Insurance Market

Insurance markets today are among the largest markets in the world. According to Swiss Reinsurance, world insurance premiums totalled US$3,244 billion in 2004. While life insurance accounted for premiums worth US$1,849 billion, non-life insurance contributed premiums worth US$1,395 billion.

Insurance means assuming risk for a fee. Insurance companies provide coverage against personal injury or property loss for a specific period upon payment of a fee or premium. Insurers calculate premium on the basis of risk involved and the probability of having to pay the claim.

The insurance market can be broadly split into two categories:

• life insurance
• Non-life insurance.

There is no globally-accepted classification of the insurance market however. In some regions, health insurance is clubbed with life insurance whereas in some regions, health insurance figures under the non-life insurance category. The European Union and the Organisation for Economic Cooperation and Development, for instance, put accident and health insurance under the non-life insurance market.

Reinsurance is a part of the insurance market offering insurance to insurers. Reinsurers take over a part of the risk undertaken by insurers in exchange for a portion of the premiums. If a claim does arise, then the reinsurer reimburses the amount paid by the insurer to the policy holder. The extent of reimbursement depends upon the nature of reinsurance agreement.

The life insurance market

Life insurance is the larger of the two segments in the insurance market. The life insurance market has tilted toward annuities and deposit-type products in the past few decades. Annuities refer to insurance products that guarantee a fixed or variable income over a fixed period or for the rest of policyholder’s life from an agreed date. Annuities could be deferred or immediate. In deferred annuities, payments start after a certain period during which time assets grow tax deferred. In immediate annuities, payments could start after a gap a year from the date of purchase. Yet the traditional business of whole-life and term-life insurance policies continues to remain a large part of the life insurance market.

Insurers invest life premiums in government and corporate debt besides mortgage loans. According to Swiss Reinsurance, the life insurance market grew by 2.3% in 2004. Europe reported strong growth in life premiums while the USA reported flat growth due to sluggish sales of annuities. Japan reported a 1%-fall in life premiums while emerging markets reported strong growth in life premiums though growth rates fluctuated across countries. The leading companies in the life insurance segment include AXA, ING Group, Assicurazioni Generali, Aviva and Nippon Life Insurance. In the coming years, the fluctuations in investment returns could lead to a shift away from profit-participation products toward risk products and pension products.

The non-life insurance market

The major segments in the non-life insurance market include property and casualty insurance; and accident and health insurance. The property and casual insurance market, covering loss or damage to property, is divided into three segments:

• Auto
• Homeowners
• Commercial.

The auto insurance is a major segment offering six types of coverage: bodily-injury liability for injuries caused to others by policy holder; personal injury protection for injuries suffered by driver and passengers; property damage liability for damage to others property; coverage for collision damage; comprehensive coverage and uninsured motorist’s coverage.

The homeowners insurance covers home and personal possessions, with the extent of protection depending upon the nature of the policy. The commercial sub-segment includes insurance products for businesses. Commercial insurance coverage extends to machinery and issues such as business interruption and professional liability.