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 $5.19 trillion
in 2018 (the latest data available), up from $4.89 trillion in 2017.
This was equal to about 6.1% of global
GDP.
Global life insurance premiums were
$2.82 trillion during 2018, while all other types of insurance totaled $2.37
trillion.
In America alone, the insurance business employed about 2.73 million
people in 2019.
Gross life and accident
& health insurance premiums in the U.S.
totaled $898.5 billion during 2018
(up from $848.1 billion in 2017), per the National Association of Insurance
Commissioners (NAIC), while property and casualty premiums totaled $676.6 billion
(up substantially from $641.1 billion the previous year.) A large number of companies underwrite
insurance in America, but the industry is dominated by a handful of major
players.
Health insurance premiums paid
in the U.S.
during 2018 totaled $714.7 billion (up from $667.5 billion the
previous year, and much higher than the $382.4 billion posted in 2009),
according to the NAIC.
Premiums on a per capita basis remain very low in much of the world,
pointing to excellent long-term opportunity for expansion of sales of insurance
products of all types, including annuities.
It would be hard to overstate the importance of developing nations, such
as China, India, Brazil and Indonesia, to
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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 $5.19 trillion
in 2018 (the latest data available), up from $4.89 trillion in 2017. This was equal to about 6.1% of global
GDP. Global life insurance premiums were
$2.82 trillion during 2018, while all other types of insurance totaled $2.37
trillion.
In America alone, the insurance business employed about 2.73 million
people in 2019. Gross life and accident
& health insurance premiums in the U.S. totaled $898.5 billion during 2018
(up from $848.1 billion in 2017), per the National Association of Insurance
Commissioners (NAIC), while property and casualty premiums totaled $676.6 billion
(up substantially from $641.1 billion the previous year.) A large number of companies underwrite
insurance in America, but the industry is dominated by a handful of major
players. Health insurance premiums paid
in the U.S. during 2018 totaled $714.7 billion (up from $667.5 billion the
previous year, and much higher than the $382.4 billion posted in 2009),
according to the NAIC.
Premiums on a per capita basis remain very low in much of the world,
pointing to excellent long-term opportunity for expansion of sales of insurance
products of all types, including annuities.
It would be hard to overstate the importance of developing nations, such
as China, India, Brazil and Indonesia, to the future growth of the insurance
industry. Much of the world is still
clearly a fertile field for expansion of insurance companies that are willing
and able to invest time and money in emerging markets. The insurance markets in these areas will be
boosted by a combination of rising household incomes; increasing education and
financial sophistication among consumers; extending life spans; and a tradition
of families relying on personal savings and initiative rather than government
social programs to provide for retirement funds and health care.
Massive amounts of insurance company earnings come from the sale of
annuities and other retirement and investment products, along with profits (or losses)
that insurance underwriters earn on the investment of their own assets and
reserves.
In America, insurance is unique in the financial services field
because, unlike banking and investments which are regulated to a large extent
(although not entirely) by federal agencies, 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, which may vary widely in their
requirements related to allowing an insurance firm to offer policies in their
states. 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. It is a
regulatory and administrative nightmare that limits consumer choices and drives
up overall insurance costs.
Insurance underwriting does not earn consistent levels of profits. A property and casualty insurance company may,
from time-to-time, face a year of losses, rather than profits, due to natural
disasters such as hurricanes, earthquakes or floods. Insurance underwriters also face risks in the
investments that they make with the funds they are holding in reserve against
future payouts. If they make poor
investment choices, it can lead to serious financial problems. 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. While the unusually high number of disasters
in The U.S., Mexico and Caribbean during 2017 resulted in massive payouts by
insurers, including those for losses from hurricanes, earthquakes and the
California’s wine region wildfires, nearly all underwriters were in excellent
financial condition and had very substantial reserves on hand to cover
losses. In addition, most insurance
firms lay-off a substantial portion of potential losses to third-party “reinsurance”
companies and hedge funds willing to take such risks. Consequently, even major disasters may not
put the insurance industry in financial jeopardy.
The insurance industry includes a wide variety of sectors and
services. The most obvious are the 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, consultancies, loss inspectors (“insurance adjusters”) and
myriad other specialized fields serving the industry. In addition, there are insurance brokers,
which have traditionally posted enviable profits. Insurance brokers represent the interests of
corporate clients while finding their customers the best coverage at the best
rates. Elsewhere, banks such as Wells
Fargo are doing reasonably well in the sale of insurance products, particularly
annuities and life insurance. Investment
companies like Merrill Lynch (now part of Bank of America) have been eager to
sell insurance to their customers as well.
While there are tens of thousands of small insurance firms worldwide,
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 top firms operate on a truly global scale.
In the world’s leading economies, regulators are in the process of
forcing vast changes in the regulation and oversight of financial services
firms of all types, including insurance underwriters. The focus is on making risks held by such
firms more transparent and requiring that the firms maintain sufficient levels
of capital to cover potential losses.
The insurance industry has gone through significant scrutiny and oversight
as a result.
Health coverage is
a major component of the insurance field.
Health spending in the U.S., at about 17.8% of Gross Domestic Product
(GDP) in 2019, is projected to grow steadily.
Health care spending in America accounts for a larger share of GDP than
in any other country by a wide margin.
Despite the incredible investment America continues to make in health
care, 8.5% of people in the U.S. (27.5 million) lacked health care coverage for
the entire year of 2018. For some,
insurance was unavailable or unaffordable.
In other cases, a lack of insurance was due to a personal decision not
to pay for it.
In March 2010,
President Obama signed the Patient Protection and Affordable Care Act (ACA),
designed to strengthen insurance company regulation and provide medical
coverage to millions of uninsured Americans.
The act called for sweeping changes.
Provisions taking effect within the first six months of signing included
coverage for adult children up to age 26 on their parents’ policies; making it
unlawful for insurers to place lifetime caps on payouts or deny coverage should
a policy holder become ill; and new policies are required to pay the full cost
of selected preventive care and exempt such care from deductibles.
Online health care insurance “exchanges” began
enabling consumers to shop for health coverage.
A 3.8% unearned income tax is levied on individuals earning more than
$200,000 per year and families earning more than $250,000 per year, to fund the
programs in the act. Consumers whose
annual incomes do not exceed set amounts may receive financial assistance if
they are not insured at work and purchase their own health insurance.
Internet
Research Tip:
Excellent sources of in-depth insurance
industry information can be found at the following sites:
·
Insurance
Information Institute, www.iii.org
·
National
Association of Insurance Commissioners, www.naic.org
·
National
Association of Mutual Insurance Companies, www.namic.org
·
Swiss
Re, www.swissre.com