Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. An entity which provides insurance is known as an insurer, insurance company, or insurance carrier.

A person or entity who buys insurance is known as an insured or policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate the insured in the event of a covered loss.

The loss may or may not be financial, but it must be reducible to financial terms, and must involve something in which the insured has an insurable interest established by ownership, possession, or preexisting relationship. The insured receives a contractcalled the insurance policywhich details the conditions and circumstances under which the insured will be financially compensated. The amount of money charged by the insurer to the insured for the coverage set forth in the insurance policy is called the premium.

If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster. Methods for transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively.

The Babylonians developed a system which was recorded in the famous Code of Hammurabic. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen, or lost at sea. At some point in the 1st millennium BC, the inhabitants of Rhodes created the ' general average '. This allowed groups of merchants to pay to insure their goods being shipped together.

The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether to storm or sinkage. Separate insurance contracts i. The first known insurance contract dates from Genoa inand in the next century maritime insurance developed widely and premiums were intuitively varied with risks. Insurance became far more sophisticated in Enlightenment era Europeand specialized varieties developed.

Property insurance as we know it today can be traced to the Great Fire of Londonwhich in devoured more than 13, houses. The devastating effects of the fire converted the development of insurance "from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren 's inclusion of a site for 'the Insurance Office' in his new plan for London in ".

Initially, 5, homes were insured by his Insurance Office. At the same time, the first insurance schemes for the underwriting of business ventures became available. By the end of the seventeenth century, London's growing importance as a center for trade was increasing demand for marine insurance. In the late s, Edward Lloyd opened a coffee housewhich became the meeting place for parties in the shipping industry wishing to insure cargoes and ships, and those willing to underwrite such ventures.

These informal beginnings led to the establishment of the insurance market Lloyd's of London and several related shipping and insurance businesses. The first life insurance policies were taken out in the early 18th century. The first company to offer life insurance was the Amicable Society for a Perpetual Assurance Officefounded in London in by William Talbot and Sir Thomas Allen.

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

In the late 19th century, "accident insurance" began to become available. By the late 19th century, governments began to initiate national insurance programs against sickness and old age. Germany built on a tradition of welfare programs in Prussia and Saxony that began as early as in the s. In the s Chancellor Otto von Bismarck introduced old age pensions, accident insurance and medical care that formed the basis for Germany's welfare state.

This gave the British working classes the first contributory system of insurance against illness and unemployment. Insurance involves pooling funds from many insured entities known as exposures to pay for the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be an insurable riskthe risk insured against must meet certain characteristics.

Insurance as a financial intermediary is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure through saving money for possible future losses. Risk which can be insured by private companies typically shares seven common characteristics: When a company insures an individual entity, there are basic legal requirements and regulations.

Several commonly cited legal principles of insurance include: To "indemnify" means to make whole again, or to be reinstated to the position that one was in, to the extent possible, prior to the happening of a specified event or peril. Accordingly, life insurance is generally not considered to be indemnity insurance, but rather "contingent" insurance i. There are generally three types of insurance contracts that seek to indemnify an insured:.

From an insured's standpoint, the result is usually the same: If the Insured has a "reimbursement" policy, the insured can be required to pay for a loss and then be "reimbursed" by the insurance carrier for the loss and out of pocket costs including, with the permission of the insurer, claim expenses.

Under a "pay on behalf" policy, the insurance carrier would defend and pay a claim on behalf of the insured who would not be out of pocket for anything. Most modern liability insurance is written on the basis of "pay on behalf" language which enables the insurance carrier to manage and control the claim. Under an "indemnification" policy, the insurance carrier can generally either "reimburse" or "pay on behalf of", whichever is more beneficial to it and the insured in the claim handling process.

An entity seeking to transfer risk an individual, corporation, or association of any type, etc. Generally, an insurance contract includes, at a minimum, the following elements: An insured is thus said to be " indemnified " against the loss covered in the policy.

When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a claim against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the premium. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims — in theory for a relatively few claimants — and for overhead costs.

So long as an insurer maintains adequate funds set aside for anticipated losses called reservesthe remaining margin is an insurer's profit. Insurance can have various effects on society through the way that it changes who bears the cost of losses and damage.

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On one hand it can increase fraud; on the other it can help societies and individuals prepare for catastrophes and mitigate the effects of catastrophes on both households and societies.

Insurance can influence the probability of losses through moral hazardinsurance fraudand preventive steps by the insurance company. Insurance scholars have typically used moral hazard to refer to the increased loss due to unintentional carelessness and insurance fraud to refer to increased risk due to intentional carelessness or indifference. While in theory insurers could encourage investment in loss reduction, some commentators have argued that in practice insurers had historically not aggressively pursued loss control measures—particularly to prevent disaster losses such as hurricanes—because of concerns over rate reductions and legal battles.

However, since about insurers have begun to take a more active role in loss mitigation, such as through building codes. In accordance with study books of The Chartered Insurance Institute, there are the following types of insurance:. The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept.

Profit can be reduced to a simple equation:. The most complicated aspect of the insurance business is the actuarial science of ratemaking price-setting of policies, which uses statistics and probability to approximate the rate of future claims based on a given risk. After producing rates, the insurer will use discretion to reject or accept risks through the underwriting process. At the most basic level, initial ratemaking involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils.

Thereafter an insurance company will collect historical loss data, bring the loss data to present valueand compare these prior losses to the premium collected in order to assess rate adequacy. Rating for different risk characteristics involves at the most basic level comparing the losses with "loss relativities"—a policy with twice as many losses would therefore be charged twice as much.

More complex multivariate analyses are sometimes used when multiple characteristics are involved and a univariate analysis could produce confounded results. Other statistical methods may be used in assessing the probability of future losses.

Upon termination of a given policy, the amount of premium collected minus the amount paid out in claims is the insurer's underwriting profit on that policy. Insurance companies earn investment profits on "float". Float, or available reserve, is the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims.

Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out. Some insurance industry insiders, most notably Hank Greenbergdo not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held.

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

Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insureds directly with the insurer or through brokers or agents.

The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form, such as those produced by ACORD. Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience.

The adjuster undertakes an investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment.

The policyholder may hire their own public adjuster to negotiate the settlement with the insurance company on their behalf. For policies that are complicated, where claims may be complex, the insured may take out a separate insurance policy add-on, called loss recovery insurance, which covers the cost of a public adjuster in the case of a claim. Adjusting liability insurance claims is particularly difficult because there is a third party involved, the plaintiffwho is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket.

The adjuster must obtain legal counsel for the insured either inside "house" counsel or outside "panel" counselmonitor litigation that may take years to complete, and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge. If a claims adjuster suspects under-insurance, the condition of average may come into play to limit the insurance company's exposure. In managing the claims handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages.

As part of this balancing act, fraudulent insurance practices are a major business risk that must be managed and overcome. Disputes between insurers and insureds over the validity of claims or claims handling practices occasionally escalate into litigation see insurance bad faith. Insurers will often use insurance agents to initially market or underwrite their customers. Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies.

The existence and success of companies using insurance agents is likely due to improved and personalized service. Companies also use Broking firms, Banks and other corporate entities like Self Help Groups, Microfinance Institutions, NGOs etc. Any risk that can be quantified can potentially be insured.

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Specific kinds of risk that may give rise to claims are known as perils. An insurance policy will set out in detail which perils are covered by the policy and which are not. Below are non-exhaustive lists of the many different types of insurance that exist. A single policy that may cover risks in one or more of the categories set out below.

For example, vehicle insurance would typically cover both the property risk theft or damage to the vehicle and the liability risk legal claims arising from an accident. A home insurance policy in the United States typically includes coverage for damage to the home and the owner's belongings, certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property.

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

Auto insurance protects the policyholder against financial loss in the event of an incident involving a vehicle they own, such as in a traffic collision. Gap insurance covers the excess amount on your auto loan in an instance where your insurance company jobs from home for working mums not cover the entire loan.

Depending on the company's specific policies it might or might not cover the deductible as well. This coverage is marketed for 2 hour binary options broker uk who put low down paymentshave high interest rates on their loans, and those with month or longer terms. Gap insurance is typically offered by a finance company when the vehicle owner purchases their vehicle, but many auto insurance companies offer this coverage to consumers as well.

Health insurance policies cover the cost of medical treatments. Dental insurance, like medical insurance, protects policyholders for dental costs. In most developed countries, all citizens receive some health coverage from their governments, paid for by taxation. In most countries, health insurance is often part of an employer's benefits. Casualty insurance insures against accidents, not necessarily tied to any specific property.

It is a broad spectrum of insurance that a number of other types of insurance could be classified, such as auto, workers compensation, and some liability insurances. Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity.

In most states, a person cannot purchase a policy on another person without their knowledge. Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies, are regulated as insurance, and require the same kinds of actuarial and investment management expertise that life insurance requires.

Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance. Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against.

Some policies, such as annuities and endowment policiesare financial instruments to accumulate or liquidate wealth when it is needed.

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

In the United States, the tax on interest income on life insurance policies and annuities is generally deferred. However, in some cases the benefit derived from tax deferral may be offset by best laptop for stock trading in india 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.

Burial insurance is a very old type of life insurance which is paid out upon death to cover final expenses, such as the cost of a funeral.

The Greeks and Romans easiest way to make money selling weed burial insurance c. Guilds in the Middle Ages served a similar purpose, as did friendly societies during Victorian times.

Property insurance provides protection against risks to property, such as firetheft or weather damage. This may include specialized forms of insurance such as fire insurance, flood insuranceearthquake insurancehome insuranceinland marine insurance or boiler insurance. The term property insurance may, like casualty insurance, be used as a broad category of various 60sec led binary option demo account of insurance, some of which are listed below:.

Liability insurance is a very broad superset that covers legal claims where to go to send a moneygram 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: Liability policies typically cover only the negligence of the insured, and will not apply to results of wilful or intentional acts by the insured.

Often a commercial insured's liability insurance program consists of several how to buy pseg stock. The first layer of insurance generally consists of primary insurance, which provides first dollar indemnity for judgments and settlements up to the limits of liability of the primary policy. Generally, primary insurance is subject to a deductible and obligates the insured to defend the insured against lawsuits, which is normally accomplished by assigning counsel to defend the insured.

In many instances, a commercial insured may elect to self-insure. Above the primary insurance or self-insured retention, the insured may have one or more layers of excess insurance to provide coverage additional limits of indemnity protection. There are a variety of types of excess insurance, including "stand-alone" excess policies policies that contain their own terms, conditions, and exclusions"follow form" excess insurance policies that follow the terms of the underlying policy except as specifically providedand "umbrella" insurance policies excess insurance that in some circumstances could provide coverage that is broader than the underlying insurance.

Credit insurance repays some or all of a loan when the borrower is insolvent. Some forex options singapore 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 KingdomThe Crown which, for practical purposes, meant the civil service did not insure property such as government buildings.

If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether.

In the United States, the most prevalent form of self-insurance is governmental risk management pools. They are self-funded cooperatives, operating as carriers of coverage for the majority of governmental entities today, such as county governments, municipalities, and school districts.

Rather than these entities independently self-insure and risk bankruptcy from a large judgment or catastrophic loss, such governmental entities form a risk pool. Such pools begin their operations by capitalization through member deposits or bond issuance. Coverage such as general liability, auto liability, professional liability, workers compensation, and property is offered by the pool to its members, similar to coverage offered by insurance companies.

However, self-insured pools offer members lower rates due to not needing insurance brokersincreased benefits such as loss prevention services and subject matter expertise. Of approximately 91, distinct governmental entities operating in the United States, 75, are members of self-insured pools in various lines of coverage, trade forex on etrade approximately pools.

Although a relatively small corner of the insurance market, the annual contributions self-insured premiums to such pools have been estimated up to 17 billion dollars annually. 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. Insurance companies are generally classified how do life insurance companies make money if everyone dies either mutual or proprietary companies.

Demutualization of mutual insurers to form stock companies, as well as the formation of a hybrid known as a mutual holding company, became common in some countries, such as the United States, in the late 20th century. However, not all states permit mutual holding companies. Other possible forms for an insurance company include reciprocalsin which policyholders reciprocate in sharing risks, and Lloyd's organizations. Insurance companies are rated by various agencies such as A. 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 represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices. The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses.

The captive's exposure to such risks may be limited by the use of reinsurance. Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background:. There are also companies known as "insurance consultants". Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies.

Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client.

Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies.

These companies often have special expertise that the insurance companies do not have. The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract.

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

Global insurance premiums grew by 2. The return to growth and record premiums generated during the year followed two years of decline in real terms. Life insurance premiums increased by 3.

While industrialised countries saw an increase in premiums of around 1. The global insurance industry was sufficiently capitalised to withstand the financial crisis of and and most insurance companies restored their capital to pre-crisis levels by the end of forex broker $1 minimum spread 1 pips With the continuation of the gradual recovery of the global economy, it is likely the insurance industry will continue to see growth in premium income both in industrialised countries and emerging markets in Advanced economies account for the bulk of global insurance.

Europe has however seen a decline in premium income during the year in contrast to the growth seen in North America and Asia. The top four countries generated more than a half of premiums. Their markets are however growing at a quicker pace.

In the United States, insurance is regulated by forex economic calendar myfxbook states under the McCarran-Ferguson Actwith "periodic proposals for federal intervention", and a nonprofit coalition of state insurance agencies called the National Association of Insurance Commissioners works to harmonize the country's different laws and regulations.

In the European Unionthe Third Non-Life Directive and the Third Life Directive, both passed in and effectivecreated a single insurance market in Europe and allowed insurance companies to offer insurance anywhere in the EU subject to permission from authority in the head office and allowed insurance consumers to purchase insurance from any insurer in the EU. The insurance industry in China was nationalized in and thereafter offered by only a single state-owned company, the People's Insurance Company of Chinawhich was eventually suspended as demand declined in a communist environment.

Inmarket reforms led to an increase in the market and by a comprehensive Insurance Law of the People's Republic of China [45] was passed, followed in by the formation of China Insurance Regulatory Commission CIRCwhich has broad regulatory authority over the insurance market of China.

In India IRDA is insurance regulatory authority.

As per the section 4 of IRDA ActIntercall call options Regulatory and Development Authority IRDAwhich was constituted by an act gta cheats for money ps3 parliament.

Insurance is just a risk transfer mechanism wherein the financial burden which may arise due to some fortuitous event is transferred to a bigger entity called an Ruger m77 mark ii 270 parts Company by way of paying premiums.

This only reduces the financial burden and not the actual chances of happening of an event. Insurance is a risk for both the insurance company and the insured. The insurance company understands the risk involved and will perform a risk assessment when writing the policy. As asian breakout forex result, the premiums may go up if they determine that the policyholder will file a claim.

If a person is financially stable and plans for life's unexpected events, they may be able to go without insurance. However, they must have enough to cover a total and complete loss of employment and of their possessions. Some states will accept a surety bond, a government bond, or even making a cash deposit with the state. 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 insurera concept known as moral hazard.

This 'insulates' many from the true costs of living with risk, negating measures that can mitigate or adapt to risk and leading some to describe insurance schemes as potentially maladaptive. For example, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports.

Liability insurance providers do not provide coverage for liability arising from intentional torts committed by or at the direction of the insured. Even if a provider desired to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal.

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. For example, most insurance policies in the English language today have been carefully drafted in plain English ; the industry learned the hard way that many courts will not enforce policies against insureds when the judges themselves cannot understand what the policies are saying.

Typically, courts construe ambiguities in insurance policies against the insurance company and in favor of coverage under the policy.

Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer not the insurance companyand typically counsels the buyer on appropriate coverage and policy limitations, in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price.

A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible. Insurance may also be purchased through an agent. A tied agent, working exclusively with one insurer, represents the insurance company from whom the policyholder buys while a free agent sells policies of various insurance companies.

Just as there is a potential conflict of interest with a broker, an agent has a different type of conflict. Because agents work directly for the insurance company, if there is a claim the agent may advise the client to the benefit of the insurance company.

Agents generally cannot offer as broad a range of selection compared to an insurance broker. An independent insurance consultant advises insureds on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers or agents. However, such a consultant must still work through brokers or agents in order to secure coverage for their clients.

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

This is associated with reduced purchasing of insurance against low-probability losses, and may result in increased inefficiencies from moral hazard.

Redlining is the practice of denying insurance coverage in specific geographic areas, supposedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Racial profiling or redlining has a long history in the property insurance industry in the United States.

From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.

In JulyThe Federal Trade Commission FTC released a report presenting the results of a study concerning credit-based insurance scores in automobile insurance. The study found that these scores are effective predictors of risk. It also showed that African-Americans and Hispanics are substantially overrepresented in the lowest credit scores, and substantially underrepresented in the highest, while Caucasians and Asians are more evenly spread across the scores.

The credit scores were also found to predict risk within each of the ethnic groups, leading the FTC to conclude that the scoring models are not solely proxies for redlining.

The FTC indicated little data was available to evaluate benefit of insurance scores to consumers. All states have provisions in their rate regulation laws or in their fair trade practice acts that prohibit unfair discrimination, often called redlining, in setting rates and making insurance available. In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scoresgenderoccupationmarital statusand education level.

However, the use of such factors is often considered to be unfair or unlawfully discriminatoryand 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.

For instance, insurers charge older people significantly higher premiums than they charge younger people for term life insurance. Older people are thus treated differently from younger people i. 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. New assurance products can now be protected from copying with a business method patent in the United States.

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

Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. There are currently about new patent applications on insurance inventions filed per year in the United States.

The rate at which patents have been issued has steadily risen from 15 in to 44 in Inventors can now have their insurance US patent applications reviewed by the public in the Peer to Patent program. It was posted on March 6, This patent application describes a method for increasing the ease of changing insurance companies.

Certain insurance products and practices have been described as rent-seeking by critics. Under United States tax lawfor 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.

Muslim scholars have varying opinions about life insurance. Some argue that gharar is not present due to the actuarial science behind the underwriting. Some Christians believe insurance represents a lack of faith [ citation needed ] and there is a long history of resistance to commercial insurance in Anabaptist communities MennonitesAmishHutteritesBrethren in Christ but many participate in community-based self-insurance programs that spread risk within their communities.

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What Happens if I Outlive My Term Life Insurance? | Quotacy

A question of morality? Mitigating Disaster Losses Through Insurance. Journal of Risk and Uncertainty. Introduction to Ratemaking and Loss Reserving for Property and Casualty Insurance.

The Handbook of Municipal Bonds. Retrieved February 8, A Behavioral Guide to Underwriting Cycles, 10 Conn. David; Weiss, Mary A. The Case of Property-Liability Insurance. What does a businessowners policy cover? Specialized Coverage for Construction Projects". Facilitating a Cleaner Exit with Tax Insurance". Governmental Risk Management Pools as a Case Study in the Governance Role Played by Reinsurance Institutions", 21 Conn. Lessons Learned from Taiwan ", Bloomberg BusinessweekJune Insurance Regulation in the United States: Regulatory Federalism and the National Association of Insurance Commissioners.

A Study on State Authority: Making a Case for Proper Insurance Oversight. The Impact of the European Union Insurance Directives on Insurance Company Stocks. The Journal of Risk and Insurance. FSA takes on insurance regulation. The impact of changing regulation on the insurance industry.

Reforming UK insurance contract law. The role and powers of the Chinese insurance regulatory commission in the administration of insurance law in China. Geneva Papers on Risk and Insurance. Resilience and the 'business as usual' paradox". Environment and Planning C: Consumer Motivation for Purchasing Low-Deductible Insurance. In Marketing and Public Policy Conference ProceedingsVol. American Marketing Association, — Squires Racial Profiling, Insurance Style: Insurance Redlining and the Uneven Development of Metropolitan Areas Journal of Urban Affairs Volume 25 Issue 4 pp.

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