Auto Insurance

Auto insurance

Vehicle insurance

Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. Auto insurance provides property, liability and medical coverage:

Property coverage pays for damage to or theft of your car.
Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.

An auto insurance policy comprises six kinds of coverage. Most countries require you to buy some, but not all, of these coverages. If you're financing a car, your lender may also have licy and to pay your premium.requirements. Most auto policies are for six months to a year.
In the United States, your insurance company should notify you by mail when it’s time to renew the po

Auto insurance in the United States

Auto insurance in the United States

Coverage available

The consumer may be protected with different coverage types depending on what coverage the insured purchases. Some states require that motorists carry liability insurance coverage to ensure that their drivers can cover the cost of damages to people or property in the event of an automobile accident. Some states, such as Wisconsin, have more flexible “proof of financial responsibility” requirements.

In the United States, liability insurance covers claims against the policy holder and generally, any other operator of the insured vehicles, provided they do not live at the same address as the policy holder, and are not specifically excluded on the policy. In the case of those living at the same address, they must specifically be covered on the policy. Thus it is necessary, for example, when a family member comes of driving age they must be added to the policy. Liability insurance sometimes does not protect the policy holder if they operate any vehicles other than their own. When you drive a vehicle owned by another party, you are covered under that party’s policy. Non-owners policies may be offered that would cover an insured on any vehicle they drive. This coverage is available only to those who do not own their own vehicle and is sometimes required by the government for drivers who have previously been found at fault in an accident. Non-owners policies are also known as Named Operator Policies. The policies are useful for people whose drivers license has been suspended and they have to have insurance for their licensed to be reinstated.

Generally, liability coverage extends when you rent a car. Comprehensive policies also apply to the rental vehicle, although this should be verified beforehand. Full coverage premiums are based on, among other factors, the value of the insured’s vehicle. This coverage, however, cannot apply to rental cars because the insurance company does not want to assume responsibility for a claim greater than the value of the insured’s vehicle, assuming that a rental car may be worth more than the insured’s vehicle. Most rental car companies offer insurance to cover damage to the rental vehicle. These policies may be unnecessary for many customers as credit card companies, such as Visa and MasterCard, now provide supplemental collision damage coverage to rental cars if the transaction is processed using one of their cards. These benefits are restrictive in terms of the types of vehicles covered

Insurance Supervision

Prepared by a staff team from the International Monetary Fund on the basis of information provided by the Bulgarian authorities.
Prepared in August 1999 and reissued in March 2000
1. The description that follows examines financial policy transparency in the area of insurance supervision in Bulgaria. The first section covers the broad principles underlying the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies . The Code identifies desirable transparency practices for insurance supervisors in their conduct of insurance supervision. Following the Code, this chapter reviews: clarity of the roles, responsibilities, and objectives of the agencies implementing regulation and supervision of the insurance industry; the processes for formulating and reporting policies for them; public availability of information on such policies; and the accountability and assurances of integrity by the insurance regulators. The second section provides a summary of the authorities’ views on the extent to which domestic practices are consistent with existing international standards.
2. Transparency by the National Insurance Council (NIC) and the Insurance Surveillance Directorate (ISD), particularly in clarifying their objectives, should contribute to policy effectiveness by enabling financial market participants to assess better the context of insurance supervision, thereby reducing uncertainty in the decision making of market participants. Moreover, by enabling market participants and the general public to understand and evaluate insurance supervision policies, transparency is likely to be conducive to good policymaking. This can help to promote financial as well as systemic stability. Transparent descriptions of the policy formulation process provide the public with an understanding of the rules of the game. The release of adequate information to the public on the activities of insurance supervisors provides an additional mechanism for enhancing the credibility of their actions. There may also be circumstances when public accountability of decisions by supervisors can reduce the potential for moral hazard.
A. Description of Practice
Clarity of roles, responsibilities, and objectives
3. The institutional framework is defined in the Insurance Business Act (IBA) and in the implementing regulations. The objectives of the NIC and ISD, as defined in the IBA and the implementing regulations, are to promote “financial stability, market and systemic stability, competitive and fair markets, client asset protection, and enforcement of laws and regulations.” Moreover, the “ISD supervises the activities of insurers in conformance with the law and advises the NIC on granting and terminating licenses, merging, consolidating, dividing, or transferring portfolios of insurance companies; initiates insolvency procedures; takes prudential measures against undercapitalized and illiquid insurers; appoints conservators and keeps a register of licenses granted; and approves or disapproves rehabilitation plans.” These objectives have been revealed in the legislation, written reports to the legislature and other public bodies, public appearances before the legislature, the Annual reports, press releases to the media, and publication in the Official Gazette.

4. The ISD’s and NIC’s relationships with the MOF and COM are specified in the Act. The NIC comprises the Minister of Finance, who acts as Chairperson; three other ministers; the Director of the ISD; a representative of the Insurers’ Association; and an academic expert in insurance. The NIC, which is not a politically independent body, has the power to grant and revoke licenses to conduct insurance business in Bulgaria and to authorize merger or to initiate insolvency proceedings. The relationship between the NIC and the ISD is not clearly specified in the law. The ISD is a juristic person within the MOF, and its Director is appointed and dismissed by the Prime Minister (PM) on the recommendation of the NIC, and its budget is controlled by the MOF. Procedures for appointment to the ISD and the terms of the office are defined in the IBA and the ordinance. Only one ground for removal is laid out in the IBA (releasing confidential data), while other grounds (premeditated crime or prolonged incapacity) are specified in the Regulation on the Structure and Operation of the Insurance Supervision Directorate. There are no legal protections for officials and staff in the conduct of their official duties.
5. The relationships of these institutions with BNB, the MOF, and the Ministry of Justice and Legal Euro Integration are specified in regulation and have been publicly disclosed in the State Gazette. The ISD maintains a department for international cooperation and officials have stated that they maintain close cooperation with the MOF and the BNB, and particularly its banking supervision department. Such cooperation is essential as insurance companies are permitted under Bulgarian law to own up to 99 percent of the shares of commercial banks and, while banks cannot own insurance companies outright, they can own shares in insurance companies. In addition, the agency officials report that they maintain close contact with international supervisory bodies.

Open process for formulating and reporting policies
6. The ISD’s operating procedures are specified in law and regulation and have been reported in public appearances before the legislature, the State Gazette, and press releases. The regulations for financial reporting by financial institutions to the ISD have been publicly disclosed in the IBA, where insurers are required to report annual balance sheets to the ISD within four months of the end of the reporting period. Insurers also are required to release their annual reports in at least two national newspapers. The Act requires insurers to obtain audits of their accounts by at least 2 certified public accountants and mandates that these independent auditors report material breaches of regulations to the ISD. The Act also specifies the documents that must be submitted in order to obtain a license. The ISD in turn is required to disclose the terms of fees that it charges to financial institutions and the public. The IBA specifies the types of fees that the ISD may charge, and regulations provide greater detail. The schedule of charges has been approved by the COM and published in the State Gazette.

7. While not specified in the IBA law or the regulations reviewed by the staff, ISD officials report that they utilize written reports to and public appearances before Parliament, the Annual Report, State Gazette and press releases to disclose information on changes in regulations immediately after a decision is made.

Public availability of information on policies
8. Under the IBA, the ISD reports only to the NIC and MOF. However, Directorate officials state that they will soon issue the first annual report that will describe its activities and the condition of the insurance markets. In addition, the monthly newspaper, The Insurer, carries such information. Moreover, ISD officials make written reports to, and public appearances before, the legislature, and provide press releases. To conduct its publication program, the ISD maintains a Publications Department. The publications are provided free of charge. The ISD submits its budget to the MOF monthly and to the legislature in writing.

9. The ISD has an obligation to provide aggregate data that relate to its jurisdictional responsibilities. It fulfils this obligation monthly in the Insurer newspaper and annually in its Annual Report. It also reports in writing to, and via public appearance before, the legislature, in the State Gazette, and through press releases. The ISD maintains a register of licensed insurers. This register contains very detailed information and, consequently, is not published. However, a list of licensed insurers is kept and is available to anyone who requests it at the ISD’s office in Sofia, or will be sent in response to a request received by phone or fax. In addition, a list of licensed insurers has been published in local newspapers and in one German paper. In addition, this list will be published in the forthcoming Annual Report.

10. The texts of legislation and regulations are readily available to the public through the State Gazette and Annual Report. Applicable directives are published in the State Gazette. In addition, all guidelines are sent directly to licensed insurance companies. They are not published, but agency officials stated that they would be published in newspapers if the public showed an interest in them. Minutes of NIC meetings are maintained and relevant sections are sent to the insurers who are affected by the decisions that have been taken. In addition, summaries of the minutes are released to the media.

11. Guarantees and consumer protection arrangements are publicly available. A system of guarantees for holders of accident policies was promised in the IBA, and a Guarantee Fund was founded and made operational in 1997. In particular, the IBA states that “a Guarantee Fund shall be set up to pay third party accident insurance where the perpetrator cannot be found or is uninsured.” In addition, the ISD has, and has publicly disclosed, its consumer protection arrangements. Beyond the guarantee noted above, consumer protection arrangements are not provided. There are, however, provisions for insurers to appeal adverse decisions under the Administrative Procedures Act. In addition, agency officials stated that there are provisions for disagreements between policyholders and their insurer to be submitted to the ISD for adjudication.

12. The ISD sends its financial statements to the MOF and has not yet published them itself. However, the agency’s financial statements can be found in the section on the MOF in the Government’s financial statements. The ISD sends its financial statements to the National Audit Office and does not utilize the services of independent auditors. Accounting policies and qualifications to the accounts are disclosed.

Accountability and assurances of integrity
13. The modalities of the two agencies’ accountability have been publicly defined in legislation, which allows appeal under the Administrative Procedures Act against the NIC’s decisions, and requires the ISD to report to the MOF. The officials are not required to appear before a designated public authority. The insurance supervisor is responsible to the MOF, who would presumably take this responsibility. However, the Director of the ISD is available to appear before the legislature to explain the ISD’s objectives and performance and to exchange views on the condition of the financial system.

14. The ISD does not have the internal governance procedures and internal audit arrangements that are necessary to ensure the integrity of its operations. Moreover, there is no code of good conduct. However, the IBA forbids disclosing confidential information except in approved circumstances. Breaching this requirement could presumably be grounds for dismissal.

B. IMF Staff Commentary

15. The ISD is making determined progress toward achieving transparency in insurance regulation in Bulgaria. Nevertheless, further improvements would be welcome:
It would be important to strengthen the Insurance Business Act to increase the ISD’s autonomy and to clarify its roles and relationships with the NIC, MOF, and COM.
Greater transparency is needed in the regulations and practices regarding cross holdings between banks and insurance companies.

C. Observance of International Principles and Standards

16. ISD has been a member of the International Association of Insurance Supervisors (IAIS) since October 1998. Officials state that they have no fundamental disagreements with international best practices, and the NCI and ISD are becoming actively acquainted with the recommendations for best practices specified by the IAIS as well as by the OECD. Despite its relatively recent membership, experts from ISD are already participating in three subcommittees of the IAIS, on accounting standards and the insurance laws and by-law legislation within the Technical Committee of the IAIS.

17. Bulgaria is in the process of adopting IAIS standards, including through various amendments to the Insurance Act currently under consideration by the parliament. Existing laws are also being updated to comply with the European Union standards in this area, which are similar to the IAIS recommendations. These amendments will bring Bulgaria into almost complete compliance with the IAIS standards for insurance markets. In particular, the frequency and standards of supervision of the insurance industry, as well as the penalties and sanctions for non-compliance with supervision standards, will comply with the standards established by the IAIS in these areas. The only IAIS standard that is not included in the present revisions is the Supervisory Standard on Derivatives. This was judged unnecessary as Bulgaria does not yet have an active market on derivatives. The adoption of the IAIS model Memorandum of Understanding on Exchange of Information with Other Countries is part of the proposed new law on amending and supplementing the Insurance Act. Bulgaria has not conducted a self-assessment of its observance of the IAIS Insurance Supervisory Principles, mainly because it has no legal basis for doing so. Officials expect that these few differences between Bulgarian standards for insurance markets and international standards would remain as they reflect specific characteristics of the Bulgarian markets.
Enforcement of standards

18. In enforcing the Insurance Act, the ISD applies IAIS standards with regard to the frequency of supervision as well as penalties and sanctions. The ISD has the right to impose measures to improve the financial status of inadequately capitalized insurers; oblige an insurer to increase his capital; recommend to insurers measures to redress violations of legal acts and by-laws in the insurance sector; and take decisions on other issues related to the supervision of the insurance industry.

1 Prepared by Mr. Kähkönen and Mr. Feyzioğlu (both European I Department) and a team from the Monetary and Exchange Affairs Department of the IMF led by Mr. Coats, in consultation with the Bulgarian authorities. In preparing this chapter, IMF staff held discussions with officials of the Insurance Supervision Directorate (who completed a transparency questionnaire), the State Insurance Institute, the National Accountancy Department of the Ministry of Finance, and representatives of accounting firms. IMF staff also consulted the Law on the Bulgarian National Bank; the Law on Banks; the Insurance Business Act, the Ordinance for the Establishment and Organization of the Insurance Supervision Directorate, the Ordinance for the Establishment of the National Insurance Council, the Regulation on the Allocation of Insurance Reserve, Decree No. 19 on the Enactment of an Ordinance Regulating the Procedures and Methods of Setting up an Insurance Reserve, and the Regulation for Determining the Own Resources, Solvency Margin, and Its Calculation by Insurers.

2 While the ISD does not have a web site, insurance legislation is made available on the government’s web site.

3 This section represents a summary of the authorities’ description of practices in this area. No attempt has been made to provide an independent assessment of observance of standards in this area.

Life

Life insurance

Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity.

Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires. 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 policies, are financial instruments to accumulate or liquidate wealth when it is needed.
In many countries, such as the U.S. and the UK, the tax law provides that the interest on this cash value is not taxable under certain circumstances. This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death.

In U.S., the tax on interest income on life insurance policies and annuities is generally deferred. However, in some cases the benefit derived from tax deferral may be offset by a low return. This depends upon the insuring company, the type of policy and other variables (mortality, market return, etc.). Moreover, other income tax saving vehicles (e.g., IRAs, 401(k) plans, Roth IRAs) may be better alternatives for value accumulation.

INSURANCE

Global insurance industry

Global insurance premiums grew by 11% in 2007 (or 3.3% in real terms) to reach $4.1 trillion. The macro-economic environment was characterised by slower economic growth in 2007 and rising inflation. Profitability improved in life insurance and fell slightly in the non-life sector during the year. Life insurance premiums grew by 12.6%, accelerating in the advanced economies with the exception of Japan and Continental Europe. Non-life insurance premiums grew by 7.6% during the year. Figures for premium income are not yet available for 2008, but the insurance industry is likely to see a slowdown in new business and falling investment revenue.
Advanced economies account for the bulk of global insurance. With premium income of $1,681, Europe was the most important region, followed by North America ($1,330) and Asia ($814). The top four countries accounted for nearly 60% of premiums in 2007. The US and UK alone accounted for 42% of world insurance, much higher than their 7% share of the global population. Emerging markets accounted for over 85% of the world’s population but generated only around 10% of premiums.

Global Insurance IndustrY

Global insurance premiums grew by 11% in 2007 (or 3.3% in real terms) to reach $4.1 trillion. The macro-economic environment was characterised by slower economic growth in 2007 and rising inflation. Profitability improved in life insurance and fell slightly in the non-life sector during the year. Life insurance premiums grew by 12.6%, accelerating in the advanced economies with the exception of Japan and Continental Europe. Non-life insurance premiums grew by 7.6% during the year. Figures for premium income are not yet available for 2008, but the insurance industry is likely to see a slowdown in new business and falling investment revenue.
Advanced economies account for the bulk of global insurance. With premium income of $1,681bn, Europe was the most important region, followed by North America ($1,330bn) and Asia ($814bn). The top four countries accounted for nearly 60% of premiums in 2007. The US and UK alone accounted for 42% of world insurance, much higher than their 7% share of the global population. Emerging markets accounted for over 85% of the world’s population but generated only around 10% of premiums.

Insurance

Principles of insurance

Financial market participants

Collective investment schemesCredit UnionsInsurance companiesInvestment banksPension fundsPrime BrokersTrusts
Finance seriesFinancial marketParticipantsCorporate financePersonal financePublic financeBanks and BankingFinancial regulation
v • d • e
Commercially insurable risks typically share seven common characteristics.
A large number of homogeneous exposure units. The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004.The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. There are exceptions to this criterion. Lloyd's of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable.

Definite Loss. The event that gives rise to the loss that is subject to the insured, at least in principle, take place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.

Accidental Loss. The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be ‘pure,’ in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks, are generally not considered insurable.
Large Loss. The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is little point in paying such costs unless the protection offered has real value to a buyer.
Affordable Premium. If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that anyone will buy insurance, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance. (See the U.S. Financial Accounting Standards Board standard number 113)
Calculable Loss. There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.

Limited risk of catastrophically large losses. The essential risk is often aggregation. If the same event can cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their exposure to a loss from a single event to some small portion of their capital base, on the order of 5 percent. Where the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital constraint will restrict an insurer's appetite for additional policyholders. The classic example is earthquake insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the policies that it has already underwritten. Wind insurance in hurricane zones, particularly along coast lines, is another example of this phenomenon. In extreme cases, the aggregation can affect the entire industry, since the combined capital of insurers and reinsurers can be small compared to the needs of potential policyholders in areas exposed to aggregation risk. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer’s capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.

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: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help.

Otherwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread (for example countries in the territory of the forme r Soviet Union).

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practised by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. 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 practised 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 or lost at sea.

Achaemenian monarchs 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.
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: "Whenever 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."

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 the origins of health and life insurance c. 600 AD when they organized guilds called "benevolent societies" which cared for the families and paid 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 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. 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.
Some forms of insurance had developed in London by the early decades of the seventeenth century. For example, the will of the English colonist Robert Hayman mentions two "policies of insurance" taken out with the diocesan Chancellor of London, Arthur Duck. Of the value of £100 each, one relates to the safe arrival 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. 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 Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.

Insurance as we know it 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 underwrote fire insurance and was formed in Charles Town (modern-day Charleston), 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. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses. In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization. In recent years, some have called for a dual state and federal regulatory system (commonly referred to as the Optional federal charter (OFC)) for insurance similar to that which oversees state banks and national banks.

INSURANCE

Nature of the Industry

Goods and services. The insurance industry provides protection against financial losses resulting from a variety of perils. By purchasing insurance policies, individuals and businesses can receive reimbursement for losses due to car accidents, theft of property, and fire and storm damage; medical expenses; and loss of income due to disability or death.

INDUSTRY ORGANIZATION.

The insurance industry consists mainly of insurance carriers (or insurers) and insurance agencies and brokerages. In general, insurance carriers are large companies that provide insurance and assume the risks covered by the policy. Insurance agencies and brokerages sell insurance policies for the carriers. While some of these establishments are directly affiliated with a particular insurer and sell only that carrier’s policies, many are independent and are thus free to market the policies of a variety of insurance carriers. In addition to supporting these two primary components, the insurance industry includes establishments that provide other insurance-related services, such as claims adjustment or third-party administration of insurance and pension funds.

These other insurance industry establishments also include a number of independent organizations that provide a wide array of insurance-related services to carriers and their clients. One such service is the processing of claims forms for medical practitioners. Other services include loss prevention and risk management. Also, insurance companies sometimes hire independent claims adjusters to investigate accidents and claims for property damage and to assign a dollar estimate to the claim.

Insurance carriers assume the risk associated with annuities and insurance policies and assign premiums to be paid for the policies. In the policy, the carrier states the length and conditions of the agreement, exactly which losses it will provide compensation for, and how much will be awarded. The premium charged for the policy is based primarily on the amount to be awarded in case of loss, as well as the likelihood that the insurance carrier will actually have to pay. In order to be able to compensate policyholders for their losses, insurance companies invest the money they receive in premiums, building up a portfolio of financial assets and income-producing real estate which can then be used to pay off any future claims that may be brought. There are two basic types of insurance carriers: primary and reinsurance. Primary carriers are responsible for the initial underwriting of insurance policies and annuities, while reinsurance carriers assume all or part of the risk associated with the existing insurance policies originally underwritten by other insurance carriers.

Primary insurance carriers offer a variety of insurance policies. Life insurance provides financial protection to beneficiaries—usually spouses and dependent children—upon the death of the insured. Disability insurance supplies a preset income to an insured person who is unable to work due to injury or illness, and health insurance pays the expenses resulting from accidents and illness. An annuity (a contract or a group of contracts that furnishes a periodic income at regular intervals for a specified period) provides a steady income during retirement for the remainder of one’s life. Property-casualty insurance protects against loss or damage to property resulting from hazards such as fire, theft, and natural disasters. Liability insurance shields policyholders from financial responsibility for injuries to others or for damage to other people’s property. Most policies, such as automobile and homeowner’s insurance, combine both property-casualty and liability coverage. Companies that underwrite this kind of insurance are called property-casualty carriers.

Some insurance policies cover groups of people, ranging from a few to thousands of individuals. These policies usually are issued to employers for the benefit of their employees or to unions, professional associations, or other membership organizations for the benefit of their members. Among the most common policies of this nature are group life and health plans. Insurance carriers also underwrite a variety of specialized types of insurance, such as real-estate title insurance, employee surety and fidelity bonding, and medical malpractice insurance.
Other organizations in the industry are formed by groups of insurance companies, to perform functions that would result in a duplication of effort if each company carried them out individually. For example, service organizations are supported by insurance companies to provide loss statistics, which the companies use to set their rates.

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