Insurance Companies: Size, Structure,

and Composition of the Industry

Lealde, Kevin C. BSA - 2B

Definition

Insurance is a contract, represented by a policy, in which an individual or entity

receives financial protection or reimbursement against losses from an insurance company.
The company pools clients' risks to make payments more affordable for the insured.

Insurance policies are used to hedge against the risk of financial losses, both big and
small, that may result from damage to the insured or her property, or from liability for
damage or injury caused to a third party.
 How Does It Work?

Once customers purchase

insurance coverage, all of the
funds are added to a large pool of
money

Whenever somebody needs

to make a claim and use the
Find large number of customers insurance company to
who need to obtain coverage request a payout, the
insurance provider will
access that pool of money
Purpose

The purpose of insurance is to reduce your business' exposure to the effects of

particular risks. These could include:

● damage to, or the loss of, physical assets such as your premises or equipment
● illness or death of key members of staff
● compensation claims against the business or its directors by employees or
customers
● business interruption caused by external events such as terrorism
● volatility and cash flow pressures following an incident
 Two Major Groups

Life Insurance is a contract between an Property & Casualty insurance, or P&C

insurer and a policyholder in which the insurer insurance, is an umbrella term to describe a
guarantees payment of a death benefit to bunch of different types of insurance, covering
named beneficiaries when the insured dies. your personal property and offering
The insurance company promises a death bene liability coverage.
fit
in exchange for premiums paid by the
policyholder.
Ex. Homeowners’ Insurance, Auto Insurance,
Ex. Term life insurance & Whole Life Insurance Liability Insurance
Life Insurance Components

● Death Benefit - The death benefit or face value is

the amount of money the insurance company guarantees to the beneficiaries identified
in the policy
when the insured dies.
● Premiums - Premiums are the money the policyholder pays for insurance. The
insurer must pay the death benefit when the insured dies if the policyholder pays the
premiums as required, and premiums are determined in part by how likely it is that the
insurer will have to pay the policy’s death benefit based on the insured’s life
expectancy.
● Cash Value -
The cash value is a living benefit that remains with the insurance company when the
insured dies. Any outstanding loans against the cash value will reduce the policy’s
death benefit.
Life Insurance Components

● Beneficiary - person/s who receive the death benefit. They are selected by the
policyholder.
● Term Life Insurance - a popular life insurance policy option. These have a set
expiration date and are a cheaper, more popular option.
● Whole Life Insurance - a form of permanent life insurance that has a premium and
cash value. These are typically more expensive and complex, but can satisfy specific
needs, like large estates or inheritances.
Other Life Insurer Activities

● Annuities - insurance contracts that promise to pay you regular income either
immediately or in the future.
● Private Pension Funds - a plan into which individuals contribute from their
earnings, which then will pay them a private pension after retirement. It is an
alternative to the state pension.
● Accident & Health Insurance - It’s insurance coverage that pays benefits in case
of sickness, accidental injury or accidental death.
 Property & Casualty
Insurance
● Property insurance refers to a series of ● Casualty insurance is a broad category
policies that offer either property of insurance coverage for individuals,
protection or liability coverage. employers, and businesses against loss
● Property insurance can include of property, damage, or other liabilities.
homeowners' insurance, renters’ ● Casualty insurance includes vehicle
insurance, flood insurance, and insurance, liability insurance, and theft
earthquake insurance, among other insurance.
policies. ● Just as property insurance protects your
● The three types of property insurance property, casualty insurance can protect
coverage include replacement cost, you from financial responsibility
actual cash value, and extended should you be liable for damage to
replacement costs. property or an individual.
 What is the main
Business Model for
Insurance Companies?
Pricing and Evaluating
Assuming Risk Insurers

Interest Earnings
Reinsurance
and Revenue
Insurance Companies: Size
Insurance Companies: Size

● U.S. insurance industry net premiums written totaled $1.22 trillion in 2018, with
premiums recorded by property/casualty (P/C) insurers accounting for 51 percent, and
premiums by life/annuity insurers accounting for 49 percent, according to S&P Global
Market Intelligence.

● P/C insurance consists primarily of auto, homeowners and commercial insurance. Net
premiums written for the sector totaled $618.0 billion in 2018.

● The life/annuity insurance sector consists of annuities, accident and health, and life
insurance. Net premiums written for the sector totaled $600.6 billion in 2018.
Insurance Companies: Size

● Although most private health insurance is written by companies that specialize in that
line of business, life and P/C insurers also write coverage referred to as accident and
health insurance. Total private health insurance direct premiums written were $919.6
billion in 2018, including: $715.6 billion from the health insurance sector; $197.5 billion
from the life/annuity sector; and $6.5 billion from the P/C sector, according to S&P
Global Market Intelligence. The health insurance sector also includes government
programs.

● In 2018 there were 5,965 insurance companies in the U.S. (including territories).
According to the National Association of Insurance Commissioners, those were
comprised of the following: P/C (2,507); life/annuity (841); health (931); fraternal (82);
title (60); risk retention groups (239) and other companies (1,305).
Insurance Companies: Size
 Insurance Companies:
Structure
Product
Mutual Structure
Incentives

Changing
Stock Structure
Structure