INSURANCE

INSURANCE. The insurance business, one of the oldest in America, has its roots in the early years of the Republic, when the nation's business was carried on primarily in seaport coffee houses, the gathering point for sea captains, merchants, and bankers. Marine and fire insurance were the earliest forms of the property and liability branch of the insurance business; later additions include inland marine, aviation, workers' compensation, automobile, multiple-line, and suretyship insurance. Marine insurance has been a necessary adjunct to commerce, and insurance against losses from frequent fires in colonial seaports also had a colorful history.

The other major branches of insurance, life and health, did not assume importance until the 1840s, when the Industrial Revolution created a need for security that land had traditionally given to a nation of farmers. The Mutual Life Insurance Company of New York, which began writing policies in 1843, was the first commercial life insurance company making policies available to the general public. Health insurance began as accident insurance about 1850.The first auto insurance was issued in 1898.

Marine Insurance

The first marine insurance policies sold in America were contracted through the local agents of English under-writers in the coffee houses of American seaports. Always a necessary adjunct to commerce, forms of marine insurance were known in the times of the ancient Babylonians, Phoenicians, Greeks, and Romans, as well as the Europeans of the fifteenth and sixteenth centuries. Modern marine insurance had its origins in England in the seventeenth century, and American marine insurance owes its beginnings to the English marine underwriters of that era.

By 1741 Philadelphia was the most important city in the colonies, outranking Boston in volume of shipping and commerce and serving as the country's political center; it also emerged as the center of the early development of American insurance. By 1760 the insurance center of Philadelphia was the London Coffee House of Philadelphia, in which the Old Insurance Office was maintained by the Philadelphia underwriters during regular hours. The English underwriters also met there. The rival of the Philadelphia underwriters—the New York Insurance Office—maintained an office next door.

During the Revolution City Tavern in Philadelphia became the gathering place of soldiers, statesmen, and important merchants, superseding the London Coffee House as the headquarters for marine underwriting. As the headquarters of the marine underwriters, it was also the place where plans were later made for the formation of the Insurance Company of North America, founded in 1792—the first stock insurance company in the nation and the first American company capable of writing satisfactory marine contracts. Since fire insurance was already being written by two companies in Philadelphia, and since the subscribers already had considerable experience in marine underwriting, a decision was made to concentrate on that form of insurance. American marine underwriting contributed directly to the growth and prosperity of the shipping trade in the new nation. Managed well, it was successful as a stock company and paid regular dividends; it has thrived for nearly two hundred years.

In the 1840s and 1850s the revolutionary design of the American clipper ship inaugurated one of the most prosperous eras in American shipping and American marine insurance, for marine insurance kept pace with the increased prosperity of ocean commerce. Between 1840 and 1861, the combined value of American exports and imports more than doubled, while marine premium receipts tripled. This prosperity lasted until the 1890s, when the British steamship made the clipper ship obsolete. Then, in the early twentieth century, the Panama Canal under-cut the clipper ship's role in the growing trade between the Atlantic coast and California.

After the depression of 1893, Congress limited U.S. coastal trade to U.S. ships, a boon to domestic ship-owners. New ships were built, and American marine underwriters found their business increasing again. But the greatest growth came with World War I. Although the outbreak of war created unstable conditions in the quoting of marine insurance rates, the Bureau of War Risk Insurance—created by Congress in 1914—made it possible to quote stable rates. The great increase in the volume of shipping boosted demand for marine insurance, the value of vessels and cargoes soared, and freight charges increased, leading to millions of dollars worth of insurance orders and the revitalization of American marine underwriting. The gross tonnage of ships built jumped from 316,250 in 1914 to 3,880,639 in 1920, the value of cargo carried reached $12 billion, and the demand for insurance coverage created the first major expansion in the marine insurance market since the clipper-ship era. Between the end of World War I and the beginning of World War II, the large number of new companies entering the field caused an excess capacity in marine underwriting that resulted in intense competition and lower underwriting profits.

Congressional encouragement of risk-spreading through syndicates in World War II made underwriting insurance on merchant vessels possible in the period between the Neutrality Act of 4 November 1939 and April 1942, when the government requisitioned all American vessels. At the request of the Maritime Commission, the American Hull Syndicate wrote war risk insurance on hulls, and the American Cargo War Risk Exchange made vital shipping possible by creating a market large enough to spread insurance coverage among many marine underwriters.

After World War II Congress again promoted the U.S. marine insurance market with the McCarran-Ferguson Act of 1945, which exempted marine insurance from antitrust laws and made American marine insurance competitive in world markets. The Ship Sales Act of 1946 required mortgagees of merchant ships to place not less than 75 percent of the required hull insurance in the U.S. market.

From 1965 to 1974, the American marine insurance market grew substantially in relationship to the English market (primarily Lloyd's of London).Ships grew in size and cost, and construction during this decade of huge oceangoing rigs designed for oil drilling and costing tens of millions of dollars created another expansion of the marine market. In the 1980s and 1990s, the introduction of automated handling procedures, satellite tracking, and the use of standardized containers transformed the shipping industry, leading to larger and larger ships and payloads. By the end of the twentieth century, some 60 percent of the world's merchant fleet had moved to countries under open registries such as Panama, Liberia, the Bahamas, and Greece, which have fewer taxes, lower wages, and less regulation.

Inland Marine Insurance

Initially designed to insure cargo on inland waterways, inland marine insurance expanded to include movement on land as the interior of the country developed. Some of the first policies insured the possessions of traveling salesmen. In the twentieth century, bridges and tunnels used for transportation, as well as tourist baggage and postal shipments, were included.

Aviation Insurance

Aviation insurance covers the hull and liability hazards of both commercial airlines and private aircraft; it does not include accidental injury or death coverage, which companies issue separately. During the 1960s and 1970s, many new companies entered this field, primarily as reinsurers. These companies compete among themselves and with foreign insurance carriers (mainly Lloyd's of London) for both U.S. and foreign aviation business.

One problem associated with aviation insurance is the constant exposure to catastrophic loss. As speed, size of equipment, fuel load, and passenger capacity continue to increase, the catastrophe hazard grows in direct proportion. There are too few commercial aircraft at risk to allow successful operation of the "law of large numbers," upon which underwriters rely to predict losses. Therefore, aviation underwriters must rely on their own judgments in determining rates.

Fire Insurance

Fire insurance is a direct descendant of marine insurance. It developed in the American colonies from ideas brought by English settlers. American merchants realized the need for protection from loss from fire after the Great Fire of London in 1666 destroyed three-fourths of the city's buildings. Like the first marine insurance company, the first fire insurance company in America began in Philadelphia, and, like the earliest marine companies, that company provided policies based on mutual agreement rather than stock subscription. Largely through the efforts of Benjamin Franklin, America's first fire insurance company and its oldest mutual insurance company formed in 1752—the Philadelphia Contributionship for Insurance of Houses From Loss by Fire. Experiencing difficulty in fighting fires at houses surrounded by trees, the Philadelphia Contributionship decided, in 1781, not to insure houses that had trees in front of them. Out of opposition to this policy grew the Mutual Assurance Company in 1784, popularly known as the Green Tree because of the circumstances of its founding and because of its fire mark. Then, in 1794, the Insurance Company of North America—primarily a marine underwriter—became the first company to market insurance coverage on a building and its contents and to underwrite fire risk beyond the city limits.

The success of Philadelphia's mutual fire insurance companies inspired the formation of mutual companies in other cities. The history of large fires in the growth of American cities and seaports gave rise to improvements in fire underwriting. The 1835 fire in New York, in which almost the entire business district burned to the ground, ruined most New York companies. Because of state discriminatory taxes, much of the risk had been underwritten by small local companies that had too little surplus to meet the $18 million loss. Subsequently, the under-writing business grew throughout the nation to spread the risk.

The Factory Mutual Fire Insurance Company made its appearance in New England in 1835.The firm was pioneered by Zachariah Allen, who, along with other mill owners—who had been refused fire insurance for their factories by the mutual companies and found the high premiums of stock companies excessive—formed their own company. Skillful underwriting kept the costs low and, as the system grew, it had an effect far beyond that field, forcing stock companies to reduce their rates. At the same time, the factory mutuals expanded with the growth of American industry until they underwrote the risks of the wide industrial field created by the expansion of American business and extended coverage to include loss from other damage such as lightning. In 1866 the fire companies formed the National Board of Fire Under-writers, which disseminated information on the compensation of agents, fire prevention, and the discovery and prevention of arson.

In 1909 Kansas responded to the widespread belief that fire insurance companies were making excessive profits by enacting a law that gave the state insurance commissioner power over rates charged by fire insurance companies. In 1910 the New York legislature responded to the same belief by appointing a joint committee, under state senator Edwin A. Merritt, Jr., to investigate the insurance companies. The Merritt committee's recommendations for sweeping changes in the industry produced a number of key reforms that served as models for other states.

Fire insurance continued to grow steadily during the twentieth century. In 1948 almost $1.3 billion in premiums were written ($9.7 billion in 2002 dollars); $8.4 billion ($8.7 billion in 2002 dollars) in premiums were written in 2000.Since its beginning in the early 1950s, the trend toward multiple-line coverage and packaging of property and casualty lines in either indivisible or divisible premium contracts has been gathering momentum, both in the growth of homeowners policies and in commercial packages.

Workers' Compensation Insurance

Federal and state laws requiring workers' compensation insurance have created the market for this form of liability insurance, which is sold by property and liability insurance companies. Prior to the development of workers' compensation, an injured worker's legal rights were based upon common law. As the cost and inequity of the common law created public dissatisfaction, changes gradually took place.

Between 1909 and 1913, thirty-one investigatory commissions were established; nine more were set up during the next six years. The consensus from this research was that employers' liability legislation should be replaced with what would become state workers' compensation laws. These laws derived from an entirely new legal concept—liability without regard to fault. Indus-trial accidents and disease have traditionally fell under the theory of occupational risk. Workers' compensation legislation provided for prompt payment of medical and disability benefits and thus eliminated the cost of litigation and encouraged the employer to promote safe working conditions.

Before 1908 a few states had passed narrow compensation acts with low benefits. The first major law, the federal Employee's Compensation Act of 1908, provided benefits for civil employees of the federal government and public employees of the District of Columbia. Ten states passed workers' compensation laws in 1911; all but six states had followed suit by 1920.The trend has been toward more comprehensive coverage for a larger group of workers. In 1934 only 33 percent of the total workforce was covered by workers' compensation; by 1957 the figure had grown to 62 percent. By the mid-1970s about 75 percent was covered. Workers' compensation, the third largest individual line of insurance, had premiums of $23.2 billion in 2000.

Automobile Insurance

The first automobile insurance policy was issued by the Travelers Insurance Companies in 1898, and since then more and more of America's 120 million motorists have recognized its value. In 1973 automobile insurance premiums reached $17.15 billion ($69.46 billion in 2002 dollars) and accounted for 42.3 percent of total property-liability premium volume. Because of inflation, increasing claims frequency, and larger claim settlements, automobile premiums have increased rapidly, and, in 1973, were more than double those of 1965.By the end of the 1970s, most states had made the purchase of automobile insurance by car owners compulsory.

Following consumer unhappiness over automobile insurance rates in the late 1980s and 1990s, some states instituted no-fault automobile insurance to reduce litigation. Typical state no-fault insurance laws permit accident victims to recover such financial losses as medical and hospital expenses and lost income from their own insurance companies and usually place some restrictions on the right to sue.

Life Insurance

Early colonists were skeptical of life insurance. Benjamin Franklin said that men were willing to insure their homes, their goods, and their ships, yet neglected to insure their lives—the most important asset to their families and the most subject to risk. Many considered life insurance a form of gambling and therefore against their religion. As late as 1807, the Massachusetts legislature argued against the morality of life insurance.

The earliest life insurance policies in America were written as a sideline by marine underwriters on the lives of sea captains for the duration of a voyage. The tontine, a life insurance lottery, formed by a group who insured themselves together, first appeared in 1790.When one died, the others divided his assets. Subscribers to the Universal Tontine used their funds to form an insurance company in 1792; the tontine policy was not used again until 1867.

The great expansion of the American economy from 1830 to 1837 made Americans more dependent on financial institutions. The prosperity engendered the founding of large stock insurance companies, but the recession after 1837 gave impetus to the mutuals because the shortage of capital during the depression years made it difficult to sell stock in life insurance companies. Four great mutual companies were founded during that period. The first, the Mutual Life Insurance Company of New York founded in 1843, is the oldest commercial life insurance company in continuous existence.

In 1855 Massachusetts became the first state to establish an insurance department. Elizur Wright, insurance commissioner of Massachusetts from 1858 to 1867 and often called the father of legal reserve life insurance, developed the first American table for establishing policy reserves. By 1890, most states had established insurance departments; by 1940, insurance departments were regulating the business in all states. State regulation of life insurance was firmly established by the Supreme Court in Paul v. Virginia (1868), which declared that life insurance was not interstate commerce and not subject to federal jurisdiction.

As the industry grew after the Civil War, it became more and more important to ensure the mortality experience on which rates were based. Sheppard Homans published the first mortality table, based on the experience of insured lives in America, in 1868.Other developments included the requirement of nonforfeiture provisions under state statues and the growing employment of full-time agents. The fervor for expansion during the period following the Civil War was characterized by extreme competition between companies—particularly proprietary stock companies and mutual companies—and influenced all aspects of the business. Quality was frequently sacrificed for quantity, and the dividend policies of the companies eventually led to abuse.

Competition also encouraged strong leaders and the control of large life insurance companies by powerful executives rather than by owners or investors. For example, although Henry B. Hyde of the Equitable Life Assurance Society had appointed a capable president to succeed him, the controlling stock passed at Hyde's death to his son. His son so misused his control as to bring about much unfavorable publicity and the ultimate transformation of the company into a mutual. In the case of the mutuals, interlocking directorates led to investments in syndicates and in entrepreneurial activities that did not always serve the best interests of the policyholders. Life insurance companies ultimately invested in every phase of the economic expansion of the United States and became competitors of investment bankers.

The climate in which the life insurance business operated between 1890 and 1905—the peak of the trust-busting period—was one of severe public criticism of business and finance. New York legislators could not ignore the dubious practices any longer. In July 1905 the Assembly and Senate concurred in a resolution directing a committee to investigate and examine the business and affairs of life insurance companies operating in the state. With Sen. William W. Armstrong as chairman and Charles Evans Hughes as counsel, the committee issued its report in 1906.Although it declared the life insurance business to be fundamentally sound, it brought to light numerous practices detrimental both to policyholders and to the national economy. The committee's recommendations led to state legislation prohibiting these practices and strengthened the industry.

The professional approach to life insurance was important to its growth. Between 1890 and 1906, several professional associations were formed, including the Actuarial Society of America, the National Association of Life Underwriters, the American Life Convention, and the Association of Life Insurance Presidents. Ownership of U.S. government life insurance by young men entering the military service in World War I caused their families to reappraise their own need for life insurance and stimulated sales—a situation that repeated itself during World War II. The Great Depression of the 1930s also favored the growth of life insurance, and American insurance companies outperformed most businesses during that time.

In the late 1930s the Temporary National Economic Committee's investigations into the sources of economic power in the country endorsed the soundness of the life insurance industry and disclaimed any disposition toward governmental regulation of the industry. However, in United States v. South-eastern Underwriters Association et al. (1944), the Supreme Court held that no commercial enterprise that conducts its business across state lines is wholly beyond the regulatory power of Congress. Subsequently Congress passed the McCarran-Ferguson bill in 1945, which stated that continued regulation and taxation of the insurance industry by the states was in the public interest and that silence on the part of Congress did not stand as any impediment to state regulation. The bill thereby strengthened state regulation and helped to guarantee more qualified insurance management.

Entry into mutual funds and variable annuities by life insurance companies made them subject to the federal securities laws, since these products are considered securities. Agents for the variable annuity and mutual funds must meet the requirements of both state and federal regulation. Simultaneously, changes in financial enterprises began affecting the marketing of life insurance products. Members of the Midwest stock exchange began selling life insurance in 1970, and other exchanges permitted their members to follow this lead. Thus, large life insurance companies began to enter the property and liability insurance field.

Liability insurance became a political issue in the 1980s, when businesses, manufacturers, and physicians fought to reform liability laws to reduce what they considered extensive jury awards. Life insurance also under-went a major change. Once sold only to wage-earning males to provide comfort to would-be widows, new-style life insurance policies became opportunities to accumulate tax-free savings, causing life and annuity insurance sales to boom from $63.2 billion ($137.78 billion in 2002 dollars) in 1980 to $216.5 billion ($277.12 billion in 2002 dollars) in 1992.Brokerage houses began selling life insurance with good returns and long-term growth, attracting money from banks and savings and loans. In 1995 the Supreme Court agreed with the position of the U.S. comptroller of the currency that annuities were investments rather than insurance, opening the door to bank participation in the $72-billion-a-year annuity market.

Group Insurance

Group insurance is a phenomenon of the twentieth century. The Equitable Life Insurance Company issued the first group life insurance policy, covering employees of the Pantasote Leather Company, in June 1911.Since then group insurance has expanded rapidly. By the end of the twentieth century, low-cost group life, health, and disability coverages were available through companies with twenty-five or more employees and through many professional associations. More than two-thirds of all employed persons in the United States are covered by some form of group insurance.

Health Insurance

Health insurance had its start in the mid-nineteenth century. Accident insurance came first, and then the policy-holder began to be protected against loss of income from a limited number of diseases. Although stemming from accident insurance, life insurance companies are the primary marketers of modern health insurance. These companies are committed to group life insurance, which pairs naturally with health insurance.

Rail and steamboat accidents in the mid-nineteenth century precipitated the first demand for an insurance policy to protect against loss of income because of accident. The Franklin Health Assurance Company of Massachusetts is credited with being the first insurer to write accident insurance in America in 1850.However, the Travelers Insurance Company, founded in 1863, was the first company in America to write health insurance, providing a schedule of stated benefits payable to the insured for each illness or injury. The Fidelity and Casualty Company of New York issued the first contract to protect against loss of income from accident and from certain diseases (1891).

Workers' compensation laws, first effectively enacted by the federal government in 1908, stimulated an interest in group health insurance contracts for illness and non-work-related injuries not covered by the law; in 1914 the Metropolitan Life Insurance Company issued the first group health contract, covering its home office employees. The economic depression of the 1930s engendered a wide concern for individual and family security, stimulating group health insurance sales. What became Blue Cross in 1948 began when a group of schoolteachers entered an agreement with Baylor Hospital in Dallas, Texas, to provide hospital care on a prepayment basis. In response, traditional insurance companies also developed reimbursement policies for hospital and surgical care.

During World War II the fringe benefit became a significant element in collective bargaining, and group health insurance became an important part of fringe-benefit packages. Sharply escalating costs for health care after the war prompted continued improvement of health insurance. Perhaps most significant was the development of major medical insurance in response to the family's need for protection against serious and prolonged illness. During the 1970s, health insurance companies developed dental insurance plans that provided scheduled benefits for various types of dental surgery. Some companies added payments during the 1980s and 1990s for routine dental checkups or teeth cleaning.

Health insurers found themselves embroiled in a major debate after the 1992 election, when the administration of President Bill Clinton argued that the insurance industry's practices harmed the medical community. President Clinton and First Lady Hillary Rodham Clinton favored a competitive model generally known as managed competition, but the insurance industry mobilized a successful television campaign against it. Large insurers, meanwhile, responded by developing health maintenance organizations to manage care and costs and halt the year-to-year double-digit rise in medical costs.

A string of catastrophic claims in the 1980s and 1990s resulting from major natural disasters threatened the industry far more than any possible federal regulation. Hurricane Hugo caused $4.2 billion in insured losses in 1989—the first hurricane to cause more than $1 billion in losses—and three years later Hurricane Andrew produced $16.5 billion ($21.12 billion in 2002 dollars) in insured losses. Altogether, the insurance industry counted thirty-six catastrophes in 1992, resulting in $22.9 billion ($29.3 billion in 2002 dollars) in losses. An earthquake in California in 1989 and riots in Los Angeles in 1992 incurred insured losses of $1.1 billion ($1.41 billion in 2002 dollars).Flooding of the Missouri and Mississippi rivers and tributaries caused another $1 billion in privately insured losses.

Despite these challenges, during the late 1980s and early 1990s the industry proved itself durable and adaptive, and greatly expanded the risks that individuals or businesses can insure against: automobile, home, life, health, annuities, disability, workers' compensation, nursing home, flood, earthquake, and numerous specific liabilities. As the industry has grown, insurance has become a major expense for most Americans. U.S. households in 1992 spent 6.3 percent of their income on automobile, home, health, and other forms of insurance coverage. The United States is the largest insurance market in the world, accounting for almost one-third of all insurance expenditures. In 1994, premiums totaled $561.7 billion ($678.93 in 2002 dollars)—$316.8 billion for life and health and $244.9 billion for property and casualty, a total equal to Spain's annual economic output.

Insurance companies invest billions of dollars in credit and equity markets and employ nearly 2.2 million people in 4,000 companies. The collapse of several major national companies, including the $18 billion Executive Life, prompted calls for federal regulation that the politically powerful insurance industry successfully opposed.

BIBLIOGRAPHY

Bainbridge, John. Biography of an Idea: The Story of Mutual Fire and Casualty Insurance. Garden City, N.Y.: Doubleday, 1952.

Black, Samuel P., Jr. Entrepreneurship and Innovation in Automobile Insurance: Samuel P. Black, Jr. and the Rise of Erie Insurance. New York: Routledge, 2001.

Clough, Shepard B. A Century of American Life Insurance: A History of the Mutual Life Insurance Company of New York, 1843–1943. New York: Columbia University Press, 1946.

Cunningham, Robert, III. The Blues: A History of the Blue Cross and Blue Shield System. DeKalb: Northern Illinois University Press, 1997.

James, Marquis. The Metropolitan Life: A Study in Business Growth. New York: Viking Press, 1947.

Huber, Peter W. Liability: The Legal Revolution and its Consequences. New York: Basic Books, 1988.

Schulte, Gary. The Fall of First Executive: The House that Fred Carr Built. New York: Harper Business, 1991.

BrentSchondelmeyer

EdmundZalinski/c. w.

See alsoBanking ; Disasters ; Earthquakes ; Fires ; Floods and Flood Control ; Health Care ; Health Insurance ; Health Maintenance Organizations ; Hurricanes ; Medicare and Medicaid ; Social Security .

INSURANCE

A contract whereby, for specified consideration, one party undertakes to compensate the other for a loss relating to a particular subject as a result of the occurrence of designated hazards.

The normal activities of daily life carry the risk of enormous financial loss. Many persons are willing to pay a small amount for protection against certain risks because that protection provides valuable peace of mind. The term insurance describes any measure taken for protection against risks. When insurance takes the form of a contract in an insurance policy, it is subject to requirements in statutes, administrative agency regulations, and court decisions.

In an insurance contract, one party, theinsured, pays a specified amount of money, called a premium, to another party, the insurer. The insurer, in turn, agrees to compensate the insured for specific future losses. The losses covered are listed in the contract, and the contract is called a policy.

When an insured suffers a loss or damage that is covered in the policy, the insured can collect on the proceeds of the policy by filing a claim, or request for coverage, with the insurance company. The company then decides whether or not to pay the claim. The recipient of any proceeds from the policy is called the beneficiary. The beneficiary can be the insured person or other persons designated by the insured.

A contract is considered to be insurance if it distributes risk among a large number of persons through an enterprise that is engaged primarily in the business of insurance. Warranties or service contracts for merchandise, for example, do not constitute insurance. They are not issued by insurance companies, and the risk distribution in the transaction is incidental to the purchase of the merchandise. Warranties and service contracts are thus exempt from strict insurance laws and regulations.

The business of insurance is sustained by a complex system of risk analysis. Generally, this analysis involves anticipating the likelihood of a particular loss and charging enough in premiums to guarantee that insured losses can be paid. Insurance companies collect the premiums for a certain type of insurance policy and use them to pay the few individuals who suffer losses that are insured by that type of policy.

Most insurance is provided by private corporations, but some is provided by the government. For example, the federal deposit insurance corporation (FDIC) was established by Congress to insure bank deposits. The federal government provides life insurance to military service personnel. Congress and the states jointly fund medicaid and medicare, which are health insurance programs for persons who are disabled or elderly. Most states offer health insurance to qualified persons who are indigent.

Government-issued insurance is regulated like private insurance, but the two are very different. Most recipients of government insurance do not have to pay premiums, but they also do not receive the same level of coverage available under private insurance policies. Government-issued insurance is granted by the legislature, not bargained for with a private insurance company, and it can be taken away by an act of the legislature. However, if a legislature issues insurance, it cannot refuse it to a person who qualifies for it.

History

The first examples of insurance related to marine activities. In many ancient societies, merchants and traders pledged their ships or cargo as security for loans. In Babylon creditors charged higher interest rates to merchants and traders in exchange for a promise to forgive the loan if the ship was robbed by pirates or was captured and held for ransom.

In postmedieval England, local groups of working people banded together to create "friendly societies," forerunners of the modern insurance companies. Members of the friendly societies made regular contributions to a common fund, which was used to pay for losses suffered by members. The contributions were determined without reference to a member's age, and without precise identification of what claims would be covered. Without a system to anticipate risks and potential liability, many of the first friendly societies were unable to pay claims, and many eventually disbanded. Insurance gradually came to be seen as a matter best handled by a company in the business of providing insurance.

Insurance companies began to operate for profit in England during the seventeenth century. They devised tables to mathematically predict losses based on various data, including the characteristics of the insured and the probability of loss related to particular risks. These calculations made it possible for insurance companies to anticipate the likelihood of claims, and this made the business of insurance reliable and profitable.

Gene Testing

When a person applies for medical, life, or disability insurance, the insurance company typically requires the disclosure of preexisting medical conditions and a family medical history. In some cases the applicant must undergo a physical examination. Based on this information, the insurance company decides whether to offer coverage and, if so, at what price.

Breakthroughs in genetics now allow persons to be tested for rare medical conditions such as cystic fibrosis and Huntington's disease. In addition, genetic testing can reveal an increased risk of more common conditions, including breast, colon, and prostate cancer; lymphoma; and leukemia. Concerns have been raised that once these tests become affordable, insurance companies will use the results to deny coverage.

Research studies published in the 1990s indicate that persons already have been denied insurance coverage because of the risk of genetic disease. The prospect of widespread genetic discrimination troubles many professionals in the medical and legal communities. It is unfair, they charge, to deny a person coverage or to charge higher premiums, based on a potential risk of genetic disease that the person is powerless to modify.

The insurance industry, which currently collects medical information on genetic disease through the inspection of medical records and family histories, responds that a fundamental principle in writing insurance is charging people rates that reflect their risks. This means that each applicant pays the fairest possible price, based on her individual characteristics. The industry also notes that the concerns about genetic testing do not come into play with large-group health plans, where rates are based on methods other than individual assessments.

cross-references

Genetic Screening.

The British Parliament granted a monopoly over the business of insurance in colonial America to two English corporations, London Assurance and Royal Exchange. During the 1760s, colonial legislatures gave a few American insurance companies permission to operate. Since the Revolutionary War, U.S. insurance companies have grown in number and size, with most offering to insure against a wide range of risks.

Regulation and Control

Until the middle of the twentieth century, insurance companies in the United States were relatively free from federal regulation. According to the U.S. Supreme Court in Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L. Ed. 357 (1868), the issuing of an insurance policy did not constitute a commercial transaction. This meant that states had the power to regulate the business of insurance. In 1944 the high court held in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440, that insurance did, in some cases, constitute a commercial transaction. This meant that Congress had the power to regulate it. The South-Eastern holding made the business of insurance subject to federal laws on rate fixing and monopolies.

Insurance is now governed by a blend of statutes, administrative agency regulations, and court decisions. State statutes often control premium rates, prevent unfair practices by insurers, and guard against the financial insolvency of insurers to protect insureds. At the federal level, the mccarran-ferguson act (Pub. L. No. 79-15, 59 Stat. 33 [1945] [codified at 15 U.S.C.A. §§ 1011–1015 (1988)]) permits states to retain regulatory control over insurance, as long as their laws and regulations do not conflict with federal antitrust laws on rate fixing, rate discrimination, and monopolies.

In most states, an administrative agency created by the state legislature devises rules to cover procedural details that are missing from the statutory framework. To do business in a state, an insurer must obtain a license through a registration process. This process is usually managed by the state administrative agency. The same state agency may also be charged with the enforcement of insurance regulations and statutes.

Administrative agency regulations are many and varied. Insurance companies must submit to the governing agency yearly financial reports regarding their economic stability. This requirement allows the agency to anticipate potential insolvency and to protect the interests of insureds. Agency regulations may specify the types of insurance policies that are acceptable in the state, although many states make these declarations in statutes. The administrative agency is also responsible for reviewing the competence and ethics of insurance company employees.

The judicial branches of governments also shape insurance law. Courts are often asked to resolve disputes between the parties to an insurance contract, and disputes with third parties. Court decisions interpret the statutes and regulations based on the facts of the case, creating many rules that must be followed by insurers and insureds.

Insurance companies may be penalized for violating statutes or regulations. Penalties for misconduct include fines and the loss or suspension of the company's business license. In some states, if a court finds that an insurer's denial of coverage or refusal to defend an insured in a lawsuit was unreasonable, the insurance company may be required to pay court costs, attorneys' fees, and a percentage beyond the insured's recovery.

Types of Insurance

Insurance companies create insurance policies by grouping risks according to their focus. This provides a measure of uniformity in the risks that are covered by a type of policy, which in turn allows insurers to anticipate their potential losses and to set premiums accordingly. The most common forms of insurance policies include life, health, automobile, homeowners' and renters', personal property, fire and casualty, marine, and inland marine policies.

Life insurance provides financial benefits to a designated person upon the death of the insured. Many different forms of life insurance are issued. Some provide for payment only upon the death of the insured; others allow an insured to collect proceeds before death.

A person may purchase life insurance on his or her own life for the benefit of a third person or persons. Individuals may even purchase life insurance on the life of another person. For example, a wife may purchase life insurance that will provide benefits to her upon the death of her husband. This kind of policy is commonly obtained by spouses and by parents insuring themselves against the death of a child. However, individuals may only purchase life insurance on the life of another person and name themselves beneficiary when there are reasonable grounds to believe that they can expect some benefit from the continued life of the insured. This means that some familial or financial relationship must unite the beneficiary and the insured. For example, a person may not purchase life insurance on the life of a stranger in the hope that the stranger will suffer a fatal accident.

Health insurance policies cover only specified risks. Generally, they pay for the expenses incurred from bodily injury, disability, sickness, and accidental death. Health insurance may be purchased for one's self and for others.

All automobile insurance policies contain liability insurance, which is insurance against injury to another person or against damage to another person's vehicle caused by the insured's vehicle. Auto insurance may also pay for the loss of, or damage to, the insured's motor vehicle. Most states require that all drivers carry, at a minimum, liability insurance under a no-fault scheme. In states that recognize no-fault insurance, damages resulting from an accident are paid for by the insurers, and the drivers do not have to go to court to settle the issue of damages. Drivers in these states may bring suit over an accident only in cases of egregious conduct, or where medical or repair costs exceed an amount defined by statute.

Homeowners' insurance protects homeowners from losses relating to their dwelling, including damage to the dwelling; personal liability for injury to visitors; and loss of, or damage to, property in and around the dwelling. Renters' insurance covers many of the same risks for persons who live in rented dwellings.

As its name would suggest, personal property insurance protects against the loss of, or damage to, certain items of personal property. It is useful when the liability limit on a homeowner's policy does not cover the value of a particular item or items. For example, the owner of an original painting by Pablo Picasso might wish to obtain, in addition to a homeowner's policy, a separate personal property policy to insure against loss of, or damage to, the painting.

Businesses can insure against damage and liability to others with fire and casualty insurance policies. Fire insurance policies cover damage caused by fire, explosions, earthquakes, lightning, water, wind, rain, collisions, and riots. Casualty insurance protects the insured against a variety of losses, including those related to legal liability, burglary and theft, accidents, property damage, injury to workers, and insurance on credit extended to others. Fidelity and surety bonds are temporary, specialized forms of casualty insurance. A fidelity bond insures against losses relating to the dishonesty of employees, and a surety bond provides protection to a business if it fails to fulfill its contractual obligations.

Marine insurance policies insure transporters and owners of cargo shipped on an ocean, a sea, or a navigable waterway. Marine risks include damage to cargo, damage to the vessel, and injuries to passengers.

Inland marine insurance is used for the transportation of goods on land and on land-locked lakes.

Many other types of insurance are also issued. Group health insurance plans are usually offered by employers to their employees. A person may purchase additional insurance to cover losses in excess of a stated amount or in excess of coverage provided by a particular insurance policy. Air-travel insurance provides life insurance benefits to a named beneficiary if the insured dies as a result of the specified airplane flight. Flood insurance is not included in most homeowners' policies, but it can be purchased separately. Mortgage insurance requires the insurer to make mortgage payments when the insured is unable to do so because of death or disability.

Contract and Policy

An insurance contract cannot cover all conceivable risks. An insurance contract that violates a statute, is contrary to public policy, or plays a part in some prohibited activity will be held unenforceable in court. A contract that protects against the loss of burglary tools, for example, is contrary to public policy and thus unenforceable.

Insurable Interest

To qualify for an insurance policy, the insured must have an insurable interest, meaning that the insured must derive some benefit from the continued preservation of the article insured, or stand to suffer some loss as a result of that article's loss or destruction. Life insurance requires some familial and pecuniary relationship between the insured and the beneficiary. Property insurance requires that the insured must simply have a lawful interest in the safety or preservation of the property.

Premiums

Different types of policies require different premiums based on the degree of risk that the situation presents. For example, a policy insuring a homeowner for all risks associated with a home valued at $200,000 requires a higher premium than one insuring a boat valued at $20,000. Although liability for injuries to others might be similar under both policies, the cost of replacing or repairing the boat would be less than the cost of repairing or replacing the home, and this difference is reflected in the premium paid by the insured.

Premium rates also depend on characteristics of the insured. For example, a person with a poor driving record generally has to pay more for auto insurance than does a person with a good driving record. Furthermore, insurers are free to deny policies to persons who present an unacceptable risk. For example, most insurance companies do not offer life or health insurance to persons who have been diagnosed with a terminal illness.

Claims

The most common issue in insurance disputes is whether the insurer is obligated to pay a claim. The determination of the insurer's obligation depends on many factors, such as the circumstances surrounding the loss and the precise coverage of the insurance policy. If a dispute arises over the language of the policy, the general rule is that a court should choose the interpretation that is most favorable to the insured. Many insurance contracts contain an incontestability clause to protect the insured. This clause provides that the insurer loses the right to contest the validity of the contract after a specified period of time.

An insurance company may deny or cancel coverage if the insured party concealed or misrepresented a material fact in the policy application. If an applicant presents an unacceptably high risk of loss for an insurance company, the company may deny the application or charge prohibitively high premiums. A company may cancel a policy if the insured fails to make payments. It also may refuse to pay a claim if the insured intentionally caused the loss or damage. However, if the insurer knows that it has the right to rescind a policy or to deny a claim, but conveys to the insured that it has voluntarily surrendered such right, the insured may claim that the insurer waived its right to contest a claim.

An insurer may have a duty to defend an insured in a lawsuit filed against the insured by a third party. This duty usually arises if the claims in the suit against the insured fall within the coverage of a liability policy.

If a third party caused a loss covered by a policy, the insurance company may have the right to sue the third party in place of the insured. This right is called subrogation, and it is designed to make the party that is responsible for a loss bear the burden of the loss. It also prevents an insured from recovering twice: once from the insurance company, and once from the responsible party.

An insurance company can subrogate claims only on certain types of policies. Property and liability insurance policies allow subrogation because the basis for the payment of claims is indemnification, or reimbursement, of the insured for losses. Conversely, life insurance policies do not allow subrogation. Life insurance does not indemnify an insured for a loss that can be measured in dollars. Rather, it is a form of investment for the insured and the insured's beneficiaries. A life insurance policy pays only a fixed sum of money to the beneficiary and does not cover any liability to a third party. Under such a policy, the insured stands no chance of double recovery, and the insurance company has no need to sue a third party if it must pay a claim.

Terrorism Insurance

Following the attacks on the World Trade Center and the Pentagon, insurance premiums skyrocketed, especially for tenants of highly visible landmarks like sports arenas and skyscrapers. The Terrorism Risk Insurance Act of 2002 (TRIA), Pub. L. No. 107–297, 116 Stat. 2322, established a temporary federal program providing for a shared public and private compensation for insured losses resulting from acts of terrorism. The act, which is valid only for three years, provides that insurers must make terrorism coverage available and must provide policy-holders with a clear and conspicuous disclosure of the premium charged for losses covered by the program. TRIA caps the exposure of insurance carriers to future acts of foreign terrorism, leaving the federal government to reimburse the insurance company for excess losses up to a maximum of $100 billion per year. Under TRIA, the treasury department covers 90 percent of terrorism claims when an insurer's exposure exceeds 7 percent of its commercial premiums in 2003, 10 percent of premiums in 2004, and 15 percent in 2005.

TRIA defines an act of terrorism as any act that is certified by the U.S. secretary of the treasury, in concurrence with the U.S. secretary of state and U.S. attorney general. The act of terror must result in damage within the United States, or outside the United States in the case of an airplane or a U.S. mission. A terrorist act must be committed by an individual or individuals acting on behalf of any foreign person or foreign interest. An event must be a violent act or an act that is dangerous to human life, property, or infrastructure. Nuclear, biological, and chemical attacks are not covered, and an event cannot be certified as an act of terrorism unless the total damages exceed $5 million.

further readings

Cady, Thomas C., and Christy H. Smith. 1995. "West Virginia's Automobile Insurance Policy Laws: A Practitioner's Guide." West Virginia Law Review 97.

Robinson, Eric L. 1992. "The Oregon Basic Health Services Act: A Model for State Reform?" Vanderbilt Law Review 45.

Insurance

OPERATION

BUSINESS CYCLE

INNOVATIONS

REGULATION

BIBLIOGRAPHY

Risk is ubiquitous in the world and is generally considered a burden. Risk management, the art of coping with this onus, takes several forms: (1) doing nothing, or bearing the burden; (2) avoiding the risk, which includes reducing or quitting the risky activity; (3) spending resources to reduce the risk’s implication or probability, such as self-insurance; (4) hedging; and (5) transferring the burden to someone else, which is insurance. Some risks, like individual and group extinction, are so important that one could study history as the theme of risk management or view culture and social institutions like marriage and state, as evolving in response to the challenge of risks. Risk management is not special to humans—for example, ants spend effort and hoard excessive food, a form of self-insurance that humans parallel by precautionary saving—but insurance is a human invention.

Insurance is a transaction that transfers a specified risk to another party for a fee, called a “premium.” In return the insurer provides the insured with a promise of indemnification (insurance company payment for damages) should the specified event occur. The specified events vary widely and comprise the different lines of the insurance industry: marine, property, vehicle, liability, life, and health, but the basic structure is the same. The amount of indemnification may be event-dependent (small or large fire) or fixed (life). In life insurance the event specified is either death or longevity. Insurance is both a consumption good consumed by households and an intermediate input purchased by firms. In property insurance the business is split about equally between households and firms. As can be gleaned from a cross-section as in Table 1, insurance is growing faster than national product, suggesting that it is a luxury good (income elasticity larger than one) and a “super normal” input. It may imply that adequate development of the insurance industry is vital for economic development and growth. By providing assets whose value is contingent on a given random state of nature, insurance helps make the market more complete and therefore more efficient. Without insurance availability some useful transactions and investments would be curtailed or thwarted.

The demand for insurance is theoretically explained by risk aversion. A risk-averse person faced with a probability p of loss D, like a house that may burn, is willing to insure against that risk even at a premium higher than the mean damage pD. Firms demand insurance to placate their risk-averse owners and other parties, like customers, suppliers, employees, and lenders, thereby securing better contract terms with them.

Insurance differs from gambling by some of its fundamentals designed to restrain devious incentives. The purchaser must have “insurable interest,” that is interest in the well-being of the insured asset (owner, mortgage lender). Other than in the case of life insurance, indemnification must be bounded by the value of the asset, including by double coverage. In return for indemnification, the insured surrenders to the insurer subrogation of all his relevant legal rights to claim from other parties. Still, the insurance market is burdened by fraud and by imperfections like adverse selection, where the firm cannot completely ascertain the risk of each customer thereby charging a premium that attracts the bad risks more than the good, and by moral hazard, where after the insurance transaction the insured may wish to increase his or her risk.

The supply side raises two puzzles. First, what is the relative advantage of the insurer in bearing risks over its clients? Second, if indeed it has some such relative advantage, why does it seek to insure itself by purchasing reinsurance? Reinsurance is a transaction where an insurer buys insurance from another insurer thereby transferring, or ceding, some of its risks and business to others. The remainder is called retention. Reinsurance is a global industry with some large specialized firms.

The production of insurance can be done in two distinct modes: mutual and capital-backed. A mutual is an association of members-customers who barter in insurance and pledge to indemnify each other if damaged. This insurance is backed by members’ commitments and capital. It must be a natural and intuitive arrangement since it goes back to antiquity. Second-century CE agreements among boat or donkey owners are legally analyzed in the Talmud.

Even a two-person mutual is advantageous. If each one has total property W and faces an independent risk of losing value D (like a house by fire) with probability p the advantage of such a mutual is:

The first line in (1) is the expected utility of each person in the 2-member fire-mutual, while the second line is his expected utility bearing the risk alone. The inequality follows from the concavity of the utility function that is implied by risk aversion.

The agreement improves with any additional member. The attractiveness of an n -member mutual may be explained by the expediency of (risky) portfolio diversification. Instead of holding one risky asset valued D, the agreement affords the member to hold the risk of n small assets, each valued D/n, which is always better for a risk-averse. In (1) the two fire events were assumed independent. Partial positive dependence leaves the inequality intact but reduces the advantage. Most mutuals collect a provisionary premium upfront and reassess members after risks’ realization, collecting more or refunding some.

However the main mode of insurance provision nowadays is by a stock company where insurance is backed by equity capital. Such production dates to the fourteenth-century marine transaction that combined banking and insurance. In such maritime loans the lender would finance a trade transaction but waive the loan if the vessel is lost. It appeared in two variants regarding the collateral: bottomry (the vessel) and respondentia (the cargo). While in a mutual the number of owners-partners must vary jointly with that of the insureds, in the stock firm the two are independent.

OPERATION

Assume schematically an insurance firm that sells only one type of policy against the risk of, say, fire, which occurs independently with the same known probability p of total loss D for each customer. Let V be the firm’s capital before any insurance transaction, serving as a cushion to enhance the value of its policies-promises. Suppose n such policies are sold at price s + c where cn covers the cost of running the business. Usually s would exceed pD, the expected loss (and indemnification), and the balance is a safety factor that goes to profit and tax. The revenue ns is called unearned reserve because it is designated for probable coming claims. As time elapses the uncertainty regarding the year’s fires is gradually cleared, more and more of the reserve becomes earned reserve, owned by the firm and part of its annual profit and of V. The firm’s funds V+ ns are meanwhile invested and bear a random rate of return r thereby generating a major part of its profits. The number of fires that occur is a random variable k. If the two random variables happen to have realizations R and K, then the firm’s net worth at the year end is (V + ns )(1 + R ) – KD. If it is negative, the firm’s future promises are worthless so it is declared insolvent and ceases operation.

The risk of failure is real and troubling. In the United States during the 1990s approximately 70 firms, or 0.8 percent of all insurance firms, failed within a year. The condition (V + ns )(1 + r ) – KD < 0 points out the reasons for failure: low V ; low premia s ; low R ; large K. The dependence of the exante probability of failure Prob((V + ns )(1 + r ) – KD < 0) on the magnitude of n is less clear-cut. Conventional wisdom attributes the relative advantage of the stock insurance firm in bearing risk to the multitude of clients and the law of large numbers. However, whether the numbers (n ) in insurance are large enough to warrant this explanation is an empirical question. According to the 1963 work of Paul A. Samuelson, the advantage of the insurance firm lies in the multitude of its owners. Spreading a given risk over many bearing shoulders (stockholders) tends to evaporate its burden. In 1970 Kenneth J. Arrow and Robert C. Lind analyzed a large risky public project, where the risk was spread over the population, and demonstrated it for a single risk. This result explains the advantage that governments may have in insuring against catastrophic losses. It does not address the issue faced by the insurance industry of insuring against multiple risks. In this light, reinsurance is a handy mechanism to spread risks.

BUSINESS CYCLE

The insurance industry manifests a peculiar business cycle of its own. In times of hard market, prices are high and yet insurance is hard to get as firms offer only constrained extent of coverage and carefully select the clients. The result is high profits and rise in surpluses. That by itself may lead to the opposite, soft market, as the high surplus warrants more business and risk taking so prices go down to attract more and necessarily lower-grade customers. Profits go down, equities are depleted, and the cycle repeats itself.

INNOVATIONS

Since the 1990s a rise in world catastrophes like earthquakes, hurricanes, and terrorist activities drained world insurance surplus and constrained the industry’s production capacity. In response financial innovations were introduced as substitutes for equity capital. The simplest is catastrophe bonds. An insurer issues such a bond, and the repayment of the interest and/or the principal is made contingent on a specified event like the catastrophe cost (for the insurer, for the region, or for the world) not exceeding a predetermined number. It shifts some of the risk from shareholders to bond holders and is a modern resurrection of the Middle Ages’ maritime loan-cum-insurance. More complicated instruments are call and put options whose strike price is some catastrophe number.

REGULATION

All over the world, insurance industries are regulated. The raison d’etre of regulation is the risk of insurers’ insolvency. Such occurrence would disrupt the economy, prevent gains from trade in risk-bearing, and cause personal loss and suffering to consumers. Although insurers themselves would suffer in case of insolvency, they can not be fully counted on to take steps to avoid it because of several market imperfections. First, because of the limited liability of a stock company, stockholders would not have to bear, in case of insolvency, its full cost but lose at most their equity. That weakens stockholders’ incentives to avoid excessive risk. Second, moral hazard and agency problems develop. After issuing policies purchased under presentation of a certain risk level, the insurer may wish to assume more risk because part of its cost is borne by the insured policyholders. Regulators issue guidelines regarding the extent of underwriting, prices, and investment policy. They monitor the business and upon detecting signs of trouble intervene by issuing various directives.

SEE ALSO Adverse Selection; Business Cycles, Real; Gambling; Insurance Industry; Moral Hazard; Regulation

BIBLIOGRAPHY

Arrow, Kenneth J., and Robert C. Lind. 1970. Uncertainty and the Evaluation of Public Investment Decisions. American Economic Review 60: 364–378.

Dionne, Georges, ed. 2000. Handbook of Insurance. Norwell, MA: Kluwer.

Samuelson, Paul A. 1966. Risk and Uncertainty: A Fallacy of Large Numbers. In Collected Scientific Papers of Paul A. Samuelson, ed. Joseph E. Stiglitz. Cambridge, MA: MIT Press.

Winter, Ralph A. 1991. Solvency Regulation and the Property-Liability Insurance Cycle. Economic Inquiry 29: 458–471.

Yuval Shilony

Insurance

AEGON N.V.

AETNA LIFE AND CASUALTY COMPANY

ALLIANZ AG HOLDING

AMERICAN FAMILY CORPORATION

AMERICAN FINANCIAL CORPORATION

AMERICAN GENERAL CORPORATION

AMERICAN INTERNATIONAL GROUP, INC.

N.V. AMEV

AON CORPORATION

ASSICURAZIONI GENERALI SPA

AXA

BERKSHIRE HATHAWAY INC.

CAPITAL HOLDING CORPORATION

THE CHUBB CORPORATION

CIGNA CORPORATION

CNA FINANCIAL CORPORATION

COMMERCIAL UNION PLC

CONNECTICUT MUTUAL LIFE INSURANCE COMPANY

THE CONTINENTAL CORPORATION

EMPIRE BLUE CROSS AND BLUE SHIELD

THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES

FIREMAN’S FUND INSURANCE COMPANY

FIRST EXECUTIVE CORPORATION

GENERAL ACCIDENT PLC

GENERAL RE CORPORATION

GREAT-WEST LIFECO INC.

THE HOME INSURANCE COMPANY

JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY

KEMPER CORPORATION

LEGAL & GENERAL GROUP PLC

LINCOLN NATIONAL CORPORATION

LLOYD’S OF LONDON

MARSH & MCLENNAN COMPANIES, INC.

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY

THE MEIJI MUTUAL LIFE INSURANCE COMPANY

METROPOLITAN LIFE INSURANCE COMPANY

MITSUI MARINE AND FIRE INSURANCE COMPANY, LIMITED

MITSUI MUTUAL LIFE INSURANCE COMPANY

MUNICH RE (MÜNCHENER RÜCKVERSICHERUNGS-GESELLSCHAFT)

THE MUTUAL BENEFIT LIFE INSURANCE COMPANY

THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK

NATIONALE-NEDERLANDEN N.V.

NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY

NEW YORK LIFE INSURANCE COMPANY

NIPPON LIFE INSURANCE COMPANY

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY

PENNSYLVANIA BLUE SHIELD

PRINCIPAL MUTUAL LIFE INSURANCE COMPANY

PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY OF AMERICA

PRUDENTIAL CORPORATION PLC

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

RELIANCE GROUP HOLDINGS, INC.

RIUNIONE ADRIATICA DI SICURTÁ SPA

ROYAL INSURANCE HOLDINGS PLC

SAFECO CORPORATION

THE ST. PAUL COMPANIES, INC.

THE STANDARD LIFE ASSURANCE COMPANY

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

SUMITOMO LIFE INSURANCE COMPANY

THE SUMITOMO MARINE AND FIRE INSURANCE COMPANY, LIMITED

SUN ALLIANCE GROUP PLC

SWISS REINSURANCE COMPANY (SCHWEIZERISCHE RÜCKVERSICHERUNGS-GESELLSCHAFT)

TEACHERS INSURANCE AND ANNUITY ASSOCIATION

THE TOKIO MARINE AND FIRE INSURANCE CO., LTD.

THE TRAVELERS CORPORATION

UNION DES ASSURANCES DE PARIS

USF&G CORPORATION

VICTORIA HOLDING AG

“WINTERTHUR” SCHWEIZERISCHE VERSICHERUNGS-GESELLSCHAFT

THE YASUDA FIRE AND MARINE INSURANCE COMPANY, LIMITED

THE YASUDA MUTUAL LIFE INSURANCE COMPANY, LIMITED

“ZÜRICH” VERSICHERUNGS-GESELLSCHAFT

in·sure / inˈshoŏr/ • v. [tr.] arrange for compensation in the event of damage to or loss of (property), or injury to or the death of (someone), in exchange for regular advance payments to a company or government agency: the table should be insured for $2,500 the company had insured itself against a fall of the dollar | [intr.] businesses can insure against exchange rate fluctuations. ∎  provide insurance coverage with respect to: subsidiaries set up to insure the risks of a group of companies. ∎  (insure someone against) fig. secure or protect someone against (a possible contingency): by appeasing Celia they might insure themselves against further misfortune | [intr.] such changes could insure against further violence and unrest. DERIVATIVES: in·sur·a·bil·i·ty / -ˌshoŏrəˈbilitē/ n. in·sur·a·ble adj.

in·sur·ance / inˈshoŏrəns/ • n. 1. a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium: many new borrowers take out insurance against unemployment or sickness. ∎  the business of providing such an arrangement: Howard is in insurance. ∎  money paid for this: my insurance has gone up. ∎  money paid out as compensation under such an arrangement: when will I be able to collect the insurance? ∎  an insurance policy. 2. a thing providing protection against a possible eventuality: seeking closer ties with other oil-supplying nations as insurance against disruption of Middle East supplies young people are not an insurance against loneliness in old age.

insurance Procedure whereby one party (the insured) transfers the financial consequences of risk of loss to another (the insurer) for a consideration (the premium). Each insured contributes to a common fund, and the losses of the unfortunate few are reimbursed from the fund. Modern practices date back to the 16th and 17th centuries. It covers life, fire, accident, and theft.

insure XV.var. of ENSURE, with substitution of IN-1 for EN-1, established in the sense of securing payment on death or damage (XVII).
So insurance XVII.

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