Market Sige Growth Rate of Ins Sec

7/29/2019 Market Sige Growth Rate of Ins Sec

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Market Size and Growth Rate

With an annual growth rate of 15-20% and the largest number of life insurance policies in force,the potential of the Indian insurance industry is huge. Total value of the Indian insurance market(2004-05) is estimated at Rs. 450 billion (US$10 billion). According to government sources, theinsurance and banking services contribution to the country's gross domestic product (GDP) is

7% out of which the gross premium collection forms a significant part. The funds available withthe state-owned Life Insurance Corporation (LIC) for investments are 8% of GDP.

Till date, only 20% of the total insurable population of India is covered under various lifeinsurance schemes, the penetration rates of health and other non-life insurances in India is alsowell below the international level. These facts indicate the of immense growth potential of theinsurance sector.

The year 1999 saw a revolution in the Indian insurance sector, as major structural changes tookplace with the ending of government monopoly and the passage of the Insurance Regulatory andDevelopment Authority (IRDA) Bill, lifting all entry restrictions for private players and allowingforeign players to enter the market with some limits on direct foreign ownership.

Though, the existing rule says that a foreign partner can hold 26% equity in an insurancecompany, a proposal to increase this limit to 49% is pending with the government. Since openingup of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have poured into the

Indian market and 21 private companies have been granted licenses.

Innovative products, smart marketing, and aggressive distribution have enabled fledgling privateinsurance companies to sign up Indian customers faster than anyone expected. Indians, who hadalways seen life insurance as a tax saving device, are now suddenly turning to the private sectorand snapping up the new innovative products on offer.

The life insurance industry in India grew by an impressive 36%, with premium income from newbusiness at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff competition fromprivate insurers. This report, Indian Insurance Industry: New Avenues for Growth 2012, finds

that the market share of the state behemoth, LIC, has clocked 21.87% growth in business at

Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But this was still not enough toarrest the fall in its market share, as private players grew by 129% to mop up Rs. 55.57 billion in2004-05 from Rs. 24.29 billion in 2003-04.

Though the total volume of LIC's business increased in the last fiscal year (2004-2005)compared to the previous one, its market share came down from 87.04 to 78.07%. The 14 privateinsurers increased their market share from about 13% to about 22% in a year's time. The figuresfor the first two months of the fiscal year 2005-06 also speak of the growing share of the private


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insurers. The share of LIC for this period has further come down to 75 percent, while the privateplayers have grabbed over 24 percent.

There are presently 12 general insurance companies with four public sector companies and eightprivate insurers. According to estimates, private insurance companies collectively have a 10%

share of the non-life insurance market.

Though the focus of this market research report is on the potential growth on the IndianInsurance Sector, it also talks about the market size, market segmentation, and key developmentsin the market after 1999. The report gives an instant overview of the Indian non-life insurancemarket, and covers fire, marine, and other non-life insurance. The data is supplied in bothgraphical and tabular format for ease of interpretation and analysis. This report also providescompany profiles of the major private insurance companies.

competitive rivelryInsurance Industry, Five Forces, Rivarly, Barriers to Entry

Thethreat of entry (of new competitors)and Rivarly are two of the"Five Forces" in MichaelPorter's framework for industry analysis. Concerning the former, the basic idea is that"Profitable markets that yield high returns will draw firms. This results in many new entrants,which will effectively decrease profitability. Unless the entry of new firms can be blocked byincumbents, the profit rate will fall towards a competitive level." Among the factors creatingbarriers to entry are the intellectual property rights, capital requirements, brand equity, costadvantages, expected retaliation by incumbents, and government policy.

Several other factors are said by Porter to increase the intensity of rivalry in an industry--andthereby lower profitability. Thelist includesthe number of competitors, the rate of industrygrowth (the slower the growth the higher the rivarly), intermittent industry overcapacity, exit

barriers, diversity of competitors, informational complexity and asymmetry, and economies ofscale.

Much of the discussion of late about healthcarere reform in the US concerns the relationshipbetween barriers to entry and rivalry in the insurance industry. Many critics of theadministration's plan prefer solutions that would force insurance companies to compete moreagressively with one another. A key consideration for them are barriers to entry at the state-level.For example, in an article entitled "Let Insurance Companies Compete Across the US",University of Chicago political scientist Charles Lipson, makes the case by first noting thepresence of laws that prevent healthcare insurers from selling across state lines:

Right now, the U.S. does not have a national market for health insurance. It has 50 separatestate markets. Erecting walls around each state means less competition and higher prices for

consumers. There's not even one market for the Chicago area. If you live inSouth

HollandorCalumet City, your insurance options could be completely different from your

Indiana neighbors inHammondor Merrillville. What sense does that make?
http://en.wikipedia.org/wiki/Porter_5_forces_analysis#The_threat_of_the_entry_of_new_competitorshttp://en.wikipedia.org/wiki/Porter_5_forces_analysis#The_threat_of_the_entry_of_new_competitorshttp://en.wikipedia.org/wiki/Porter_5_forces_analysis#The_threat_of_the_entry_of_new_competitorshttp://en.wikipedia.org/wiki/Porter_5_forces_analysishttp://en.wikipedia.org/wiki/Porter_5_forces_analysishttp://en.wikipedia.org/wiki/Porter_5_forces_analysishttp://en.wikipedia.org/wiki/Porter_5_forces_analysishttp://en.wikipedia.org/wiki/Porter_5_forces_analysis#The_intensity_of_competitive_rivalryhttp://en.wikipedia.org/wiki/Porter_5_forces_analysis#The_intensity_of_competitive_rivalryhttp://en.wikipedia.org/wiki/Porter_5_forces_analysis#The_intensity_of_competitive_rivalryhttp://www.chicagotribune.com/topic/us/illinois/cook-county/south-holland-PLGEO1001005011270000.topichttp://www.chicagotribune.com/topic/us/illinois/cook-county/south-holland-PLGEO1001005011270000.topichttp://www.chicagotribune.com/topic/us/illinois/cook-county/south-holland-PLGEO1001005011270000.topichttp://www.chicagotribune.com/topic/us/illinois/cook-county/south-holland-PLGEO1001005011270000.topichttp://www.chicagotribune.com/topic/us/illinois/cook-county/calumet-city-PLGEO100100501190000.topichttp://www.chicagotribune.com/topic/us/illinois/cook-county/calumet-city-PLGEO100100501190000.topichttp://www.chicagotribune.com/topic/us/illinois/cook-county/calumet-city-PLGEO100100501190000.topichttp://www.chicagotribune.com/topic/us/indiana/lake-county-%28indiana%29/hammond-PLGEO100100501580000.topichttp://www.chicagotribune.com/topic/us/indiana/lake-county-%28indiana%29/hammond-PLGEO100100501580000.topichttp://www.chicagotribune.com/topic/us/indiana/lake-county-%28indiana%29/hammond-PLGEO100100501580000.topichttp://www.chicagotribune.com/topic/us/indiana/lake-county-%28indiana%29/hammond-PLGEO100100501580000.topichttp://www.chicagotribune.com/topic/us/illinois/cook-county/calumet-city-PLGEO100100501190000.topichttp://www.chicagotribune.com/topic/us/illinois/cook-county/south-holland-PLGEO1001005011270000.topichttp://www.chicagotribune.com/topic/us/illinois/cook-county/south-holland-PLGEO1001005011270000.topichttp://en.wikipedia.org/wiki/Porter_5_forces_analysis#The_intensity_of_competitive_rivalryhttp://en.wikipedia.org/wiki/Porter_5_forces_analysishttp://en.wikipedia.org/wiki/Porter_5_forces_analysishttp://en.wikipedia.org/wiki/Porter_5_forces_analysis#The_threat_of_the_entry_of_new_competitors


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To help us understand the benefical effect that could arise from removing these laws, Lipson

points to a very closely related industry where competition on price, differentiation, and even

innovation are the norm--the market for auto-insurance:

The easiest way to see how insurance competition benefits consumers is to look at auto

insurance. That's a huge, nationwide market and companies compete intensively for a share of it.Some stress their low prices, others customer service, whatever gives them an edge in the

marketplace.Geicoand Progressive have been especially aggressive in touting cost savings.

State Farm and Allstate certainly compete on price, but they stress service after an accident.

That's why Allstate says "you're in good hands," and State Farm says it will be there "like a good

neighbor." Other companies, like SafeAuto, focus on drivers who want only minimum coverage

to meet state license requirements. In short, auto insurance companies compete vigorously to

provide what different consumers want, and they tell them so in national advertisements. Life

insurance companies do the same thing. There are even companies that specialize in comparing

policies for customers. Competition drives down excess profits and means better, cheaper

options for consumers. Ever see an ad touting health insurance? They are rare because the

markets are small and companies don't need to compete aggressively on price or service.

This last line is important. According to Lispon, preventing health insurers from competing

across state lines is needless barrier to entry, one that keeps the markets small and reduces the

need or incentive for companies in the market to compete on either price or service. This

comports with Porter's model where both the number and the diversity of competitors in an

industry increase the intensity of rivalry and by extension, bring many benefits for consumers.

Read

more:http://www.investopedia.com/features/industryhandbook/insurance.asp#ixzz2Cscuskex

How to Start Your Own Insurance Companyby Owen E. Richason IV, Demand Media

For entrepreneurs that want to build a small business that provides an ongoing revenue stream

for years to come, an insurance agency is an ideal opportunity, as clients repurchase products to

ensure that coverage continues. Among the types of insurance products an insurance agency can

sell are: life, annuity products, term and whole health, automobile, homeowners, property,

causality, and disability. Opening an insurance company requires some preparatory steps.Sponsored Link

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y%3Fcontact%3Dabg_afc%26url%3Dhttp://smallbusiness.chron.com/start-own-insurance-company-2402.html%26gl%3DIN%26hl%3Den%26client%3Dca-pub-3235755782694080%26ai0%3DC6uqQjryxUID0Js7Migeo4IDwAsu93fMC646C_D7AjbcBEAEg3Y-QGFCeyaa0_f____8BYOXS5IOoDqAB_ZrQ-QPIAQGpAvb5Dn4dXlM-qAMBqgSLAU_QDw8rNhS8J-EOmPGHa-IiK1tBpUDFkSARKqTZvMl0pAATlzsKzGYhtOdesjeZ6jpJUdhGtMxW5qeEQ-lTBN6NwZWTgVA0y7oDrUAIWDHOwHZwY1PlI5TKGtApoiDFGtLomvi7FmB6vnxvbhxTUeOVICNe3RzP-y-duChmyouOceaWy5N04dtjKd6IBgE&usg=AFQjCNEhD8rIsCfJBhVa879FWXwVJwmSEAhttp://www.investopedia.com/features/industryhandbook/insurance.asp#ixzz2Cscuskexhttp://www.chicagotribune.com/topic/economy-business-finance/financial-business-services/insurance/geico-ORCRP017257.topic


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Step 1

Become a licensed insurance agent. Laws and identifiers differ by state, but in general you will

need a Property and Casualty Insurance license and/or a Life, Health and Variable Annuity

license. For instance, in the state of Florida, these are referred to as 440 and 220 licenses

respectively. Each can be obtained online or through classroom instruction. Most community

colleges also offer these courses.Step 2

Determine what products you will offer. Typically, insurance agencies do not limit themselves to

specific products and carry a variety of insurance plans. However, you might consider

specializing in one particular product while still offering other insurance plans. As an example,

you might wish to focus on corporate health benefit plans and sell employee insurance benefits

to companies while still offering life and variable annuity products.

Step 3

Apply for a business loan and insurance. Compile a list of all start-up costs including but not

limited to: office equipment, lease monies, employee expenses like wages and benefits, and

insurance, such as liability and errors and omission insurance. Using these numbers have an

accountant or business plan writer write a business plan to apply for a small business loan usingthe Small Business Administration's approved lender database.

Step 4

Locate suitable office space. Office space should have a well maintained exterior and interior

and provide enough space for a reception area, one or two offices and a conference room for

initial client consultations and workshops for potential clients.

Step 5

Buy a franchise or open your own agency. Choose between buying a franchise and opening your

own independent insurance agency. The advantages of buying a franchise is operating under a

well established name and having access to "in-house" financing provided by the parent

company. The advantage of opening an independent agency is freedom to choose any product.

SWOT ANALYSISSTRENGTHS:1 .No . 1 P r i va t e P l aye r i n t h e i n s u r ance i ndus t r y i n I nd i a .2 .L i f e I ns u r ancel in ke d w it h I nv e st me nt s 3 . T a xb e n e f i t s 4 . S e c u r i t y a g a i n s t l o a n s 5 . Hel ps in f u t u re p l ann i n g an dp rov id es f i na nc i a l co ns u l t a nc y. 6 . C o v e r s r i s k .

WEAKNESS:1 .Nega t i v i t y r e l a t i ng i ns u r ance and Agen t s . 2 . N o f i x e d S a l a r y .

OPPORTUNITIES:1 . H i g h N e t w o r k I n d i v i d u a l s ( H N I) 2 . A c l e a r c a r e e r p a t h 3.All round

support th rough exclusive advertising, o wn in house consultant, andworld-classtraining.4 . A c o m p r e h e n s i v e b e n e f i t p a c k a g e .

THREATS:1 . D y n a m i c e n v i r o n m e n t 2 . In c r e a s i n g C o m p e t i t i o n 3 . N o n -c r e a t i v i t y 4 . A n U n f o c u s e da p p r o a c h 5 . C o m p l a c en c y a n d a r r o g a n c eDaily Hospitalization Benefit (DHB): During hospitalization, wewill pay an allowance of Rs.

2,500 per day.


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Premiums paid for Health Insurance Benefits are eligible fortax benefits under section

80D, while premiums for LifeInsurance Benefits are eligible for tax benefits under section80C of

the Income Tax Act, 1961.

A guaranteed annual coupon of 5% of the sum assuredevery year for the rest of the insureds

term from the 10thpolicy anniversary.

Flexibility to choose your premium payment term: 5years or for the entire duration of the policy.

Provides security to your family in case of your unfortunatedeath.

All premiums paid are returned (without interest) in theevent you outlive thepolicys 20-year

term.

10% of the sum assured is paid on survival on the 3rd /6th /9th /12th /15th and 18th policy

anniversaries.

promotion stretegies

A very common way to promote a Life insurance company through Life Insurance Marketing is to

make the name of the company familiar to others by means of television commercials, handling out

pamphlets, hanging banners in populated areas and by providing exciting offers.

Telephone marketing is another way of Life Insurance Marketing. One can see the telephone

companies send messages about various offers and they even make phone calls. Web Insurance

Marketing is another good strategy to promote insurance policies. The pop ups that one sees while

using Internet are actually a very effective way of sending messages across the potential insurance

customers.

One should listen to the existing Life Insurance Policy Holders as well as the potential Life insurance

policy holders and listen to what people who actually matters have to say. One common problem

that the insured persons face is that the insurance companies do not inform its clients about the

hike in the premium rates. These things should be kept in mind. Not only that, a client should be

informed about everything related to his policy and the Life insurance company should keep the

transparency as much as possible.

Community Life Insurance Marketing is another different way to get promotion and a high

recognition for the Life insurance company. Eminent workers join local community institutions, such

as Chamber of Commerce, and by signing up there one can help out various projects that take

place. These kinds of activities and social works on behalf of the Life insurance company helps the

company to get free publicity as their names are published in news paper and in media also. Doing


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charity works also helps the Life insurance companies to come across various people who act as

volunteers and can act as their potential Life insurance clients. People also like to deal with like

minded people and companies and this is how many deals are made.

A Life Insurance Company should not charge different Life insurance client different charges for the

same policy. This kind of policy gives the Life insurance policy holders the feeling that they are

being treated unfairly and also that the Life insurance companies are only looking for profits and not

the betterment of customer welfare.

When a Life insurance claim is filed, especially for a very big hefty amount, the Life insurance

company should help out the policy holder in processing out the paperwork. One should not let

bureaucracy enter and make it so difficult for the one making the claim so that he gives his claim

.This has always been a common tactic on the insurance company's part to avoid paying claims

claimed by the policy holder. This though makes a short term profit for the company but it hurts in

the long run as the reputation of the company is hampered severely.

HISTORY

History of insurance refers to the development of a modern business ininsuranceagainst risks,

especially regarding ships, cargo, and buildings ("property" and "fire"), death ("life" insurance), automobile

accidents ("auto"), and the cost of medical treatment (health insurance). The industry has been profitable

and has provided attractive employment opportunities forwhite collar workers. It helps eliminate risks (as

when fire insurance companies demand safe practices and the availability of fire stations and hydrants),

spreads risks from the individual or single company to the larger community, and provides an important

source of long-term finance for both the public and private sectors.

Ancient world

The first methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as

long ago as the3rdand2ndmillenniaBC, respectively.[1]Chinese merchants travelling treacherous river

rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's

capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi,

c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to

fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to

cancel the loan should the shipment be stolen.

Achaemenianmonarchs were the first to insure their people and made it official by registering the insuringprocess in governmental notary offices. The insurance tradition was performed each year

inNowruz(beginning of the Persian New Year); the heads of different ethnic groups as well as others

willing to take part, presented gifts to the monarch. The most important gift was presented during a

special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue

was registered in a special office. This was advantageous to those who presented such special gifts. For

others, the presents were fairly assessed by the confidants of the court. Then the assessment was

registered in special offices.
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The purpose of registering was that whenever the person who presented the gift registered by the court

was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of

his books on ancient Iran: "[W]henever the owner of the present is in trouble or wants to construct a

building, set up a feast, have his children married, etc. the one in charge of this in the court would check

the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of

twice as much."[2]

A thousand years later, the inhabitants ofRhodescreated the 'general average', which 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.

The ancient Athenian "maritime loan" advanced money for voyages with repayment being cancelled if the

ship was lost. In the 4th century BC, rates for the loans differed according to safe or dangerous times of

year, implying an intuitive pricing of risk with an effect similar to insurance.[3]

TheGreeksandRomansintroduced the origins of health and life insurance c. 600 BCE when they

created guilds called "benevolent societies" which cared for thefamiliesof deceased members, as well as

payingfuneralexpenses of members.Guildsin theMiddle Agesserved a similar purpose.TheTalmuddeals with several aspects of insuringgoods. Before insurance was established in the late

17th century, "friendly societies" existed in England, in which people donated amounts of money to a

general sum that could be used for emergencies.

[edit]Medieval and Early modern

In 12th Century, after the establishment of Seljuk state in Anatolia, Seljuk Sultan Ghiyas ad-Din

Kaykhusraw I[4], introduced a form of state insurance which reimbursing the traders for their loss from the

state treasury, if they would be robbed within the Seljuk territory.[5][6]

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts)

were invented inGenoain the 14th century, as were insurance pools backed by pledges of landedestates. The first known insurance contract dates fromGenoain 1347, and in the next century maritime

insurance developed widely and premiums were intuitively varied with risks.[7]These new insurance

contracts allowed insurance to be separated from investment, a separation of roles that first proved useful

inmarine insurance. The first printed book on insurance was the legal treatise On Insurance and

Merchants' Bets byPedro de Santarm(Santerna), written in 1488 and published in 1552.[8]

Insurance became far more sophisticated in post-RenaissanceEurope, and specialized varieties

developed. The will ofRobert Hayman, written in 1628, refers to two policies he has taken out with a

wealthy Londoner: one of life insurance and one of marine insurance .[9]Toward the end of the 17th

century, London's growing importance as a centre for trade increased demand for marine insurance. In

the late 1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of ship owners,

merchants, and ships captains, and thereby a reliable source of the latest shipping news. It became the

meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such

ventures. Today,Lloyd's of Londonremains the leading market (note that it is not an insurance company)

for marine and other specialist types of insurance, but it works rather differently than the more familiar

kinds of insurance.
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Insurance as we know it today can be traced to theGreat Fire of London, which in 1666 devoured 13,200

houses. In the aftermath of this disaster,Nicholas Barbonopened an office to insure buildings. In 1680,

he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.

In the late 19th century, "accident insurance" began to be available, which operated much like

modern disabilityinsurance.[10][11]This payment model continued until the start of the 20th century in

some jurisdictions (like California), where all laws regulating health insurance actually referred to disability

insurance.[12]

The first insurance company in theUnited Statesunderwrote fire insurance and was formed in Charles

Town (modern-dayCharleston),South Carolinain 1732, but it provided only fire insurance.

[edit]Modern Europe

[edit]German and British government programs

Germanybuilt on a tradition of welfare programs in Prussia and Saxony that began as early as in the

1840s. In the 1880s ChancellorOtto von Bismarckintroduced old age pensions, accident insurance,

medical care and unemployment insurance that formed the basis of the modernEuropean welfare state.His paternalistic programs won the support of German industry because its goals were to win the support

of the working classes for the Empire and reduce the outflow of immigrants to America, where wages

were higher but welfare did not exist.[13][14]

After 1905, led by theLiberal Party, the British introduced a system of social insurance as well. It was

greatly expanded after 1944.[15][13]

[edit]American history

[edit]Colonial

Benjamin Franklinhelped to popularize and make standard the practice of insurance, particularlyProperty

insuranceto spread the risk of loss from fire, in the form ofperpetual insurance. In 1752, he founded

thePhiladelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was

the first to make contributions toward fire prevention. Not only did his company warn against certain fire

hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden

houses.

The sale of life insurance in the U.S. began in the late 1760s. The PresbyterianSynods in Philadelphia

and New York founded the Corporation for Relief of Poor and Distressed Widows and Children of

Presbyterian Ministers in 1759;Episcopalianpriests created a comparable relief fund in 1769. Between

1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen

survived.

[edit]19th century

Most insurance companies operated locally.[16]The ambitious ones expanded geographically in the

1830s, such as the New York Life Insurance and Trust Company in upstate New York, and the Baltimore

Life Insurance Company in the Mid-Atlantic and Upper South. They built a network of agents to develop

markets in different cities. The goal was to only insure people "of sound health, and of sober habits,

without hereditary disease, and not belonging to families remarked for short lives."[17]The company had to

judge the reliability of agents, who sought out clients, canceled dubious policies, and judged the health of
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potential customers. The agents were not medical men, but they were instructed to ask applicants some

standard questions:

"Is he now in good health, and does he usually enjoy good health, or how otherwise? . . . Has he

at any time been afflicted with gout, asthma, consumption, scrofula, convulsions, palsy, or any

other disease likely to impair his constitution? . . . Has he been vaccinated, or had the small pox?

. . . Is he of a sedentary turn, or accustomed to much exercise? . . . Do you know of any

circumstance which renders an insurance on his life more than usually hazardous? "[18]

A better solution came late in the 19th century when the companies employed doctors who used

standardized criteria.

[edit]Moral hazards

An important concern for insurance companies was the moral hazard--people might set fires to

collect property insurance--or even commit suicide or murder when life insurance was involved. From

the opposite angle, religious people refused to consider insurance against God's decisions. Fraud

was also a problem, as people lied on applications, broke policy restrictions, or falsified their own

deaths so their family could collect.[19]

[edit]Slaves

Prior to the Civil War (1861-65), some insurance companies in the Southinsured the lives of

slavesfor their owners. In response to bills passed in Californiain 2001 and inIllinoisin 2003, the

companies have been required to search their records for such policies. New York Lifefor example

reported that Nautilus sold 485 slaveholder life insurance policies during a two-year period in the

1840s; they added that their trustees voted to end the sale of such policies 15 years before

theEmancipation Proclamationof 1863.

[edit]20th century[edit]Social Security

Until the passage of the Social Security Act in 1935, the federal government had never mandated any

form of insurance upon the nation as a whole, but this program expanded the concept and

acceptance of insurance as a means to achieve individual financial security that might not otherwise

be available. That expansion experienced its first boom market immediately after the Second World

War with the original VA Home Loan programs that greatly expanded the idea that affordable housing

for veterans was a benefit of having served. The mortgages that were underwritten by the federal

government during this time included an insurance clause as a means of protecting the banks and

lending institutions involved against avoidable losses. During the 1940s there was also the GI life

insurance policy program that was designed to ease the burden of military losses on the civilianpopulation and survivors.

During the 1970s and 1980s there was a growth in support for the requirement for drivers to have

insurance as a means of proving financial responsibility since it was recognized that the automobile,

in the case of an accident, could cause significant collateral damage. It soon followed that car

insurance became a mandatory requirement for all drivers.
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10/18

[edit]Health insurance in the United States

Accident insurance was first offered in the United States by the Franklin Health Assurance Company

of Massachusetts. This firm, founded in 1850, offered insurance against injuries arising from railroad

and steamboat accidents. Sixty organizations were offering accident insurance in the US by 1866,

but the industry consolidated rapidly soon thereafter. In 1887, the African American workersinMuchakinock, Iowa, a company town, organized a mutual protection society. Members paid fifty

cents a month or $1 per family for health insurance and burial expenses .[20]In the 1890s, various

health plans became more common.Group disability policywas issued in 1911.[21]

Commercialinsurance companiesbegan offering accident and sickness insurance (disability

insurance) as early as the mid-19th century.[21][22]The first group medical plan was purchased from

The Equitable Life Assurance Society of the United States by the General Tire & Rubber Company in

1934.[21]Before the development of medical expense insurance, patients were expected to pay all

other health care costs out of their own pockets, under what is known as the fee-for-servicebusiness

model. During the middle to late 20th century, traditional disability insurance evolved into modern

health insurance programs. Today, most comprehensive private health insurance programs cover thecost of routine, preventive, and emergency health care procedures, and also most prescription drugs,

but this was not always the case.

During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis. The

first group pre-payment plan was created at theBaylor UniversityHospital in Dallas,

Texas.[21][23][24]This concept became popular among hospitals during the Depression, when they were

facing declining revenues. The Baylor plan was a forerunner of later Blue Cross plans. Physician

associations began offering pre-paid surgical/medical benefits in the late 1930s Blue Shield plans.

Blue Cross and Blue Shield plans were non-profit organizations sponsored by local hospitals (Blue

Cross) or physician groups (Blue Shield). As originally structured, Blue Cross and Blue Shield plans

provided benefits in the form of services rendered by participating hospitals and physicians ("service

benefits") rather than reimbursements or payments to the policyholder.[21][25]

Hospital and medical expense policies were introduced during the first half of the 20th century.

During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis,

eventually leading to the development of Blue Cross organizations.[21]The Ross-Loos Clinic, founded

in Los Angeles in 1929, is generally considered to have been the first health maintenance

organization (HMO).[23]Henry J. Kaiserorganized hospitals and clinics to provide pre-paid health

benefits to his shipyard workers during World War II. This became the basis forKaiser

PermanenteHMO. Most early HMOs were non-profit organizations. The development of HMOs was

encouraged by the passage of theHealth Maintenance Organization Act of 1973. The first employer-

sponsored hospitalization plan was created by teachers inDallas, Texasin 1929.[26]Because the

plan only covered members' expenses at a single hospital, it is also the forerunner of today's health

maintenance organizations(HMOs).[23][26][27]

Employer-sponsored health insurance plans dramatically expanded as a result of wage controls

duringWorld War II.[26]The labor market was tight because of the increased demand for goods and

decreased supply of workers during the war. Federally imposed wage and price controls prohibited

manufacturers and other employers raising wages high enough to attract sufficient workers. When

theWar Labor Boarddeclared thatfringe benefits, such as sick leave and health insurance, did not
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count as wages for the purpose of wage controls, employers responded with significantly increased

benefits.[26]

Employer-sponsored health insurance was considered taxable income until 1954.[26]

In the United States,regulationof the insurance industry is highlyBalkanized, with primary

responsibility assumed by individualstateinsurance departments. Whereas insurance markets havebecome centralized nationally and internationally, state insurance commissioners operate

individually, though at times in concert through anational insurance commissioners' organization. In

recent years, some have called for a dual state and federal regulatory system for insurance similar to

that which oversees state banks and national banks.

SECOND HISTORY

History of insurance

Main article:History of insurance

In some sense we can say that insurance appears simultaneously with the appearance of human society.

We know of two types of economies in human societies: natural or non-monetary economies (using barter

and trade with no centralized nor standardized set of financial instruments) and more modern monetary

economies (with markets, currency, financial instruments and so on). The former is more primitive and the

insurance in such economies entails agreements of mutual aid. If one family's house is destroyed the

neighbours are committed to help rebuild. Granaries housed another primitive form of insurance to

indemnify against famines. Often informal or formally intrinsic to local religious customs, this type of

insurance has survived to the present day in some countries where a modern money economy with its

financial instruments is not widespread.[citation needed]

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which

insurance is part of the financial sphere), early methods of transferring or distributing risk were practiced

byChineseandBabyloniantraders as long ago as the3rdand2ndmillenniaBC, respectively.[13]Chinese

merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit

the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded

in the famousCode of Hammurabi, c. 1750 BC, and practiced by earlyMediterraneansailingmerchants.

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.

Achaemenianmonarchs of Ancient Persia were the first to insure their people and made it official by

registering the insuring process in governmental notary offices. The insurance tradition was performed

each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as

others willing to take part, presented gifts to the monarch. The most important gift was presented during a

special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue

was registered in a special office. This was advantageous to those who presented such special gifts. For

others, the presents were fairly assessed by the confidants of the court. Then the assessment was

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

The purpose of registering was that whenever the person who presented the gift registered by the court

was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of

his books onancient Iran: "[W]henever the owner of the present is in trouble or wants to construct a

building, set up a feast, have his children married, etc. the one in charge of this in the court would check

the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of

twice as much."[14]

A thousand years later, the inhabitants ofRhodesinvented the concept of thegeneral 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 deliberately jettisoned in order to lighten

the ship and save it from total loss.

Theancient Athenian"maritime loan" advanced money for voyages with repayment being cancelled if the

ship was lost. In the 4th century BC, rates for the loans differed according to safe or dangerous times of

year, implying an intuitive pricing of risk with an effect similar to

insurance.[15]TheGreeksandRomansintroduced the origins of health and life insurance c. 600 BCE

when they created guilds called "benevolent societies" which cared for the familiesof deceased members,

as well as payingfuneralexpenses of members.Guildsin theMiddle Agesserved a similar purpose.

TheTalmuddeals with several aspects of insuringgoods. Before insurance was established in the late

17th century, "friendly societies" existed in England, in which people donated amounts of money to a

general sum that could be used for emergencies.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts)

were invented inGenoain the 14th 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 inmarine insurance. Insurance became far more sophisticated in post-

RenaissanceEurope, and specialized varieties developed.
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Lloyd's of London, pictured in 1991, is one of the world's leading and most famous insurance markets

Some forms of insurance had developed inLondonby the early decades of the 17th century. For

example, the will of the English colonistRobert Haymanmentions two "policies of insurance" taken out

with the diocesan Chancellor of London, Arthur Duck. Of the value of 100 each, one relates to the safearrival of Hayman's ship in Guyana and the other is in regard to "one hundred pounds assured by the said

Doctor Arthur Ducke on my life". Hayman's will was signed and sealed on 17 November 1628 but not

proved until 1633.[16]Toward the end of the seventeenth century, London's growing importance as a

centre for trade increased demand for marine insurance. In the late 1680s,Edward Lloydopened a coffee

house that became a popular haunt of ship owners, merchants, and ships' captains, and thereby a

reliable source of the latest shipping news. It became the meeting place for parties wishing to insure

cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of Londonremains the

leading market (note that it is an insurance market rather than a company) for marine and other specialist

types of insurance, but it operates rather differently than the more familiar kinds of insurance. Insurance

as we know it today can be traced to theGreat Fire of London, which in 1666 devoured more than 13,000

houses. The devastating effects of the fire converted the development of insurance "from a matter ofconvenience into one of urgency, a change of opinion reflected in Sir Christopher Wren's inclusion of a

site for 'the Insurance Office' in his new plan for London in 1667. "[17]A number of attempted fire insurance

schemes came to nothing, but in 1681Nicholas Barbon, and eleven associates, established England's

first fire insurance company, the 'Insurance Office for Houses', at the back of the Royal Exchange.

Initially, 5,000 homes were insured by Barbon's Insurance Office.[18]
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The first insurance company in theUnited Statesunderwrote fire insurance and was formed in Charles

Town (modern-dayCharleston),South Carolina, in 1732.Benjamin Franklinhelped to popularize and

make standard the practice of insurance, particularly againstfirein the form ofperpetual insurance. In

1752, he founded thePhiladelphia Contributionship for the Insurance of Houses from Loss by

Fire.[19]Franklin's company was the first to make contributions toward fire prevention. Not only did his

company warn against certainfire hazards, it refused to insure certain buildings where the risk of fire wastoo great, such as all wooden houses.

In the United States,regulationof the insurance industry primary resides with individualstateinsurance

departments. The current state insurance regulatory framework has its roots in the 19th century,

whenNew Hampshireappointed the first insurance commissioner in 1851.[19]Congress adopted the

McCarran-Ferguson Act in 1945, which declared that states should regulate the business of insurance

and to affirm that the continued regulation of the insurance industry by the states is in the public's best

interest.[19]The Financial Modernization Act of 1999, commonly referred to as "Gramm-Leach-Bliley",

established a comprehensive framework to authorize affiliations between banks, securities firms, and

insurers, and once again acknowledged that states should regulate insurance.[19]

Whereas insurance markets have become centralized nationally and internationally, state insurance

commissioners operate individually, though at times in concert through theNational Association of

Insurance Commissioners. In recent years, some have called for a dual state and federal regulatory

system (commonly referred to as theOptional federal charter(OFC)) for insurance similar to the banking

industry.

In 2010, the federalDodd-Frank Wall Street Reform and Consumer Protection Actestablished the

Federal Insurance Office ("FIO").[20]

FIO is part of the U.S.Department of the Treasuryand it monitors all

aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that

may contribute to a systemic crisis in the insurance industry or in the U.S. financial system .[20]FIO

coordinates and develops federal policy on prudential aspects of international insurance matters,

including representing the U.S. in theInternational Association of Insurance Supervisors.[20]FIO alsoassists the U.S.Secretary of Treasurywith negotiating (with the U.S. Trade Representative) certain

international agreements.[20]

Moreover, FIO monitors access to affordable insurance by traditionally underserved communities and

consumers, minorities, and low- and moderate-income persons.[20]The Office also assists the U.S.

Secretary of the Treasury with administering the Terrorism Risk Insurance Program.[20]However, FIO is

not a regulator or supervisor.[20]The regulation of insurance continues to reside with the states.[20]

[edit]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 policyand which are not. Below are non-exhaustive lists of the many different types of insurance that exist. A

single policy may cover risks in one or more of the categories set out below. For example, vehicle

insurancewould typically cover both the property risk (theft or damage to the vehicle) and the liability risk

(legal claims arising from anaccident). Ahome insurancepolicy in the US 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.
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