk Transfer Testing Practice Note," American Academy of Actuaries, November 2005. ...
Guidance exists for insurers and reinsurers, whose CEO's and CFO's attest annually as to the reinsurance agreements their firms undertake. The American Academy of Actuaries, for instance, identifies three categories of contract as outside the requirement of attestation:
· Inactive contracts. If there are no premiums due nor losses payable, and the insurer is not taking any credit for the reinsurance, determining risk transfer is irrelevant.
· Pre-1994 contracts. The attestation requirement only applies to contracts that were entered into, renewed or amended on or after 1 January 1994. Prior contracts need not be analyzed.
· Where risk transfer is "reasonably self-evident."
"Risk transfer is reasonably self-evident in most traditional per-risk or per-occurrence excess of loss reinsurance contracts. For these contracts, a predetermined amount of premium is paid and the reinsurer assumes nearly all or all of the potential variablility in the underlying losses, and it is evident from reading the basic terms of the contract that the reinsurer can incur a significant loss. In many cases, there is no aggregate limit on the reinsurer's loss. The existence of certain experience-based contract terms, such as experience accounts, profit commissions, and additional premiums, generally reduce the amount of risk transfer and make it less likely that risk transfer is reaonably self-evident."
- "Reinsurance Attestation Supplement 20-1: Risk Transfer Testing Practice Note," American Academy of Actuaries, November 2005. ...
Is There a Brightline Test?
Neither FAS 113 nor SAP 62 defines the terms "reasonable" or "significant." Ideally, one would like to be able to substitute values for both terms. It would be much simpler if one could apply a test of an X% chance of a loss of Y% or greater. Such tests have been proposed, including one famously attributed to an SEC official who is said to have opined in an after lunch talk that a 10% chance of a 10% loss was sufficient to establish both reasonableness and significance. Indeed, many insurers and reinsurers still apply this "10/10" test as a benchmark for risk transfer testing.
It should be obvious that an attempt to use any numerical rule such as the 10/10 test will quickly run into problems. Suppose a contract has a 1% chance of a 10,000% loss? It should be reasonably self-evident that such a contract is insurance, but it fails one half of the 10/10 test. It does not appear that any "brightline" test of reasonableness nor signifance can be constructed.
Excess of loss contracts, like those commonly used for umbrella and general liability insurance, or to insure against property losses, will typically have a low ratio of premium paid to maximum loss recoverable. This ratio (expressed as a percentage), commonly called the "rate on line" for historical reasons related to underwriting practices at Lloyds of London, will typically be low for contracts that contain reasonably self-evident risk transfer. As the ratio increases to approximate the present value of the limit of coverage, self-evidence decreases and disappears.
Contracts with low rates on line may survive modest features that limit the amount of risk transferred. As rates on line increase, such risk limiting features become increasingly important.
It should be obvious that an attempt to use any numerical rule such as the 10/10 test will quickly run into problems. Suppose a contract has a 1% chance of a 10,000% loss? It should be reasonably self-evident that such a contract is insurance, but it fails one half of the 10/10 test. It does not appear that any "brightline" test of reasonableness nor signifance can be constructed.
Excess of loss contracts, like those commonly used for umbrella and general liability insurance, or to insure against property losses, will typically have a low ratio of premium paid to maximum loss recoverable. This ratio (expressed as a percentage), commonly called the "rate on line" for historical reasons related to underwriting practices at Lloyds of London, will typically be low for contracts that contain reasonably self-evident risk transfer. As the ratio increases to approximate the present value of the limit of coverage, self-evidence decreases and disappears.
Contracts with low rates on line may survive modest features that limit the amount of risk transferred. As rates on line increase, such risk limiting features become increasingly important.
Does the Contract Contain Adequate Risk Transfer?
FAS 113 contains two tests, called the '9a and 9b tests,' that collectively require that a contract create a reasonable chance of a significant loss to the underwriter for it to be considered insurance.
9. Indemnification of the ceding enterprise against loss or liability relating to insurance risk in reinsurance of short-duration contracts requires both of the following, unless the condition in paragraph 11 is met:
a. The reinsurer assumes significant insurance risk under the reinsured portions of the underlying insurance contracts.
b. It is reasonably possible that the reinsurer may realize a significant loss from the transaction.
Paragraph 10 of FAS 113 makes clear that the 9a and 9b tests are based on comparing the present value of all costs to the PV of all income streams. FAS gives no guidance on the choice of a discount rate on which to base such a calculation, other than to say that all outcomes tested should use the same rate.
Statement of Statutory Accounting Principles ("SSAP") 62, issued by the National Association of Insurance Commissioners, applies to so-called 'statutory accounting' - the accounting for insurance enterprises to conform with regulation. Paragraph 12 of SSAP 62 is nearly identical to the FAS 113 test, while paragraph 14, which is otherwise very similar to paragraph 10 of FAS 113, additionally contains a justification for the use of a single fixed rate for discounting purposes. The choice of an "reasonable and appropriate" discount rate is left as a matter of judgement.
9. Indemnification of the ceding enterprise against loss or liability relating to insurance risk in reinsurance of short-duration contracts requires both of the following, unless the condition in paragraph 11 is met:
a. The reinsurer assumes significant insurance risk under the reinsured portions of the underlying insurance contracts.
b. It is reasonably possible that the reinsurer may realize a significant loss from the transaction.
Paragraph 10 of FAS 113 makes clear that the 9a and 9b tests are based on comparing the present value of all costs to the PV of all income streams. FAS gives no guidance on the choice of a discount rate on which to base such a calculation, other than to say that all outcomes tested should use the same rate.
Statement of Statutory Accounting Principles ("SSAP") 62, issued by the National Association of Insurance Commissioners, applies to so-called 'statutory accounting' - the accounting for insurance enterprises to conform with regulation. Paragraph 12 of SSAP 62 is nearly identical to the FAS 113 test, while paragraph 14, which is otherwise very similar to paragraph 10 of FAS 113, additionally contains a justification for the use of a single fixed rate for discounting purposes. The choice of an "reasonable and appropriate" discount rate is left as a matter of judgement.
When is a Policy Really Insurance?
An operational definition of insurance is that it is
· the benefit provided by a particular kind of indemnity contract, called an insurance policy;
· that is issued by one of several kinds of legal entities (stock company, mutual company, reciprocal, or Lloyds organization, for example), any of which may be called an insurer;
· in which the insurer promises to pay on behalf of or to indemnify another party, called a policyholder or insured;
· that protects the insured against loss caused by those perils subject to the indemnity in exchange for consideration known as an insurance premium.
In recent years this kind of operational definition proved inadequate as a result of contracts that had the form but not the substance of insurance. The essence of insurance is the transfer of risk from the insured to one or more insurers. How much risk a contract actually transfers proved to be at the heart of the controversy.
This issue arose most clearly in reinsurance, where the use of Financial Reinsurance to reengineer insurer balance sheets under US GAAP became fashionable during the 1980s. The accounting profession raised serious concerns about the use of reinsurance in which little if any actual risk was transferred, and went on to address the issue in FAS 113, cited above. While on its face, FAS 113 is limited to accounting for reinsurance transactions, the guidance it contains is generally conceded to be equally applicable to US GAAP accounting for insurance transactions executed by commericial enterprises.
· the benefit provided by a particular kind of indemnity contract, called an insurance policy;
· that is issued by one of several kinds of legal entities (stock company, mutual company, reciprocal, or Lloyds organization, for example), any of which may be called an insurer;
· in which the insurer promises to pay on behalf of or to indemnify another party, called a policyholder or insured;
· that protects the insured against loss caused by those perils subject to the indemnity in exchange for consideration known as an insurance premium.
In recent years this kind of operational definition proved inadequate as a result of contracts that had the form but not the substance of insurance. The essence of insurance is the transfer of risk from the insured to one or more insurers. How much risk a contract actually transfers proved to be at the heart of the controversy.
This issue arose most clearly in reinsurance, where the use of Financial Reinsurance to reengineer insurer balance sheets under US GAAP became fashionable during the 1980s. The accounting profession raised serious concerns about the use of reinsurance in which little if any actual risk was transferred, and went on to address the issue in FAS 113, cited above. While on its face, FAS 113 is limited to accounting for reinsurance transactions, the guidance it contains is generally conceded to be equally applicable to US GAAP accounting for insurance transactions executed by commericial enterprises.
Indemnification
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: 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.
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 (i.e., reserves), the remaining margin is an insurer's profit.
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 (i.e., reserves), the remaining margin is an insurer's profit.
AP Govt plans medical insurance for poor
Our Bureau
Ms Sangita Reddy, Executive Director, Apollo Hospitals Group, said insurance was the key to extending modern medical care to the poorer sections of society.
Hyderabad , Dec. 25
THE Andhra Pradesh Government intends to offer medical insurance to the poor, starting in 2006. The idea is to gradually reach modern medical care to the poor, said the State Agriculture Minister, Mr N. Raghuveera Reddy.
Speaking after inaugurating the Apollo International CME (continuing medical education) programme here on Sunday, Mr Reddy said, "We can make a humble beginning by this insurance scheme, even if we can't reach medical insurance to all eight crore people immediately."
The Minister urged insurance companies to come forward and offer medical insurance to the poorer sections of society at break-even cost. In developed countries the entire population is covered by medical insurance, and everyone gets the best available care.
The CME was jointly organised by Apollo Hospitals and the American Telugu Association (ATA) today. Mr Reddy said medical insurance to the poor is being implemented in Karnataka, where farmers and their families are extended quality medical care.
He urged members of ATA to extend their support for implementing medical insurance in the State. Corporate hospitals should also open their doors to the common man in whatever limited way they can, the Minister said.
Ms Sangita Reddy, Executive Director, Apollo Hospitals Group, said insurance was the key to extending modern medical care to the poorer sections of society. She explained the successful implementation of medical insurance covering 22 lakh farmers in Karnataka, Punjab and for the AMUL cooperative society by the Family Health Plan, a sister concern of the group.
Ms Sangita Reddy, Executive Director, Apollo Hospitals Group, said insurance was the key to extending modern medical care to the poorer sections of society.
Hyderabad , Dec. 25
THE Andhra Pradesh Government intends to offer medical insurance to the poor, starting in 2006. The idea is to gradually reach modern medical care to the poor, said the State Agriculture Minister, Mr N. Raghuveera Reddy.
Speaking after inaugurating the Apollo International CME (continuing medical education) programme here on Sunday, Mr Reddy said, "We can make a humble beginning by this insurance scheme, even if we can't reach medical insurance to all eight crore people immediately."
The Minister urged insurance companies to come forward and offer medical insurance to the poorer sections of society at break-even cost. In developed countries the entire population is covered by medical insurance, and everyone gets the best available care.
The CME was jointly organised by Apollo Hospitals and the American Telugu Association (ATA) today. Mr Reddy said medical insurance to the poor is being implemented in Karnataka, where farmers and their families are extended quality medical care.
He urged members of ATA to extend their support for implementing medical insurance in the State. Corporate hospitals should also open their doors to the common man in whatever limited way they can, the Minister said.
Ms Sangita Reddy, Executive Director, Apollo Hospitals Group, said insurance was the key to extending modern medical care to the poorer sections of society. She explained the successful implementation of medical insurance covering 22 lakh farmers in Karnataka, Punjab and for the AMUL cooperative society by the Family Health Plan, a sister concern of the group.
Poor Timing?
The Governor of Florida and the Legislature have passed legislation solving, they hope, Florida’s property insurance challenges, but after a mild hurricane season and increasing competition in the insurance market are they buying at the peak? We won’t know for years whether this bet with (against?) Mother Nature is a good one, and the current politicians will probably not be around to deal with any problems that develop.
.
In case you missed it, the new legislation puts the State of Florida in the insurance business by having the state assume a large share of the hurricane risk and by having Citizens compete with private insurers (see here, here, here and here). The legislation:
Is expected to result in significantly lower insurance premiums through a rate freeze and rollbacks
Will allow insurers to purchase catastrophe (cat) insurance from the state fund if savings are passed to consumers
Allows Citizens to compete with private insurers
Requires that claims be paid or denied within 90 days
Prevents insurers from dropping insureds during hurricane season
Requires excess profits be returned
All this as the market, even the property cat market, gets more competitive:
Primary and reinsurance incorporations in Bermuda totaled 82 in 2006 – a three year high (see here)
There is anecdotal evidence that underwriting discipline is waning (see here)
What is the risk for residents? The state sustains one or more huge cats and significant losses from their entry into the insurance business, and has to go back to taxpayers to foot the bill. While the specific impact of the new legislation is difficult to assess, a leading analyst had the following comments (see here):
The legislation … will drive more than $1 billion in premiums from the property-catastrophe reinsurance market—along with a quarter of reinsurers’ profits
The Florida plan is a “backhanded attempt” at national catastrophe fund legislation
The aggregate limit covered by the [state cat] fund has soared from $16 billion to $33 billion
The $10-to-$12 billion property-catastrophe reinsurance marketplace will collectively lose $1.2-to-$1.6 billion in premiums—or perhaps even as much as $2 billion
The reduced profit impact will be even worse… It is not inconceivable to talk about 25-30 percent of the expected profitability of the worldwide property-cat market that has just been eliminated
The insurance industry has lost faith in Florida where the political risk of operating has intensified. It is effectively the Roach Motel - you can get in, but you cannot get out
Pricing, which would have been under downward pressure absent the Florida law, is now under more intense pressure
A prominent insurance author offers the following comments (see here):
Florida lawmakers didn't have the political guts to accept reality and truly represent the long-term interests of their constituents
The scariest part is that Gov. Crist says the new statute is only the first stage of insurance reform in the state
And Fitch sums up the industry sentiment (see here):
Fitch views Florida's proposed legislation as a mechanism to further suppress homeowner's insurance rates in a market where rates continue to be inadequate
.
In case you missed it, the new legislation puts the State of Florida in the insurance business by having the state assume a large share of the hurricane risk and by having Citizens compete with private insurers (see here, here, here and here). The legislation:
Is expected to result in significantly lower insurance premiums through a rate freeze and rollbacks
Will allow insurers to purchase catastrophe (cat) insurance from the state fund if savings are passed to consumers
Allows Citizens to compete with private insurers
Requires that claims be paid or denied within 90 days
Prevents insurers from dropping insureds during hurricane season
Requires excess profits be returned
All this as the market, even the property cat market, gets more competitive:
Primary and reinsurance incorporations in Bermuda totaled 82 in 2006 – a three year high (see here)
There is anecdotal evidence that underwriting discipline is waning (see here)
What is the risk for residents? The state sustains one or more huge cats and significant losses from their entry into the insurance business, and has to go back to taxpayers to foot the bill. While the specific impact of the new legislation is difficult to assess, a leading analyst had the following comments (see here):
The legislation … will drive more than $1 billion in premiums from the property-catastrophe reinsurance market—along with a quarter of reinsurers’ profits
The Florida plan is a “backhanded attempt” at national catastrophe fund legislation
The aggregate limit covered by the [state cat] fund has soared from $16 billion to $33 billion
The $10-to-$12 billion property-catastrophe reinsurance marketplace will collectively lose $1.2-to-$1.6 billion in premiums—or perhaps even as much as $2 billion
The reduced profit impact will be even worse… It is not inconceivable to talk about 25-30 percent of the expected profitability of the worldwide property-cat market that has just been eliminated
The insurance industry has lost faith in Florida where the political risk of operating has intensified. It is effectively the Roach Motel - you can get in, but you cannot get out
Pricing, which would have been under downward pressure absent the Florida law, is now under more intense pressure
A prominent insurance author offers the following comments (see here):
Florida lawmakers didn't have the political guts to accept reality and truly represent the long-term interests of their constituents
The scariest part is that Gov. Crist says the new statute is only the first stage of insurance reform in the state
And Fitch sums up the industry sentiment (see here):
Fitch views Florida's proposed legislation as a mechanism to further suppress homeowner's insurance rates in a market where rates continue to be inadequate
Poor harvest
The pilot project in Ethiopia shows how such schemes could work in practice.
Using money provided by the US government, the Ethiopian administration and other donors, the World Food Programme (WFP) brokered a deal with the Axa Re insurance company to obtain cover for 62,000 rural families against drought.
The insurers agreed that below a certain minimum of rainfall, they would pay $7m within a matter of days, to be spent on food aid or payments to farmers. The premium paid was $930,000.
As it happened, rainfall stayed above the threshold, and Axa Re kept its money. But WFP's Peter Smerdon believes the project shows how poor communities can gain relief quickly.
"The big advantage is it's much faster," he told BBC News.
"Normally, you see a disaster coming, you wait for it to get there, you go and assess the damage, you go and see what you need, you appeal to donors, you have to get the food and assistance in there; and that can take months."
By that time, he observed, farmers might have lost their livestock, sold their farming equipment, and eaten their seeds.
Subsequently, they must rely on international assistance to restore living standards, which is much more expensive in the long run as well as much more damaging to people's lives.
Disastrous costs
The United Nations Environment Programme (Unep) has set up a forum with 165 banks, insurers and asset managers worldwide to find ways of dealing with the costs of climate change.
In a new report, released at the meeting, they concluded that the costs of weather-related disasters would inevitably rise in the coming years.
"Somewhere in the next 30 years, there will be a year where the total costs of these disasters will exceed $1 trillion," said Unep's Executive Director, Achim Steiner.
"This is one of the reasons why climate change is now getting so much attention. It is economically very much a concrete risk factor; and it is of such magnitude that it threatens whole industries and whole sectors in the economy."
While big insurance companies are well aware of the risks, delegates said, ideas to insure the poor were still in their infancy.
The WFP project in Ethiopia was, said Peter Smerdon, "the first time that risks have been transferred from a developing nation to the developed world, ie the people who own the insurance company".
Using money provided by the US government, the Ethiopian administration and other donors, the World Food Programme (WFP) brokered a deal with the Axa Re insurance company to obtain cover for 62,000 rural families against drought.
The insurers agreed that below a certain minimum of rainfall, they would pay $7m within a matter of days, to be spent on food aid or payments to farmers. The premium paid was $930,000.
As it happened, rainfall stayed above the threshold, and Axa Re kept its money. But WFP's Peter Smerdon believes the project shows how poor communities can gain relief quickly.
"The big advantage is it's much faster," he told BBC News.
"Normally, you see a disaster coming, you wait for it to get there, you go and assess the damage, you go and see what you need, you appeal to donors, you have to get the food and assistance in there; and that can take months."
By that time, he observed, farmers might have lost their livestock, sold their farming equipment, and eaten their seeds.
Subsequently, they must rely on international assistance to restore living standards, which is much more expensive in the long run as well as much more damaging to people's lives.
Disastrous costs
The United Nations Environment Programme (Unep) has set up a forum with 165 banks, insurers and asset managers worldwide to find ways of dealing with the costs of climate change.
In a new report, released at the meeting, they concluded that the costs of weather-related disasters would inevitably rise in the coming years.
"Somewhere in the next 30 years, there will be a year where the total costs of these disasters will exceed $1 trillion," said Unep's Executive Director, Achim Steiner.
"This is one of the reasons why climate change is now getting so much attention. It is economically very much a concrete risk factor; and it is of such magnitude that it threatens whole industries and whole sectors in the economy."
While big insurance companies are well aware of the risks, delegates said, ideas to insure the poor were still in their infancy.
The WFP project in Ethiopia was, said Peter Smerdon, "the first time that risks have been transferred from a developing nation to the developed world, ie the people who own the insurance company".
What is microinsurance?
Microinsurance is a form of health, life or property insurance, which offers limited protection at a low contribution (hence “micro”). It is aimed at poor sections of the population and designed to help them cover themselves collectively against risks (hence “insurance”). Normally, microinsurance schemes are linked to associations (besides non-governmental organizations for instance trade unions, religious congregations and hospitals), whose main area of work puts them in direct contact with the target groups. They may, but must not necessarily, act as the insurance provider: in many cases, they have transferred the risks of the insurance business to a professional insurer.
Climate insurance urged for poor
By Richard Black Environment correspondent, BBC News website, Nairobi
Insurance schemes would deliver financial support much quicker
The UN wants insurance companies to help protect the world's poor against the impacts of climate change.
Insurance-based schemes could make money available to affected communities much faster than traditional aid, its climate meeting in Nairobi was told.
A pilot project in Ethiopia earlier this year insured 62,000 rural families against drought.
Computer models of climate change suggest droughts and floods will become more common across Africa.
Current extreme weather events on the continent affect most severely the livelihoods of people with no access to conventional insurance.
"Every year, the World Bank donates millions in order to repair events and to repair disasters; and we need a step change in the way we manage relief for poorer parts of the world," said Thomas Loster of the Munich Re Foundation, a not-for-profit organisation linked to the re-insurance giant.
"Through public-private partnerships that match seed money from public sources with the skills of the private sector, I believe we can do this by realising new kinds of risk cover across large parts of the developing world."
Climate insurance urged for poor
By Richard Black Environment correspondent, BBC News website, Nairobi
Insurance schemes would deliver financial support much quicker
The UN wants insurance companies to help protect the world's poor against the impacts of climate change.
Insurance-based schemes could make money available to affected communities much faster than traditional aid, its climate meeting in Nairobi was told.
A pilot project in Ethiopia earlier this year insured 62,000 rural families against drought.
Computer models of climate change suggest droughts and floods will become more common across Africa.
Current extreme weather events on the continent affect most severely the livelihoods of people with no access to conventional insurance.
"Every year, the World Bank donates millions in order to repair events and to repair disasters; and we need a step change in the way we manage relief for poorer parts of the world," said Thomas Loster of the Munich Re Foundation, a not-for-profit organisation linked to the re-insurance giant.
"Through public-private partnerships that match seed money from public sources with the skills of the private sector, I believe we can do this by realising new kinds of risk cover across large parts of the developing world."
May we introduce ourselves?
WE are a consortium of not for profit research and business organizations sharing a common goal: help to establish health insurance for the poor in India using microinsurance. Based on RESEARCH on microhealthinsurance we develop recommendations which will be used to TRAIN people involved in microhealthinsurance today and in the future to contribute to preparing the ground for new insurance schemes. We will COMMUNICATE our activities and findings in order to have our work constantly reviewed and stimulated by discussion. Read more about the project.You can download a brief project presentation here.
Strengthening Micro Health Insurance Units for the Poor in India
»Strengthening Micro Health Insurance Units for the Poor in India - Better Health through more Equity in the Access to Health Care!«
Myths and realities regarding health insurance for the poor
An article published in Economic and Political Weekly captures in a nutshell the myths and realities in health insruance for the poor in India. The article, written by the project's lead expert Prof. David Dror, confronts prevailing myths in India with evidence from this project's survey. The article can be downloaded here.
Developing Pro-Poor Health Insurance in India - An International Conference on Micro Health Insurance
A Conference for Community Organizations and Policy Makers took place at India Habitat Centre, New Delhi on November 1st and 2nd 2006. The aim of the conference was to disseminate new information on the contribution of community health financing toward low-cost health insurance for poor and rural population segments in India.Find more information here. [Download brochure.] A docmentation will follow soon; presentations can be downloaded in the programme section.
President Dr. Abdul Kalam supports pro-needy health insurance
His Excellency Dr. Abdul Kalam granted an audience to members of the project team on 30 October 2006. The President expressed his support for the development of pro-needy health insurance. The president said that the future of development activities, notably health insurance in rural areas, lies in integrating them into community structures.
Workshops with Micro Insurance Partners
Patna, 14.10.2006. In a one day workshop the project presented in detail the results of the household survey to its microinsurance partner NIDAN. About thirty participants, mainly the NGO’s district coordinators responsible for implementing the insurance programme, took part in the workshop. After eight hours of workshop and intensive discussion the project handed over the written report to its partner.
Bangalore, 18.10.2006. The project presented the findings of the research conducted and its implications for Yeshasvini Trust to the trustees of the health insurance. The research report and the case study conducted in 2005 and published in the ILO series were also officially handed over.
Mysore, 22.10.2006. The one day workshop with Karuna Trust was held on Diwali-Sunday at Karuna’s Technology Resource Centre in Mysore. The results of the research and its implications for Karuna Trust’s insurance operations were discussed in a relaxed atmosphere. A real Happy-Diwali-Sunday.
Madurai, 25.10.2006. It was DHAN's training centre where trustees and management of DHAN's mutual insurance activities and members of the project met to discuss the research results in detail. In interesting and enlightening discussions views were shared and common conclusions drawn. A successful workshop on micro health insurance.
Pune, 27.10.2006. Just about one month ago the last data collection was completed within BAIF’s target group: CHAT. CHAT is the project’s participatory tool to enable whole communities to choose their preferred benefit package. These results have been presented to BAIF’s insurance committee members and staff – among them BAIF’s president – just as well as the results of the household survey.
Pune, 28.10.2006. In a one day workshop with intensive and productive discussion the project presented its research findings to its partners organized in UpLift health. Representatives of the mutuals linked to UpLift and of their staff participated in the last of the six workshops the project conducted jointly with its partners in October.
Cross Cultural Study Period a full success!
With an cross cultural study group the analysis of the household survey conducted by this project started and this study group was an extraordinary event itself: 30 student researchers from India, The Netherlands and Germany together with their supervisors spent four intensive weeks on getting first insights out of this data. The Indian partner in this effort and beyond is the Birla Institute of Management Technology (BIMTECH) which also hosted most of the events. Well reputed national and international experts and high ranked Indian officials participated in this effort; committed to the idea of developing health insurance for groups which currently do not have access to the same two further experts decided to help speeding up the analytical work: Ruth Koren, an expert from Tel Aviv University (Israel), and Marion Danis from the National Institutes of Health (USA).Further information for the media can be found here.
Two Case Studies are published!
Two Case Studies about the Partner-Microhealthinsurances Karuna Trust and Yeshasvini Trust are published and are downloadable.
Karuna Trust, KarnatakaKaruna Trust is an NGO that has been working successfully on health and development issues for nearly two decades. In 2002, Karuna Trust, in a partnership with the United Nations Development Programme (UNDP), decided to implement a pilot health insurance scheme for its target population. The non-governmental organization (NGO) collaborated with the state-owned National Insurance Company (NIC) in designing a health insurance product that complements the public healthcare infrastructure and compensates for some of its weaknesses.Karuna Trust acts as an agent for NIC. The insurance product compensates the insured for the loss of income in case of hospitalization at a public health facility. Furthermore, a drug fund was set up to supply medicines that are unavailable in public facilities. People with income around the poverty line receive treatment in public health facilities free-of-charge. A tight network between the insurance scheme and the public infrastructure has evolved.
Yeshasvini Trust, KarnatakaThe Yeshasvini Cooperative Farmers Health Scheme is a young but incredibly successful microinsurance scheme in Karnataka. Having started in 2003 with 1.6 million insured right away, it covered 2.2 million lives in its second year of operation, but in the third year it dropped to 1.45 million members after doubling the premium.This (still) amazing success is possible through a tight partnership with the cooperative sector enabled through the Karnataka Department of Cooperation. The department used its influence to encourage cooperative societies to market the product actively. The marketing strategy applied by the societies’ secretaries varies: while most convince their members to join, a few simply enrolled their members.
Myths and realities regarding health insurance for the poor
An article published in Economic and Political Weekly captures in a nutshell the myths and realities in health insruance for the poor in India. The article, written by the project's lead expert Prof. David Dror, confronts prevailing myths in India with evidence from this project's survey. The article can be downloaded here.
Developing Pro-Poor Health Insurance in India - An International Conference on Micro Health Insurance
A Conference for Community Organizations and Policy Makers took place at India Habitat Centre, New Delhi on November 1st and 2nd 2006. The aim of the conference was to disseminate new information on the contribution of community health financing toward low-cost health insurance for poor and rural population segments in India.Find more information here. [Download brochure.] A docmentation will follow soon; presentations can be downloaded in the programme section.
President Dr. Abdul Kalam supports pro-needy health insurance
His Excellency Dr. Abdul Kalam granted an audience to members of the project team on 30 October 2006. The President expressed his support for the development of pro-needy health insurance. The president said that the future of development activities, notably health insurance in rural areas, lies in integrating them into community structures.
Workshops with Micro Insurance Partners
Patna, 14.10.2006. In a one day workshop the project presented in detail the results of the household survey to its microinsurance partner NIDAN. About thirty participants, mainly the NGO’s district coordinators responsible for implementing the insurance programme, took part in the workshop. After eight hours of workshop and intensive discussion the project handed over the written report to its partner.
Bangalore, 18.10.2006. The project presented the findings of the research conducted and its implications for Yeshasvini Trust to the trustees of the health insurance. The research report and the case study conducted in 2005 and published in the ILO series were also officially handed over.
Mysore, 22.10.2006. The one day workshop with Karuna Trust was held on Diwali-Sunday at Karuna’s Technology Resource Centre in Mysore. The results of the research and its implications for Karuna Trust’s insurance operations were discussed in a relaxed atmosphere. A real Happy-Diwali-Sunday.
Madurai, 25.10.2006. It was DHAN's training centre where trustees and management of DHAN's mutual insurance activities and members of the project met to discuss the research results in detail. In interesting and enlightening discussions views were shared and common conclusions drawn. A successful workshop on micro health insurance.
Pune, 27.10.2006. Just about one month ago the last data collection was completed within BAIF’s target group: CHAT. CHAT is the project’s participatory tool to enable whole communities to choose their preferred benefit package. These results have been presented to BAIF’s insurance committee members and staff – among them BAIF’s president – just as well as the results of the household survey.
Pune, 28.10.2006. In a one day workshop with intensive and productive discussion the project presented its research findings to its partners organized in UpLift health. Representatives of the mutuals linked to UpLift and of their staff participated in the last of the six workshops the project conducted jointly with its partners in October.
Cross Cultural Study Period a full success!
With an cross cultural study group the analysis of the household survey conducted by this project started and this study group was an extraordinary event itself: 30 student researchers from India, The Netherlands and Germany together with their supervisors spent four intensive weeks on getting first insights out of this data. The Indian partner in this effort and beyond is the Birla Institute of Management Technology (BIMTECH) which also hosted most of the events. Well reputed national and international experts and high ranked Indian officials participated in this effort; committed to the idea of developing health insurance for groups which currently do not have access to the same two further experts decided to help speeding up the analytical work: Ruth Koren, an expert from Tel Aviv University (Israel), and Marion Danis from the National Institutes of Health (USA).Further information for the media can be found here.
Two Case Studies are published!
Two Case Studies about the Partner-Microhealthinsurances Karuna Trust and Yeshasvini Trust are published and are downloadable.
Karuna Trust, KarnatakaKaruna Trust is an NGO that has been working successfully on health and development issues for nearly two decades. In 2002, Karuna Trust, in a partnership with the United Nations Development Programme (UNDP), decided to implement a pilot health insurance scheme for its target population. The non-governmental organization (NGO) collaborated with the state-owned National Insurance Company (NIC) in designing a health insurance product that complements the public healthcare infrastructure and compensates for some of its weaknesses.Karuna Trust acts as an agent for NIC. The insurance product compensates the insured for the loss of income in case of hospitalization at a public health facility. Furthermore, a drug fund was set up to supply medicines that are unavailable in public facilities. People with income around the poverty line receive treatment in public health facilities free-of-charge. A tight network between the insurance scheme and the public infrastructure has evolved.
Yeshasvini Trust, KarnatakaThe Yeshasvini Cooperative Farmers Health Scheme is a young but incredibly successful microinsurance scheme in Karnataka. Having started in 2003 with 1.6 million insured right away, it covered 2.2 million lives in its second year of operation, but in the third year it dropped to 1.45 million members after doubling the premium.This (still) amazing success is possible through a tight partnership with the cooperative sector enabled through the Karnataka Department of Cooperation. The department used its influence to encourage cooperative societies to market the product actively. The marketing strategy applied by the societies’ secretaries varies: while most convince their members to join, a few simply enrolled their members.
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