Tuesday, August 4, 2009

Liability

Main article: Liability insurance

Liability insurance is a very broad superset that covers legal claims against the insured.

Many types of insurance include an aspect of liability coverage. For example, a

homeowner's insurance policy will normally include liability coverage which protects the

insured in the event of a claim brought by someone who slips and falls on the property;

automobile insurance also includes an aspect of liability insurance that indemnifies

against the harm that a crashing car can cause to others' lives, health, or property. The

protection offered by a liability insurance policy is twofold: a legal defense in the event

of a lawsuit commenced against the policyholder and indemnification (payment on

behalf of the insured) with respect to a settlement or court verdict. Liability policies

typically cover only the negligence of the insured, and will not apply to results of wilful or

intentional acts by the insured.

* Directors and officers liability insurance protects an organization (usually a

corporation) from costs associated with litigation resulting from mistakes made by

directors and officers for which they are liable. In the industry, it is usually called "D&O"

for short.
* Environmental liability insurance protects the insured from bodily injury, property

damage and cleanup costs as a result of the dispersal, release or escape of pollutants.
* Errors and omissions insurance: See "Professional liability insurance" under

"Liability insurance".
* Prize indemnity insurance protects the insured from giving away a large prize at a

specific event. Examples would include offering prizes to contestants who can make a

half-court shot at a basketball game, or a hole-in-one at a golf tournament.
* Professional liability insurance, also called professional indemnity insurance,

protects insured professionals such as architectural corporation and medical practice

against potential negligence claims made by their patients/clients. Professional liability

insurance may take on different names depending on the profession. For example,

professional liability insurance in reference to the medical profession may be called

malpractice insurance. Notaries public may take out errors and omissions insurance

(E&O). Other potential E&O policyholders include, for example, real estate brokers,

Insurance agents, home inspectors, appraisers, and website developers.

[edit] Credit
Main article: Credit insurance

Credit insurance repays some or all of a loan when certain things happen to the

borrower such as unemployment, disability, or death.

* Mortgage insurance insures the lender against default by the borrower. Mortgage

insurance is a form of credit insurance, although the name credit insurance more often

is used to refer to policies that cover other kinds of debt.

[edit] Other types

* Collateral protection insurance or CPI, insures property (primarily vehicles) held as

collateral for loans made by lending institutions.
* Defense Base Act Workers' compensation or DBA Insurance provides coverage

for civilian workers hired by the government to perform contracts outside the U.S. and

Canada. DBA is required for all U.S. citizens, U.S. residents, U.S. Green Card holders,

and all employees or subcontractors hired on overseas government contracts.

Depending on the country, Foreign Nationals must also be covered under DBA. This

coverage typically includes expenses related to medical treatment and loss of wages,

as well as disability and death benefits.
* Expatriate insurance provides individuals and organizations operating outside of

their home country with protection for automobiles, property, health, liability and

business pursuits.
* Financial loss insurance protects individuals and companies against various

financial risks. For example, a business might purchase coverage to protect it from loss

of sales if a fire in a factory prevented it from carrying out its business for a time.

Insurance might also cover the failure of a creditor to pay money it owes to the insured.

This type of insurance is frequently referred to as "business interruption insurance."

Fidelity bonds and surety bonds are included in this category, although these products

provide a benefit to a third party (the "obligee") in the event the insured party (usually

referred to as the "obligor") fails to perform its obligations under a contract with the

obligee.
* Kidnap and ransom insurance
* Locked funds insurance is a little-known hybrid insurance policy jointly issued by

governments and banks. It is used to protect public funds from tamper by unauthorized

parties. In special cases, a government may authorize its use in protecting semi-private

funds which are liable to tamper. The terms of this type of insurance are usually very

strict. Therefore it is used only in extreme cases where maximum security of funds is

required.
* Nuclear incident insurance covers damages resulting from an incident involving

radioactive materials and is generally arranged at the national level. See the Nuclear

exclusion clause and for the United States the Price-Anderson Nuclear Industries

Indemnity Act)
* Pet insurance insures pets against accidents and illnesses - some companies

cover routine/wellness care and burial, as well.
* Pollution Insurance which consists of first-party coverage for contamination of

insured property either by external or on-site sources. Coverage for liability to third

parties arising from contamination of air, water, or land due to the sudden and

accidental release of hazardous materials from the insured site. The policy usually

covers the costs of cleanup and may include coverage for releases from underground

storage tanks. Intentional acts are specifically excluded.
* Purchase insurance is aimed at providing protection on the products people

purchase. Purchase insurance can cover individual purchase protection, warranties,

guarantees, care plans and even mobile phone insurance. Such insurance is normally

very limited in the scope of problems that are covered by the policy.
* Title insurance provides a guarantee that title to real property is vested in the

purchaser and/or mortgagee, free and clear of liens or encumbrances. It is usually

issued in conjunction with a search of the public records performed at the time of a real

estate transaction.
* Travel insurance is an insurance cover taken by those who travel abroad, which

covers certain losses such as medical expenses, loss of personal belongings, travel

delay, personal liabilities, etc.
* Media Insurance is designed to cover professionals that engage in film, video and

TV production.
* Legal Expenses Insurance covers policyholders against the potential costs of legal

action against an institution or an individual.

Property

Main article: Property insurance
This tornado damage to an Illinois home would be considered an "Act of God" for

insurance purposes

Property insurance provides protection against risks to property, such as fire, theft or

weather damage. This includes specialized forms of insurance such as fire insurance,

flood insurance, earthquake insurance, home insurance, inland marine insurance or

boiler insurance.

* Automobile insurance, known in the UK as motor insurance, is probably the most

common form of insurance and may cover both legal liability claims against the driver

and loss of or damage to the insured's vehicle itself. Throughout the United States an

auto insurance policy is required to legally operate a motor vehicle on public roads. In

some jurisdictions, bodily injury compensation for automobile accident victims has

been changed to a no-fault system, which reduces or eliminates the ability to sue for

compensation but provides automatic eligibility for benefits. Credit card companies

insure against damage on rented cars.
o Driving School Insurance insurance provides cover for any authorized driver

whilst undergoing tuition, cover also unlike other motor policies provides cover for

instructor liability where both the pupil and driving instructor are equally liable in the

event of a claim.
* Aviation insurance insures against hull, spares, deductibles, hull wear and liability

risks.
* Boiler insurance (also known as boiler and machinery insurance or equipment

breakdown insurance) insures against accidental physical damage to equipment or

machinery.
* Builder's risk insurance insures against the risk of physical loss or damage to

property during construction. Builder's risk insurance is typically written on an "all risk"

basis covering damage due to any cause (including the negligence of the insured) not

otherwise expressly excluded.
* Crop insurance "Farmers use crop insurance to reduce or manage various risks

associated with growing crops. Such risks include crop loss or damage caused by

weather, hail, drought, frost damage, insects, or disease, for instance."[12]
* Earthquake insurance is a form of property insurance that pays the policyholder in

the event of an earthquake that causes damage to the property. Most ordinary

homeowners insurance policies do not cover earthquake damage. Most earthquake

insurance policies feature a high deductible. Rates depend on location and the

probability of an earthquake, as well as the construction of the home.
* A fidelity bond is a form of casualty insurance that covers policyholders for losses

that they incur as a result of fraudulent acts by specified individuals. It usually insures a

business for losses caused by the dishonest acts of its employees.
* Flood insurance protects against property loss due to flooding. Many insurers in the

U.S. do not provide flood insurance in some portions of the country. In response to

this, the federal government created the National Flood Insurance Program which

serves as the insurer of last resort.
* Home insurance or homeowners' insurance: See "Property insurance".
* Landlord insurance is specifically designed for people who own properties which

they rent out. Most house insurance cover in the U.K will not be valid if the property is

rented out therefore landlords must take out this specialist form of home insurance.
* Marine insurance and marine cargo insurance cover the loss or damage of ships at

sea or on inland waterways, and of the cargo that may be on them. When the owner of

the cargo and the carrier are separate corporations, marine cargo insurance typically

compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but

excludes losses that can be recovered from the carrier or the carrier's insurance. Many

marine insurance underwriters will include "time element" coverage in such policies,

which extends the indemnity to cover loss of profit and other business expenses

attributable to the delay caused by a covered loss.
* Surety bond insurance is a three party insurance guaranteeing the performance of

the principal.
* Terrorism insurance provides protection against any loss or damage caused by

terrorist activities.
* Volcano insurance is an insurance that covers volcano damage in Hawaii.
* Windstorm insurance is an insurance covering the damage that can be caused by

hurricanes and tropical cyclones.

Types of insurance

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may

give rise to claims are known as "perils". An insurance policy will set out in detail which

perils are covered by the policy and which are not. Below are (non-exhaustive) lists of

the many different types of insurance that exist. A single policy may cover risks in one

or more of the categories set out below. For example, auto insurance would typically

cover both property risk (covering the risk of theft or damage to the car) and liability risk

(covering legal claims from causing an accident). A homeowner's insurance policy in

the U.S. typically includes property insurance covering damage to the home and the

owner's belongings, liability insurance covering certain legal claims against the owner,

and even a small amount of coverage for medical expenses of guests who are injured

on the owner's property.

Business insurance can be any kind of insurance that protects businesses against

risks. Some principal subtypes of business insurance are (a) the various kinds of

professional liability insurance, also called professional indemnity insurance, which are

discussed below under that name; and (b) the business owner's policy (BOP), which

bundles into one policy many of the kinds of coverage that a business owner needs, in

a way analogous to how homeowners insurance bundles the coverages that a

homeowner needs.[9]


Auto insurance
Main article: Vehicle insurance
A wrecked vehicle

Auto insurance protects you against financial loss if you have an accident. It is a

contract between you and the insurance company. You agree to pay the premium and

the insurance company agrees to pay your losses as defined in your policy. Auto

insurance provides property, liability and medical coverage:

1. Property coverage pays for damage to or theft of your car.
2. Liability coverage pays for your legal responsibility to others for bodily injury or

property damage.
3. Medical coverage pays for the cost of treating injuries, rehabilitation and

sometimes lost wages and funeral expenses.

An auto insurance policy comprises six kinds of coverage. Most countries require you

to buy some, but not all, of these coverages. If you're financing a car, your lender may

also have requirements. Most auto policies are for six months to a year.

In the United States, your insurance company should notify you by mail when it’s time to

renew the policy and to pay your premium. [10]
Home insurance
Main article: Home insurance

Home insurance provides compensation for damage or destruction of a home from

disasters. In some geographical areas, the standard insurances excludes certain types

of disasters, such as flood and earthquakes, that require additional coverage.

Maintenance-related problems are the homeowners' responsibility. The policy may

include inventory, or this can be bought as a separate policy, especially for people who

rent housing. In some countries, insurers offer a package which may include liability

and legal responsibility for injuries and property damage caused by members of the

household, including pets.[11]
Health
Main articles: Health insurance and Dental insurance
NHS Facility

Health insurance policies by the National Health Service in the United Kingdom (NHS)

or other publicly-funded health programs will cover the cost of medical treatments.

Dental insurance, like medical insurance, is coverage for individuals to protect them

against dental costs. In the U.S., dental insurance is often part of an employer's

benefits package, along with health insurance.

History of insurance

Main article: History of insurance

In some sense we can say that insurance appears simultaneously with the appearance

of human society. We know of two types of economies in human societies: money

economies (with markets, money, financial instruments and so on) and non-money or

natural economies (without money, markets, financial instruments and so on). The

second type is a more ancient form than the first. In such an economy and community,

we can see insurance in the form of people helping each other. For example, if a house

burns down, the members of the community help build a new one. Should the same

thing happen to one's neighbour, the other neighbours must help. Otherwise,

neighbours will not receive help in the future. This type of insurance has survived to the

present day in some countries where modern money economy with its financial

instruments is not widespread (for example countries in the territory of the former

Soviet Union).

Turning to insurance in the modern sense (i.e., insurance in a modern money economy,

in which insurance is part of the financial sphere), early methods of transferring or

distributing risk were practised by Chinese and Babylonian traders as long ago as the

3rd and 2nd millennia BC, respectively.[8] Chinese merchants travelling treacherous

river rapids would redistribute their wares across many vessels to limit the loss due to

any single vessel's capsizing. The Babylonians developed a system which was

recorded in the famous Code of Hammurabi, c. 1750 BC, and practised by early

Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he

would pay the lender an additional sum in exchange for the lender's guarantee to

cancel the loan should the shipment be stolen or lost at sea.

Achaemenian monarchs of Ancient Persia were the first to insure their people and

made it official by registering the insuring process in governmental notary offices. The

insurance tradition was performed each year in Norouz (beginning of the Iranian New

Year); the heads of different ethnic groups as well as others willing to take part,

presented gifts to the monarch. The most important gift was presented during a special

ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin)

the issue was registered in a special office. This was advantageous to those who

presented such special gifts. For others, the presents were fairly assessed by the

confidants of the court. Then the assessment was registered in special offices.

The purpose of registering was that whenever the person who presented the gift

registered by the court was in trouble, the monarch and the court would help him.

Jahez, a historian and writer, writes in one of his books on ancient Iran: "[W]henever the

owner of the present is in trouble or wants to construct a building, set up a feast, have

his children married, etc. the one in charge of this in the court would check the

registration. If the registered amount exceeded 10,000 Derrik, he or she would receive

an amount of twice as much."[1]

A thousand years later, the inhabitants of Rhodes invented the concept of the 'general

average'. Merchants whose goods were being shipped together would pay a

proportionally divided premium which would be used to reimburse any merchant whose

goods were jettisoned during storm or sinkage.

The Greeks and Romans introduced the origins of health and life insurance c. 600 AD

when they organized guilds called "benevolent societies" which cared for the families

and paid funeral expenses of members upon death. Guilds in the Middle Ages served

a similar purpose. The Talmud deals with several aspects of insuring goods. Before

insurance was established in the late 17th century, "friendly societies" existed in

England, in which people donated amounts of money to a general sum that could be

used for emergencies.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other

kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools

backed by pledges of landed estates. These new insurance contracts allowed

insurance to be separated from investment, a separation of roles that first proved

useful in marine insurance. Insurance became far more sophisticated in post-

Renaissance Europe, and specialized varieties developed.

Toward the end of the seventeenth century, London's growing importance as a centre

for trade increased demand for marine insurance. In the late 1680s, Edward Lloyd

opened a coffee house that became a popular haunt of ship owners, merchants, and

ships’ captains, and thereby a reliable source of the latest shipping news. It became

the meeting place for parties wishing to insure cargoes and ships, and those willing to

underwrite such ventures. Today, Lloyd's of London remains the leading market (note

that it is not an insurance company) for marine and other specialist types of insurance,

but it works rather differently than the more familiar kinds of insurance.

Insurance as we know it today can be traced to the Great Fire of London, which in 1666

devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon opened an

office to insure buildings. In 1680, he established England's first fire insurance

company, "The Fire Office," to insure brick and frame homes.

The first insurance company in the United States underwrote fire insurance and was

formed in Charles Town (modern-day Charleston), South Carolina, in 1732. Benjamin

Franklin helped to popularize and make standard the practice of insurance, particularly

against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia

Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company

was the first to make contributions toward fire prevention. Not only did his company

warn against certain fire hazards, it refused to insure certain buildings where the risk of

fire was too great, such as all wooden houses. In the United States, regulation of the

insurance industry is highly Balkanized, with primary responsibility assumed by

individual state insurance departments. Whereas insurance markets have become

centralized nationally and internationally, state insurance commissioners operate

individually, though at times in concert through a national insurance commissioners'

organization. In recent years, some have called for a dual state and federal regulatory

system (commonly referred to as the Optional federal charter (OFC)) for insurance

similar to that which oversees state banks and national banks.

Claims

Claims and loss handling is the materialized utility of insurance; it is the actual "product"

paid for, though one hopes it will never need to be used. Claims may be filed by

insureds directly with the insurer or through brokers or agents. The insurer may require

that the claim be filed on its own proprietary forms, or may accept claims on a standard

industry form such as those produced by ACORD.

Insurance company claim departments employ a large number of claims adjusters

supported by a staff of records management and data entry clerks. Incoming claims

are classified based on severity and are assigned to adjusters whose settlement

authority varies with their knowledge and experience. The adjuster undertakes a

thorough investigation of each claim, usually in close cooperation with the insured,

determines its reasonable monetary value, and authorizes payment. Adjusting liability

insurance claims is particularly difficult because there is a third party involved (the

plaintiff who is suing the insured) who is under no contractual obligation to cooperate

with the insurer and in fact may regard the insurer as a deep pocket. The adjuster must

obtain legal counsel for the insured (either inside "house" counsel or outside "panel"

counsel), monitor litigation that may take years to complete, and appear in person or

over the telephone with settlement authority at a mandatory settlement conference

when requested by the judge.

In managing the claims handling function, insurers seek to balance the elements of

customer satisfaction, administrative handling expenses, and claims overpayment

leakages. As part of this balancing act, fraudulent insurance practices are a major

business risk that must be managed and overcome. Disputes between insurers and

insureds over the validity of claims or claims handling practices occasionally escalate

into litigation; see insurance bad faith.