Insurance

Serious Information

Trivia

Insurance, in law and economics, is a form of risk management used to hedge against the risk of potential financial loss. Insurance is defined as equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium and duty of care.

The rate of losses must be relatively predictable, for a business to have business model it can rely on:

In order to set premiums insurers must be able to estimate them accurately. This is done using the Law of Large Numbers which states that: The larger the number of homogenous exposures considered, the more closely the losses reported will equal the underlying probability of loss. If the coverage is unique, the insured will pay a correspondingly higher premium.

Insurance can be divided into two areas - general and life insurance.

General insurance and life insurance
General insurance covers your house, car, travel, mortgage payments, private medical treatment - in fact any short-term policy that pays out when things go wrong. Life insurance (which also includes pensions) covers policies that are of a long term nature or pay out at term end.

Most insurance policies fall under one of these two categories, although some types of insurance, such as income protection insurance and long-term care policies, count as life insurance if they have an investment element and general insurance if they don't. All companies that provide insurance must be authorised by the Financial Services Authority (FSA).

The FSA has the duty to ensure that insurance companies are solvent and operate in a prudent manner. It also regulates how those policies are marketed and sold.

Before you buy
Before you take out insurance, ensure you know the answers on

1) If I make a claim, will I have to bear any amount of the cost myself?
2) Are there exclusions or restrictions in this policy which may apply particularly to me or my family?
3) Who do I complain to if there's a problem with this insurance?

Jargon in British insurance industry.

Excess - An amount of money which the policyholder has to pay towards the cost of a claim, for example, the first £100.

Index linked - Insurance where the amount of cover and premiums change automatically in line with inflation.

Loss assessor - You can employ a loss assessor to act on your behalf, particularly helpful if you have a complicated or large claim. For a fee - usually a set percentage of your eventual pay-out - they will negotiate to ensure that compensation from the insurance company is maximised. The Institute of Public Loss Assessors can put you in touch with one of its members in your area.

Loss adjuster - An independent person paid for by the insurance company to assess the amount payable for a claim.
New for old - Cover for property with no deduction for wear and tear. The item lost or destroyed would be replaced with a new one.

Under insurance - When the sum insured isn't enough to cover the maximum possible loss or damage.

Third party - Someone involved in claim who is neither the policyholder nor the insurer.

Underwriter - The person who decides whether to accept a risk and calculates the premium to be charged.
Write off - A damaged vehicle which isn't repairable or one which would cost more to repair than the car was worth before the damage occurred.

For insurance companies losses must be predictable on a macro level: Insurers need to know how much they would be required to pay when the insured-for event occurs. Most types of insurance have maximum levels of payouts, but not all do, notably health insurance.

The loss must be significant: The legal principle of De minimis dictates that trivial matters are not covered. Furthermore, rational insurance uses existing insurance when the transaction costs dictate that filing a claim is not rational.

Some people consider insurance a type of wager that executes over the policy period. The insurance company bets that you or your property will not suffer a loss while you put money on the opposite.

In gaming or gambling, the game is fixed at the start so that the odds are not affected by the players. However, to obtain certain types of insurance, such as fire insurance, policyholders are often required to conduct risk mitigation, such as installing sprinklers and using fireproof building materials to reduce the odds of loss to fire. In addition, after a proven loss, insurers specialize in providing rehabilitation to minimize the total loss.

History

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

A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage.

The Greeks and Romans introduced health and life insurance c. 600 AD when they organized guilds called "benevolent societies" which acted to care for the families and funeral expenses of members upon death.

Guilds in the Middle Ages served a similar purpose. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late seventeenth century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used in case of emergency.

Separate insurance contracts were invented in Genoa in the fourteenth century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post Renaissance Europe, and specialized varieties developed.

Toward the end of the seventeenth century, the growing importance of London as a centre for trade led to rising demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee house that became popular with ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market for marine and other specialist types of insurance, but it works rather differently than more familiar kinds of insurance.

Insurance today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster Nicholas Barbon opened an office to insure buildings. In 1680 he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.

The first insurance company in the United States provided fire insurance and was formed in Charles Town, South Carolina, in 1732.

Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire.

In Britain London, Edinburgh are the now the centre of the industry.

Regulation organizations in each nation.

In the USA, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual State insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioner's organization. In recent years, some have called for a federal regulatory system for insurance similar to that of the banking industry.

In the UK - The Financial Services Authority (FSA)

There are business groups that look after the insurance industry such as

Insurance Bureau of Canada Private insurance industry association representing companies that insure the homes, cars and businesses
In Britain the Association of British Insurers (ABI) is the industry group.

Automobile insurance,
Boiler insurance (also known as Boiler and Machinery insurance or Equipment Breakdown Insurance)
Casualty insurance insures against accidents, not necessarily tied to any specific property.
Credit insurance
Financial loss insurance
Health insurance
Liability insurance
Life insurance
Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance.
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.
Locked Funds Insurance is a little known hybrid insurance policy jointly issued by governments and banks.
Marine Insurance covers the loss or damage of goods at sea.
Nuclear incident insurance
Environmental Liability Insurance
Political risk insurance
Professional Indemnity Insurance
Property insurance
Terrorism insurance
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 done 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.
Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expense incurred due to a job-related injury.

Trivia

The Insurance Hall of Fame is an international list of business leaders in the field. It was founded in 1957 and now has more than 100 inductees; it is kept by the University of Alabama in the United States. Its first inductee was Benjamin Franklin presumably for his efforts in establishing fire insurance companies in Philadelphia.

http://www.insurancehalloffame.org/

Scottish football fans were able to take out an insurance policy for the 2006 FIFA championship in case their big challenger England won

Lloyd's of London often accepts unique coverages. (e.g., the insuring of Tina Turner's legs and Jennifer Lopez's buttocks)

Virtually anything can be insured at Lloyd's. In fact the market has become famous for providing some of the more unusual cover available.

One of the most famous Lloyd's stars was Betty Grable whose 'million dollar legs' sold many a cinema ticket.

Food critic and gourmet Egon Ronay insured his taste buds for £250,000.
Bruce Springsteen: Voice was insured for 3.5m

Cutty Sark Whisky offered a £1 million prize to anyone who could capture the Loch Ness Monster alive. They guarded against the loss by taking out a Lloyd's policy.

A grain of rice with a portrait of the Queen and the Duke of Edinburgh engraved on it was also insured at Lloyd's for $20,000.

A confident comedy theatre group insured themselves against risk of a member of their audience dying laughing.

A killer whale called Namu, captured off the Canadian Pacific coast and towed to Seattle for display in aquarium, was insured for $8,000 against various contingencies including rescue attempts by other whales.

In 1901, the first car which was insured at Lloyd's was covered by a marine policy.
Cars were such a novelty an underwriter wrote a normal marine policy for the car on the basis that it was a ship navigating on dry land.

African actress Kerry Wallace had her head completely shaved to promote a Star Trek film. She was insured against the possibility of her hair failing to grow again properly.

Lloyd's underwriters are also leaders in the field of insuring rock stars, covering anything from personal effects to equipment or concert cancellation.
Acts on underwriters' books over the last ten years have included Eric Clapton, Bob Dylan, Michael Jackson, Eurythmics, Elton John, Led Zeppelin, Police, the Rolling Stones, Rod Stewart, Stevie Wonder, The Who.
One of Lloyd's most famous losses was the Titantic lost at sea on April 16, 1912.

Movies and TV programmes set in the insurance industry

Double Indemnity (1944) directed by Billy Wilder about an insurance rep who lets himself be talked into a murder/insurance fraud scheme that arouses an insurance investigator's suspicions.

Peter Rosengard, an insurance salesman and major comedy fan, launched the Comedy Store that was the founding place of alternative comedy in the UK

The comedy drama entitled "An Insurance Inspector Calls" was once BBC one radio four

In 1999 it was suggested on the BBC website that two of Hollywood's leading men are set to play firemen who marry each other for insurance money in the comedy, I Now Pronounce You Joe and Benny. If talks are successful, Nicolas Cage would play a widower who saves the life of Will Smith his pal vows to do anything to repay him. The request is to marry him, to qualify the children for insurance benefits.

The Rage In Placid Lake (2005) Oz rocker Ben Lee is a suburban kid called Placid. Desperate to be an ordinary Joe, Placid abandons his principles and takes a 9-5 job in insurance only to realise that normality isn't all its cracked up to be.

In 2003 Three-time Oscar winner Jack Nicholson looked set to gain a 12th best actor nomination for his role as a retired insurance official in the dark comedy About Schmidt.

Numerous famous people have funny insiramce contracts

In movie The Big White
Robin Williams stars as a small-town Alaskan insurance fraudster in Mark Mylod's comedy.

If Schwarzenegger had been disabled during shooting of Terminator 3 or had abandoned the film for any reason, IFG would have repaid the bonded cost, which was $181.6 million.

Chris Penn's last film "The Darwin Awards" was when he plays a hunter who fakes the theft of his truck to collect insurance money in the comedy adventure, which also stars Winona Ryder, Joseph Fiennes and David Arquette.

Nicole Kidman is a case in point. Kidman injured her right knee during the filming of Moulin Rouge in Australia in 2000, which resulted in two claims for delays and a $3 million insurance loss. In 2001, she quit Panic Room after three weeks of shooting because of her knee, a decision that almost resulted in the entire production being canceled and a $54 million insurance claim. Fortunately for the insurer, the producers decided to continue with a replacement actress, Jodie Foster. Still, they had to pay $7 million for the delay and additional expenses.

Lara Croft: Tomb Raider—The Cradle of Life, starring Angelina Jolie outfitted in skin-tight action-toy garb. The hype of this sequel was that Jolie did "most of her own stunts" out of her own "edgy quest for danger." In reality, the insurer, AIG, was so strict that it did not even allow director Jan de Bont to be at the Luna Temple set during shooting because he had a prior leg injury.

Insurance (pronounced "in""sue""rance")

Links on websites on subject

http://www.federalreserve.gov/Boarddocs/testimony/2000/20000621.htm Testimony of Chairman Alan Greenspan on Federal Reserve Board's views on the Commodity Futures Modernization Act of 2000

http://www.federalreserve.gov/pubs/feds/2005/200539/200539pap.pdf A paper which claims that

http://www.ise.ie/index.asp The home page of Irish stock exchange

http://www.nasdaq.com/ The homepage of the stock exchange

http://www.cityequities.com/
http://www.moneyweek.com

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