|Title:||Global aggregate assets of property/casualty mutuals versus life/health mutuals in dollars for 2010|
Start of full article - but without data
vs. Life/Health Mutuals
2010 $XXX.X 2009 $XXX.X
2010 $XXX.X 2009 $XXX.X
Assets * Life/Health
2010 $XXX.X 2009 $XXX.X
2010 $XX.X 2009 $XX.X
* Includes separate account business
Source: Best's Aggregates & Averages
Note: Table made from bar graph.
For businesses, individuals and society as a whole, risk is an ever-present burden.
For many, mining to insurance is a sure-fire way to cut economic risk, but in truly managing risks, buying a policy is just one mean available.
* Risk Avoidance: The most obvious way to cut risks--avoiding the activities that lead to the possibility of a risk being realized.
* Risk Retention: Holding onto the risks that are predictable and affordable (i.e., an individual may skip collision and comprehensive insurance if he or she is driving an older vehicle to realize premium savings).
* Risk Transfer: Moving risk onto others, typically through contracts (i.e., service contacts).
Risk transfer is the traditional business of insurers and the underlying doctrine of every insurance transaction. But still, some losses are inevitable. Enter insurance.
The Risk Management Process
There are five processes for managing risks as defined by ISO XXXXX, a guideline by the International Organization for Standardization that provides a generic approach.
Source: International Organization for Standardization
The insurance is for when that potential for loss is so significant that paying a known premium would be preferable. The policy is the contract, and the insurer accepts the risk of unanticipated losses. The policyholder, in turn, pays the premium and agrees to the conditions that would trigger the policy benefits.
Insurance is security.
Insurance companies, segmented into two sectors, property/casualty and life/health, generally don't cover speculative risks like financial transactions that could result in a loss or gain. They also set criteria based on severity and frequency that determine whether a risk is insurable. In doing so, companies rely on the "law of large numbers"--that in a sufficiently large population, the more accurate the predictions of loss will be.
In the insurance world, while no singular event, such as a car accident, can be predicted, a total number of events (car accidents) over a large population are predictable. Hence, by pooling the premiums and the risks of a large number of policyholders, the insurer is able to absorb losses much more easily than the uninsured individual or entity.
The Underwriting Process
Analyzing past experience is just one tool that is used in the underwriting process.
The statistical skills used in underwriting to determine expected costs and risks are critical, as insurance by its very nature is surrounded by financial uncertainty: the actual cost of providing coverage is unknown to the insurer for some time.
Underwriting is objective and subjective. Some attributes needed by the insurer as it decides which customers to cover may be mandated by law. But evaluating an applicant's history (i.e., health, credit, loss) in comparison to the amount of coverage requested or in keeping with an insurance company's standards requires decisions made on insight and hindsight.
Technology plays an important role in the underwriter's decision-making. Data mining and predictive modeling are two ways to better predict those policies that are most likely to produce losses over a given amount of time. The Internet also provides the underwriter with a wealth of information quickly, such as a credit or driving report.
If the underwriters decide to provide insurance, they also then can dictate the terms. An insurance company may lose business to competitors if underwriting is too conservative, or it may have to pay excessive claims if the underwriting is too liberal.
How Insurance is Sold
The insurance agent (or producer) can be a key cog in the underwriting process by taking the role of intermediary.
Unlike the underwriter, the agent is positioned to meet with the applicant, ask pertinent questions and gauge responses. The information gathered from the interview may become the basis the underwriter uses in decision making. As a benefit to the consumer, many agents--called independent agents--represent several insurance companies, and may have a sense of each company's risk-selection threshold.
A "captive agent" works exclusively with a single insurer or a group of insurers, and may get business leads or some sort of special preference for having that relationship. The captive insurer often offers benefits, such as health coverage, marketing support and training to the agent.
Generally speaking, insurance companies with a captive agent force also may see better policyholder retention. For starters, independent agents are less likely to follow policyholders from one state to another when they move; many independent agents are not licensed in multiple states. The bigger companies have the resources to track and follow an insured, and they may alert a new agent in the area to where the policyholder has moved. Other ways the business of insurance gets done include:
Brokers: These producers do not work necessarily for an insurance company. Instead, the broker will place policies for clients with the carrier offering the most appropriate rate and coverage terms. The broker is rewarded by the carrier, though typically, it's at a rate lower than that paid to the carrier's agents.
Managing general agents: These individuals or organizations are granted the authority by an insurer to perform a wide array of functions that can include placing business and issuing policies.
Agents are paid commissions based on the value and type of products they sell. Some insurers pay brokers additional compensation based on how the business performs.
Direct sales to consumers through the mail, Internet or telephone solicitations also have exploded in recent years. Insurance companies can bypass commissions by removing the agent from the transaction, although marketing and other associated costs can negate any savings.
Increasingly, online relationships are facilitated by traffic aggregators, basically an alternative term for price-comparison sites. The aggregator service links the consumer fight to the insurer. Aggregator companies receive a commission from product providers when a policy is sold. However, they also may charge a fee based on any click-throughs to those providers.
The aggregator service can present challenges all the way around. The site encourages consumers to select insurance policies based almost exclusively on price. And direct sales are a threat to the independent agent.
Top XX Global Insurance Brokers
A look at the world's largest brokers in 2010, ranked by total revenue, ($ Billions)