Posted: June 27th, 2015

Insurance Industry between the US and UK

Introduction

Insurance can be defined as the equitable transfer of the risk of suffering a loss from one individual or corporate to another. The insured is the entity who has taken up the insurance policy to shield him or her from an impending risk that may lead to a loss. 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. The insurer is the individual or company who offers the hedging 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 insurance or the value of the risk. This amount charged by the insurer is called the premium and it’s mostly charged on defined intervals like after one month or quarterly or half yearly depending on the agreement between the two parties. All the agreement to the insurance contract is 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 incase he or she suffers a loss (DIONNE, 1992 p. 78). The insurance policy contains all the documents and agreement regarding the amount of premium to be paid the type of insurance it is and the conditions under which the amount insured can be paid and the parties entitled to the indemnity. Insurance plays an important role in the society as it is able to indemnify an individual or a corporation that has suffered a loss and thus able to reconstruct again after the loss incurred. Insurance companies are on the rise nowadays as people are becoming more enlightened to take up insurance policies as a means to hedge out an impending risk that may lead to a loss. Insurance act usually involves pooling funds from different entities by means of 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 type of insurance depends with 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 p. 56).

Insurance industry in UK

The insurance industry in the United Kingdom has seen tremendous growth over the last few years. This can be attributed to the fact that the government has set up policies that are geared towards regulating the insurance act. Although regulation by the government is crucial for the industry there are those who 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 are trying to offer their services to the citizens of the country. Control is by issuing trading licenses to the resident and multi national insurance companies trying to set up their business in the country (BORSCHEID & HAUETER, 2012 p.89). The government must set up an investigation into the activities of the insurance company so as 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 from 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 and thus the insurance industry is one of the sensitive businesses to start up but once established they are able to run and operate well. The insurance industry in UK has had difficulty years of late mainly due to the Europe crisis that has crippled most businesses and governments in Europe and this has affected how most businesses operate. The insurance industry is the third largest in the world according to 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 and this contributed towards an industry growth of about 2% in 2003. The growth can be attributed from the increase in premium payment form clients in the industry. The increase in non life insurance can be attributed to the growth in business that has been on the rise in recent years as business owners wish to cover the operations and assets of the business against loss due to fire or global calamities in the industry (BORSCHEID & HAUETER, 2000 p.98). The industry is regulates by the Insurance Companies Act of 1982 which also controls the services of life insurance which was amended in 1986 so as to improve on 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 premium. Major players in the industry include Norwich Union Company, Barclays Corporation, Prudential Company, Halifax Company and Standard life who control about 50% of the market share. Over the recent t=years the industry has been run and operated by fifteen large companies that has stabilized the market form the effect of the Europe crisis that rocked the market and resulted to a growth of about 3.2% in 2011. There has also been an increase in the car insurance due to the fact that almost all families own a car and thus a requirement to insure against third party liability as it’s the minimum requirement by the motor insurance Act (ZWEIFEL & EISEN, 2011 p. 23). The occupational insurance pension has also seen a growth due to the recent increase in un employment in the country. In the recent years there have been new entrants into the industry through mergers and acquisitions by multi national 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 under decline or low growth and the country expects to have a steady growth in the insurance sector by the year 2012 to 2016 periods with 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 this companies or managers and thus contributing a lot to lower the level of unemployment in the country (GREAT BRITAIN. 2011 p.45).

The insurance industry in the USA

The insurance industry in the United States of America has almost the same qualities like the one found in the United Kingdom. The industry has seen tremendous growth over the last few years and this has been attributed to the fact that most citizens and corporates 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 p. 71). The insurance industry in the United States of America dates back to the 1750s when one company by the name Philadelphia Contributionship was started with the help of Benjamin Franklin to offer fire insurance in the country. Over the years the industry has been molded to cater for other losses and risks that result in the country. The industry during its initial start up did not recognize the need for one insurance company to offer more than one underwriting capability but has evolved to what is now regarded as the 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 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 through creating new forums for new laws and regulations. Each state has the option of passing or rejecting the NAIC regulation it their respective states (RICHARDSON, 2002 p. 68). The industry offers among many others the life, health, property and casualty and finally reinsurance policies. The insurance industry in the country has more than 1200 active companies who offer different insurance packages to their customers who range from individuals families to large organization. The life insurance cover premiums in the country cater for more than 26% of the national GNP. The insurance industry is the major player in the national capital markets and thus a very important industry in terms of creating employment and a major foreign exchange earner. The industry controls the fiscal and the monetary policy of the economy in the country and thus proper regulation by the government is required so as to promote a stable industry that contributes so much to the economy. The industry is mostly run by the government as it has a big stake in the control of the industry and thus they must institute control for the industry to shield it from collapse and subsequent fall in the country GNP. The major 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 p.71).

Conclusion

Pension funds and insurance companies have shaped the financial systems in many countries including the United States of America and the United Kingdom through influencing the capital markets and expanding global markets through 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 helps to indemnify parties that have suffered losses and the amount of money paid by insurance companies help them to rebuild again and continue with their businesses. Thus the insurance industry should be stabilized by various governments where free trade in the economy is applied (ERICSON, BARRY & DOYLE, 2003 p. 61).

Reference list

BORSCHEID, P., & HAUETER, N. V. (2000). World insurance: the evolution of a global risk network. Oxford, Oxford University Press.

BORSCHEID, P., & HAUETER, N. V. (2012). World insurance: the evolution of a global risk network. Oxford, Oxford University Press.

CUMMINS, J. D. (2002). Changes in the life insurance industry: efficiency, technology and risk management. Boston, Mass. [u.a.], Kluwer Acad. Publ.

CUMMINS, J. D., & VENARD, B. (2007). Handbook of international insurance: between global dynamics and local contingencies. New York, NY, Springer.

DIONNE, G. (1992). Contributions to insurance economics. Boston, Kluwer Academic Publishers.

EATON, J. W., & EATON, D. J. (2007). The American title insurance industry: how a cartel fleeces the American consumer. New York, New York University Press.

ERICSON, R. V., BARRY, D., & DOYLE, A. (2003). Insurance as governance. Toronto, University of Toronto Press.

GREAT BRITAIN. (2011). Financial regulation: a preliminary consideration of the Government’s proposals : seventh report of session 2010-11. London, TSO.

RICHARDSON, B. J. (2002). Environmental regulation through financial organisations: comparative perspectives on the industrial nations. The Hague, Kluwer Law International.

ZWEIFEL, P., & EISEN, R. (2011). Insurance Economics. Berlin, Springer Berlin.