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INSURANCE
TIPS
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.
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.
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:
direct and reinsurance. Direct 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.
Direct 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.
A relatively recent act of Congress allows insurance
carriers and other financial institutions, such as banks
and securities firms, to sell one another’s products. As a
result, more insurance carriers now sell financial products
such as securities, mutual funds, and various retirement
plans. This approach is most common in life insurance
companies that already sell annuities; however, property
and casualty companies also are increasingly selling a
wider range of financial products. In order to expand into
one another’s markets, insurance carriers, banks, and
securities firms have engaged in numerous mergers, allowing
the merging companies access to each other's client base
and geographical markets.
Insurance carriers have discovered that the Internet can be
a powerful tool for reaching potential and existing
customers. Most carriers use the Internet simply to post
company information, such as sales brochures and product
information, financial statements, and a list of local
agents. However, an increasing number of carriers are
starting to expand their Web sites to enable customers to
access online account and billing information, and a few
carriers even allow claims to be submitted online. Some
carriers also provide insurance quotes online based on the
information submitted by customers on their Internet sites.
In the future, carriers will allow customers to purchase
policies through the Internet without ever speaking to a
live agent.
In addition to individual carrier-sponsored Internet sites,
several “lead-generating” sites have emerged. These sites
allow potential customers to input information about their
insurance policy needs. For a fee, the sites forward
customer information to a number of insurance companies,
which review the information and, if they decide to take on
the policy, contact the customer with an offer. This
practice gives consumers the freedom to accept the best
rate.
The insurance industry also includes 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.
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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