Insurance and risk management make up an immense global industry. According to a survey conducted by a leading global insurance firm, Swiss Re, worldwide insurance premiums totaled $3.72 trillion in 2006, up about 9.4% from 2005. This is equal to about 7.7% of global GDP. Global life insurance premiums were $2.21 trillion during 2006, while all other types of insurance totaled $1.51 trillion.

In America alone, the insurance business employs about 2.36 million people, and insurance gross premiums totaled $1.1 trillion during 2006, making the U.S. the world’s largest insurance market. Life, health and annuity premiums in the United States totaled about a $619.7 billion in 2006. Property and casualty premiums totaled about $447.8 billion for that year. U.S. life insurance firms held about $4.7 trillion in assets in 2006, according to the Federal Reserve Bank. Approximately 4,500 companies underwrite insurance in America, but the industry is dominated by a handful of major players.

Japan is the world’s second-largest insurance market. According to Swiss Re, total premiums in Japan during 2006 were $460 billion, including $363 billion in life insurance premiums and $97 billion in non-life premiums.

The U.K. is the world’s third-largest market. During 2006, life premiums there were $312 billion and non-life $107 billion. Additional large markets include Germany, France and Italy, in that order.

Elsewhere in the world, emerging markets grew 16.3% in 2006, with the largest emerging markets lying in South and East Asia at $138 in total premiums, representing 20.8% growth over the previous year. Again, these figures are from Swiss Re (www.swissre.com).

Massive sources of insurance company earnings come from annuities and other retirement and investment products, along with profits that insurance underwriters earn on their own assets and reserves. Insurance is unique in the financial services field because, unlike banking and investments, which are regulated by federal agencies such as the Securities and Exchange Commission, insurance is regulated primarily at the state level. This means that insurance firms must deal with up to 50 different sets of state regulations and 50 different state regulatory agencies. At the same time, they must develop dozens of different premium rate structures that appropriately reflect the costs of meeting local risks and fulfilling state requirements. As a result, few insurance underwriters offer all of their insurance products in all 50 states; many do business only in a limited number of states.

Insurance underwriting does not earn consistent levels of profits. Property and casualty insurance companies sometimes face a year of losses, rather than profits, due to natural disasters such as hurricanes, floods or an overly active fire season. Occasionally, insurance underwriters go broke, and firms that rate the financial stability of insurance underwriters always list more than a few that are not financially sound.

During 2005, Hurricanes Katrina and Rita in the U.S. cost U.S. insurance underwriters vast amounts (damages, both insured and non-insured totaled about $58 billion) and created significant controversy over flood insurance in general. Many changes resulted, and insurance underwriters felt compelled to boost rates for many types of insurance, especially in Gulf Coast markets. Despite predictions of damaging hurricane seasons for 2006 and 2007, large losses did not occur, and underwriters earned fat profits. Meanwhile, much of the 2006-2007 hurricane season risk was sold by primary underwriters to hedge funds and reinsurers who buy portions of large high-risk insurance policies.

The insurance industry includes a wide variety of sectors and services. The most obvious are insurance underwriters that cover the risks and issue the policies, along with the agencies that sell insurance. However, there are also large numbers of consulting firms, claims processing firms, data collection firms and myriad other specialized fields serving the industry.

In addition, there are insurance brokers, which have traditionally posted enviable profits. Normally, insurance brokers—companies that are supposed to represent the interests of major corporate clients while finding these customers the best coverage at the best rates—would be little known to the general public. However, scandal rocked the brokerage sector during 2004, and regulators’ efforts to control this sector created significant changes. Meanwhile, some members of the brokerage industry promoted the idea of important changes from within, including the abolition of “incentive payments” from underwriters to brokers, and a focus on acting as advocates for clients.

Recent regulatory changes have heightened competition within the insurance industry—an area in which competition has always been fierce. Massive mergers and acquisitions have resulted, creating financial services mega-firms, many of which offer a complete range of financial services and products to their customers, from checking accounts to investment products to life insurance. For example, banks are slowly gaining market share in the sale of insurance products, particularly annuities and life insurance. Investment companies like Merrill Lynch are eager to sell insurance to their customers as well. Bank holding companies have been aggressively acquiring insurance agencies. Competition will only become more intense. While there are tens of thousands of small insurance industry companies in the U.S. alone, the industry tends to be concentrated in a few hundred major companies, many of which enjoy brands that are household names. A handful of these leading firms, such as AIG, operate on a truly global scale.

Internet Research Tip

Excellent sources of in-depth insurance industry information can be found the following sites: Insurance Information Institute, www.iii.org National Association of Insurance Commissioners, www.naic.org/industry_home.htm (this link takes you directly to the industry information page) National Association of Mutual Insurance Companies, www.namic.org Swiss Re, www.swissre.com (see the "Research and Publications" tab)