Insurance involves transferring the risk of suffering a loss from one individual or corporation to another. The insured is the entity that has purchased the insurance policy to shield from an impending risk that may lead to a loss. The insurer is the individual or company which offers to hedge against an impending risk of an insured entity. The insured always pay a given set of money to the insurer which is charged according to the total amount of insurance or the value of the risk. The amount charged by the insurer is called the premium and it is mostly charged on defined intervals like after one month or quarterly or half-yearly depending on the agreement between the two parties. All the agreements to the insurance contract are contained in a document called the insurance policy. Insurance is used to hedge against an impending risk by managing the risk to some level that can be quantified in monetary terms and thus the insurer can indemnify the insured in case he or she suffers a loss (Dionne, 1992).
The insurance policy contains all documents and agreements between the insurance company and the insured. The conditions under which the amount insured can be paid and the parties entitled to the indemnity are also included. Insurance plays a crucial role in society because it indemnifies an individual or a corporation that has suffered a loss. Insurance companies are on the rise nowadays as people are enlightened to take insurance policies as a means to hedge any impending risk that may lead to a loss. The insurance act usually involves pooling funds from different entities using paying premiums, but on the agreement that they do not suffer losses at the same time. Insurance can be paid for assets that a client has or even his or her life. The insurance depends on the kind of insurance a client wishes for and the services of insurance an insurer can offer. Types of insurance may include among many others health, Medicare, automobile, life, and education insurance (Cummins, 2002).
The insurance industry in the UK
The insurance industry in the United Kingdom has experienced tremendous growth over the last few years. This can be attributed to the fact that the government has set policies that are geared towards regulating the insurance act. Although regulation by the government is crucial for the industry, some people think that the insurance industry should not have government forces controlling playing a role in the control of the industry. The government plays a role in the industry by regulating the number of insurance companies that offer services to the citizens of the country. Control is done by issuing trading licenses to the residents and multinational insurance companies establishing businesses in the country (Borscheid & Haueter, 2012).
The government should investigate the activities of the insurance company to protect the citizens against some wrong information passed to the insured parties. The amount of insurance purchased by an individual depends on the services and products being offered by the insurance company. The act is also used to protect the insurance industry from massive losses that may be attributed to massive industry failure may be due to terrorism. Businesses have a lot of difficulties when starting up, and thus they need financing when they are starting up. Therefore, the insurance industry is one of the sensitive businesses to start up, but once established they can run and operate well. The insurance industry in the UK has had difficulty years of late mainly due to the Europe crisis that has crippled most businesses and governments in Europe. This has affected how most businesses operate. The insurance industry is the third-largest in the world according to the insurance market in Europe. The industry had a rating of more than USD239 billion in 2003, which was mostly contributed from the life insurance cover offered by most industry players in the country. The life insurance cover had USD148billion while the non-life cover had USD91 billion in 2003 (Ericson, Barry & Doyle, 2003). This contributed towards an industry growth of about 2% in 2003. The growth can be attributed to the increase in premium payments from clients in the industry. The increase in non-life insurance can be attributed to the growth in business that has risen in recent years as business owners want to cover the operations and assets of the business against loss due to fire or global calamities in the industry (Borscheid & Haueter, 2000).
The industry is regulated by the Insurance Companies Act of 1982, which also controls the services of life insurance. The act was amended in 1986 to improve the services offered by the industry players. Most industry players are involved in offering long-term insurance covers like life insurance and business pension. The two policies account for about 57% of the market share while the rest is shared among regular and single business premiums. Major players in the industry include Norwich Union Company, Barclays Corporation, Prudential Company, Halifax Company, and Standard life which control about 50% of the market share. Over the recent years, the industry has been run and operated by fifteen large companies that have stabilized the market from the effect of the European crisis. The companies have rocked the market and resulted in a growth of about 3.2% in 2011. There has also been an increase in car insurance because almost all families own a car, and thus a requirement to insure against third party liability as it is the minimum required by the motor insurance Act (Zweifel & Eisen, 2011).
The occupational insurance pension has also grown due to the recent increase in unemployment in the country. In recent years, there have been new entrants into the industry through mergers and acquisitions of multinational companies. A recent study shows a high market share control by companies like Aviva, Allianz, AEGON, and the Lloyds Banking Group. The new entrants into the industry have revived the industry which was declining and the country is expected to have a steady growth in the insurance sector by the year 2012 to 2016 periods. There was an estimated growth of about 11.6% with a market value of over 166.75 billion sterling pounds. The industry employs a lot of citizens who either work as agents for the company or managers. The industry has contributed towards reducing the level of unemployment in the country (Great Britain 2011).
The insurance industry in the USA
The insurance industry in the United States of America has almost the same qualities as the one found in the United Kingdom. The industry has seen tremendous growth over the last few years. This has been attributed to the fact that most citizens and corporate do understand the role played by insurance on their lives and the future of businesses in the country. Insurance is supposed to provide indemnification to an individual or an organization against a loss or impending liability that may occur during a specified time (Eaton & Eaton, 2007).
The insurance industry in the United States of America dates back to the 1750s, when one company, Philadelphia Contributionship, was started. Benjamin Franklin started the company with the main aim of offering fire insurance in the country. Over the years, the industry has been molded to cater to other losses and risks that happen in the country. The industry, during its initial startup, did not recognize the need for one insurance company to offer more than one underwriting capability. However, the industry has evolved into one of the most advanced and well-managed institutions in the country. The industry was regulated by the individual state government through acts but has now been charged to charter regulation by the federal government. The National Association of Insurance Commissioners (NAIC) has been given the mandate to regulate the industry through financial regulation accreditation in different states. This is achieved through creating new forums for new laws and regulations. Each state has the option of passing or rejecting the NAIC regulation in their respective states (Richardson, 2002).
The industry offers among many other products, life, health, property and casualty, and finally reinsurance policies. The insurance industry in the country has more than 1200 active companies that offer different insurance packages to their customers who range from individual families to large organizations. The life insurance coverage premiums in the country cater for more than 26% of the national GNP. The insurance industry is the leading player in the national capital markets and thus an extremely valuable industry in terms of creating employment and a significant foreign exchange earner. The industry controls the fiscal and the monetary policy on the economy in the country and thus proper regulation by the government is required to promote a stable industry that contributes so much to the economy. The industry is mostly run by the government because it has a sizable stake in the control of the industry. Thus, the government must institute control of the industry to shield it from collapse and subsequent fall in the country GNP. The leading market share in the country includes the following countries 21st Century insurance, Aetna, Aflac, Alleghany Corporation, Allstate, American Automobile Association, American Family Insurance, American International Group (AIG) among others (Cumming & Venard, 2007).
Pension funds and insurance companies have shaped the financial systems in many countries including the United States of America and the United Kingdom. This has been achieved through influencing the capital markets and expanding global markets by the sale of corporate bonds. The insurance industry is one of the sensitive industries in any economy and thus proper control by respective governments is crucial as given by the role played by the insurance industry in countries like the USA. Insurance indemnifies parties that have suffered losses and the amount of money paid by insurance companies. The insurance helps the affected parties to rebuild their businesses. Thus, the insurance industry should be stabilized by various governments where free trade in the economy is applied.
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