Overview of the Insurance Industry
Insurance is designed to protect people, homes, businesses and countries from the impact of risks, should they occur. For the majority of us we come face to face with the need to have insurance on a frequent basis when we do everyday things, like drive a car, take our pet to the vets, travel abroad, visit a doctor or hospital. Less frequent activities or large purchases, (such as buying a house, boat or expensive watch also mean taking out some form of insurance policy).
For a general insurance premium, insurance companies can provide insurance cover to your home or car for example, should disaster befall it. Of course, there are conditions built into the policies for general insurance, and insurance claims are only paid out to policyholders when those conditions have been adhered to by the policyholder. In some cases, insurance is compulsory, (for example in most countries car insurance is compulsory). Driving without valid insurance is against the law. This is to protect other road users, pedestrians, other people’s property and passengers of the car in question. Mortgage companies are unlikely to approve a mortgage application without evidence of a valid building insurance policy to cover a rebuilding cost should a disaster occur. Personal lines insurance is extremely fluid and competitive and in the current economic climate as consumers cut back. The growth of insurance comparison sites may have fuelled this competition further, making it easier for us to shop around for our general insurance needs.
The global insurance industry is impacted by a combination of factors including Global productive output, Global weather and natural disasters. For example, the sovereign debt crisis in the Euro zone means investment in insurance companies and re-insurance rates have fluctuated unpredictably. The macroeconomic environment has seen an impact on both non life and insurance and life insurance premiums. According to the Global Insurance Market Trends 2012 paper by the OECD, in more than half of the OECD reporting countries, real growth in life insurance premiums has reversed. Whereas in the non-life insurance market, more than half of the reporting countries saw an increase in real premium growth.
Recent events influencing non life insurance premiums, include many natural disasters and catastrophic events, which have meant that insurance companies have had to increase premiums in the non life insurance sector. The devastating effects of natural disasters such as floods, earthquakes and tornados seen in Thailand, Australia and the USA have contributed to a need to increase renewal premiums. The cost of insurance claims after a major disaster can be an enormous burden on this sector of the financial services industry. Whilst in principle, insurance operates on the basis that the pool of the many, pay for the claims of the few, catastrophic events such as those mentioned have such a far reaching impact that often insurance companies have no alternative but to increase premiums in many future years to come. Insurance companies will purchase reinsurance protection. however reinsurance companies have had to increase their premiums which has a knock on impact to insurance companies, then intermediaries and policy holders premiums.
Regulations and Legislation also impact the insurance industry. For example, the EU insurance gender equality rules of 2012, mean that insurance companies operating within the EU’s jurisdiction cannot use gender as a factor for rating policies. For example, gender was historically used to rate motor insurance, where actuaries statistics revealed women drivers had fewer accidents than men, and therefore premiums for women drivers were generally lower than men's. Despite this new gender based legislation may ironically see women pay more for their car insurance premiums within EU countries.
In difficult economic conditions, life insurance companies are often hit with people surrendering their policies. Some policies have no surrender value and policy holders need to balance the continued cost of paying into the policy.
Income insurance provides insurance against redundancy and not being able to find employment and/or not being able to work due to sickness or injury. The nature of income protection policies is to provide financial assistance when the policyholder loses their source of income. Like most insurance policies there are conditions and limits that have to be met by the policyholder and insurance company.
Commercial insurance provides insurance cover for property or liability risks and is extremely important form of insurance to ensure that when insurable incidents do happen, a business can continue trading. For small to medium enterprises, the impact on cashflow when disaster strikes can be devastating and in many cases make a business fold. Employers liability insurance is compulsory in the UK, and other forms of liability insurance are advisable. Regulated and qualified advice from a qualified insurance broker should always be sought when seeking commercial or any type of insurance, to ensure that the right levels of cover are obtained that meets businesses needs.