Insurance - Nature of the Industry

Goods and services. The insurance industry provides protection against financial losses resulting from a variety of perils. By purchasing insurance policies, individuals and businesses can receive reimbursement for losses due to car accidents, theft of property, and fire and storm damage; medical expenses; and loss of income due to disability or death.

Industry organization. The insurance industry consists mainly of insurance carriers (or insurers) and insurance agencies and brokerages. In general, insurance carriers are large companies that provide insurance and assume the risks covered by the policy. Insurance agencies and brokerages sell insurance policies for the carriers. While some of these establishments are directly affiliated with a particular insurer and sell only that carrier’s policies, many are independent and are thus free to market the policies of a variety of insurance carriers. In addition to supporting these two primary components, the insurance industry includes establishments that provide other insurance-related services, such as claims adjustment or third-party administration of insurance and pension funds.

These other insurance industry establishments also include a number of independent organizations that provide a wide array of insurance-related services to carriers and their clients. One such service is the processing of claims forms for medical practitioners. Other services include loss prevention and risk management. Also, insurance companies sometimes hire independent claims adjusters to investigate accidents and claims for property damage and to assign a dollar estimate to the claim.

Insurance carriers assume the risk associated with annuities and insurance policies and assign premiums to be paid for the policies. In the policy, the carrier states the length and conditions of the agreement, exactly which losses it will provide compensation for, and how much will be awarded. The premium charged for the policy is based primarily on the amount to be awarded in case of loss, as well as the likelihood that the insurance carrier will actually have to pay. In order to be able to compensate policyholders for their losses, insurance companies invest the money they receive in premiums, building up a portfolio of financial assets and income-producing real estate which can then be used to pay off any future claims that may be brought. There are two basic types of insurance carriers: primary and reinsurance. Primary carriers are responsible for the initial underwriting of insurance policies and annuities, while reinsurance carriers assume all or part of the risk associated with the existing insurance policies originally underwritten by other insurance carriers.

Primary insurance carriers offer a variety of insurance policies. Life insurance provides financial protection to beneficiaries—usually spouses and dependent children—upon the death of the insured. Disability insurance supplies a preset income to an insured person who is unable to work due to injury or illness, and health insurance pays the expenses resulting from accidents and illness. An annuity (a contract or a group of contracts that furnishes a periodic income at regular intervals for a specified period) provides a steady income during retirement for the remainder of one’s life. Property-casualty insurance protects against loss or damage to property resulting from hazards such as fire, theft, and natural disasters. Liability insurance shields policyholders from financial responsibility for injuries to others or for damage to other people’s property. Most policies, such as automobile and homeowner’s insurance, combine both property-casualty and liability coverage. Companies that underwrite this kind of insurance are called property-casualty carriers.

Some insurance policies cover groups of people, ranging from a few to thousands of individuals. These policies usually are issued to employers for the benefit of their employees or to unions, professional associations, or other membership organizations for the benefit of their members. Among the most common policies of this nature are group life and health plans. Insurance carriers also underwrite a variety of specialized types of insurance, such as real-estate title insurance, employee surety and fidelity bonding, and medical malpractice insurance.

Other organizations in the industry are formed by groups of insurance companies, to perform functions that would result in a duplication of effort if each company carried them out individually. For example, service organizations are supported by insurance companies to provide loss statistics, which the companies use to set their rates.

Recent developments. Congressional legislation now allows insurance carriers and other financial institutions, such as banks and securities firms, to sell one another’s products. More insurance carriers now sell financial products such as securities, mutual funds, and various retirement plans. This approach is most common in life insurance companies that already sold annuities, but property and casualty companies also are increasingly selling a wider range of financial products. In order to expand into one another’s markets, insurance carriers, banks, and securities firms have engaged in numerous mergers, allowing the merging companies access to each other's client base and geographical markets.

Insurance carriers have discovered that the Internet can be a powerful tool for reaching potential and existing customers. Most carriers use the Internet simply to post company information, such as sales brochures and product information, financial statements, and a list of local agents. However, an increasing number of carriers are starting to expand their Web sites to enable customers to access online account and billing information, and some carriers even allow claims to be submitted online. Many carriers also provide insurance quotes online based on the information submitted by customers on their Internet sites. In fact, some carriers will allow customers to purchase policies through the Internet without ever speaking to a live agent.

In addition to individual carrier-sponsored Internet sites, several “lead-generating” sites have emerged. These sites allow potential customers to input information about their insurance policy needs. For a fee, the sites forward customer information to a number of insurance companies, which review the information and, if they decide to take on the policy, contact the customer with an offer. This practice gives consumers the freedom to accept the best rate.

Working Conditions

Hours. Many workers in the insurance industry—especially those in administrative support positions—work a 5-day, 40-hour week. Those in executive and managerial occupations often put in more than 40 hours. There are several occupations in the insurance industry where workers may work irregular hours outside of office settings. Those working in sales jobs need to be available for their clients at all times. This accommodation may result in these individuals working 50 to 60 hours per week. Also, call centers operate 24 hours a day, 7 days a week, so some of their employees must work evening and weekend shifts. The irregular business hours in the insurance industry provide some workers with the opportunity for part-time work. Part-time employees make up 8 percent of the workforce.

Work environment. Insurance employees working in sales jobs often visit prospective and existing customers’ homes and places of business to market new products and provide services. Others working in the industry may need to frequently leave the office to inspect damaged property, and at times can be away from home for days, traveling to the scene of a disaster—such as a tornado, flood, or hurricane—to work with affected policyholders and government officials.

A small, but increasing, number of insurance employees spend most of their time on the telephone working in call centers, answering questions and providing information to prospective clients or current policyholders. These jobs may include selling insurance, taking claims information, or answering medical questions.

As would be expected in an industry dominated by office and sales employees, the incidence of occupational injuries and illnesses among insurance workers is low. In 2006, only 1.3 cases per 100 full-time workers were reported among insurance carriers, while just 0.7 cases per 100 full-time workers were reported among agents and brokers. These figures compare with an average of 4.4 for all private industry.