Insurance in India

Insurance is a subject listed in the concurrent list in the Seventh Schedule to the Constitution of India where both centre and states can legislate. The insurance sector has gone through a number of phases and changes. Since 1999, when the government opened up the insurance sector by allowing private companies to solicit insurance and also allowing foreign direct investment of up to 26%, the insurance sector has been a booming market. However, the largest life-insurance company in India is still owned by the government.

History

In India, insurance has a deep-rooted history. Insurance in various forms has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kautilya (Arthashastra). The fundamental basis of the historical reference to insurance in these ancient Indian texts is the same i.e. pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. The early references to Insurance in these texts has reference to marine trade loans and carriers' contracts.
Insurance in its current form has its history dating back until 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer.
At the dawn of the twentieth century, many insurance companies were founded. In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of companies should be certified by an actuary. However, the disparity still existed as discrimination between Indian and foreign companies. The oldest existing insurance company in India is the National Insurance Company Ltd., which was founded in 1906. It is in business.
The Government of India issued an Ordinance on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. In 1972 with the General Insurance Business (Nationalisation) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973.
The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life Insurance Corporation of India, LIC) and General Insurers (General Insurance Corporation of India, GIC). GIC had four subsidiary companies.
With effect from December 2000, these subsidiaries have been de-linked from the parent company and were set up as independent insurance companies: Oriental Insurance Company Limited, New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited.

Industry structure

Currently India is a US$41 billion industry. Currently, in India only two million people (0.2 % of the total population of 1 billion) are covered under Mediclaim, whereas in developed nations like USA about 75 % of the total population are covered under some insurance scheme. With more and more private companies in the sector, the situation may change soon.

Specialisation

ECGC, ESIC and AIC provide insurance services for niche markets. So, their scope is limited by legislation but enjoy special powers.

Acts

The insurance sector went through a full circle of phases from being unregulated to completely regulated and then currently being partly deregulated. It is governed by a number of acts.
The Insurance Act of 1938 was the first legislation governing all forms of insurance to provide strict state control over insurance business.
Life insurance in India was completely nationalized on January 19, 1956, through the Life Insurance Corporation Act. All 245 insurance companies operating then in the country were merged into one entity, the Life Insurance Corporation of India.
The General Insurance Business Act of 1972 was enacted to nationalise the about 100 general insurance companies then and subsequently merging them into four companies. All the companies were amalgamated into National Insurance, New India Assurance, Oriental Insurance and United India Insurance, which were headquartered in each of the four metropolitan cities.
Until 1999, there were no private insurance companies in India. The government then introduced the Insurance Regulatory and Development Authority Act in 1999, thereby de-regulating the insurance sector and allowing private companies. Furthermore, foreign investment was also allowed and capped at 26% holding in the Indian insurance companies.
In 2006, the Actuaries Act was passed by parliament to give the profession statutory status on par with Chartered Accountants, Notaries, Cost & Works Accountants, Advocates, Architects and Company Secretaries.
A minimum capital of US$20 million(Rs.100 Crore) is required by legislation to set up an insurance business.

Authorities

The industry recognises examinations conducted by IAI (for actuaries), III (for agents, brokers and third-party administrators) and IIISLA (for surveyors and loss assessors). TAC is the sole data repository for the non-life industry.
IBAI gives voice for brokers while GI Council and LI Council are platforms for insurers.
AIGIEA, AIIEA, AIIEF, AILICEF, AILIEA, FLICOA, GIEAIA, GIEU and NFIFWI cater to the employees of the insurers.
In addition, there are a dozen Ombudsman offices to address client grievances.

Insurance Education

National Insurance Academy, Pune is apex education and capacity builder institute in India and only one in Africa & Asia. NIA was founded as Ministry of Finance initiative with capital support from the then public insurance companies, both Life (LIC) and Non-Life (GIC, National, Oriental, United & New India). NIA has 32 acre campus & 30+ faculty member imparting training, conducting research and providing consulting services in insurance sector. NIA run 2 year PGDM (Insurance) to mould youth in insurance specialisation.
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Insurance in Australia

Australia has a sophisticated and well-developed insurance market, which can be divided into roughly three components: life insurance, general insurance and health insurance. These markets are fairly distinct, with most larger insurers focusing on only one type, although in recent times several of these companies have broadened their scope into more general financial services, and have faced competition from banks and subsidiaries of foreign financial conglomerates.

Life insurance

Life insurance products sold in Australia include term life insurance, disability income insurance. Australian insurers are unusual in providing a lump sum Total and Permanent Disability insurance. Life insurers also sell superannuation investment products.

Life insurers companies in Australia

Some of the life insurance companies which operate in Australia are:
In addition, life insurance is also sold by friendly societies and credit unions.

General insurance

General insurance products sold in the Australian market can roughly be divided into two classes:
  • Liability insurance such as Compulsory Third Party (CTP) motor insurance, worker's compensation, professional indemnity insurance and public liability insurance, business insurance;
  • Property insurance such as Home and Contents insurance, travel insurance, and comprehensive motor vehicle insurance
Certain types of insurance, such as CTP and worker's compensation, are statutory (i.e. are required by law), and can differ considerably by state.

General insurers

The three large general insurer groups are:
  • Insurance Australia Group (which includes NRMA, RACV, CGU, SGIO)
  • Suncorp (which includes AAMI, GIO, APIA, Just Car, Bingle)
  • QBE Insurance
Other insurers are:
  • Allianz Australia
  • Hollard Insurance (which includes Real Insurance,Guardian Insurance, Aussie, Australian Seniors)
  • Budget Direct (which includes Virgin Money, Australia Post)
  • Wesfarmers (which includes Coles)
  • Calliden Insurance
  • Zurich Insurance
  • Youi Insurance
  • Progressive Direct
Previous insurers include:
  • Promina Group merged with Suncorp in 2007
  • SGIO and SGIC purchased by IAG
  • HIH Insurance collapsed in 2001

Health Insurance

The Australian Government provides a basic universal health insurance, Medicare. Private health insurance in Australia is limited to those services not covered by Medicare or to services provided in private hospitals.
The Australian Taxation system encourages middle to high income earners to take out Private Health Insurance. While most taxpayers pay a 1.5% Medicare Levy, an additional 1% Medicare Levy Surcharge is payable by those taxpayers who earn more than $76,000 and do not have Private Health Insurance.

Industry structure

Life insurers were traditionally mutual companies, but in the 1980s and 1990s many of them demutualised and with a few large exceptions are owned by banks. The large remaining insurers have become “financial services” organisations and now derive the majority of their revenue from superannuation investment products.
General Insurers have a more diverse ownership structure, with more stand alone independent general insurers (although some life insurers do own general insurers).
Health insurers are still predominantly mutuals. The notable exception is Medibank Private, the largest private health insurer in Australia, which is owned by the Australian government.

Regulation

The prudential aspects of general and life insurance (solvency etc.) are regulated by the Australian Prudential Regulatory Authority (APRA). Matters relating to advice or disclosure of insurance products sold are regulated by the Australian Securities and Investments Commission (ASIC). The Australian Competition and Consumer Commission (ACCC) also has a regulatory role with respect to competition law.
In certain states, various bodies also have powers in regulating certain types of statutory insurance. For example, in New South Wales the Motor Accidents Authority regulates Compulsory Third Party motor liability insurance. In many cases these bodies have powers regarding premium rating and reinsurance rules.
Private health insurers are regulated by the Private Health Insurance Administration Council (PHIAC).
The primary federal legislation is:
  • Life Insurance Act 1995 (Life Insurance prudential regulation)
  • Insurance Act 1973 (General Insurance prudential regulation)
  • Health Insurance Act 2007 (Health insurance prudential regulation and consumer protection)
  • Corporations Act 2001 ((especially Ch 7) consumer protection in respect of insurance policies)
  • Insurance Contracts Act 1984 (consumer protection in respect of insurance policies)

Industry bodies

The main industry bodies are:
  • Insurance Council of Australia which represents general insurers.
  • Financial Services Council
  • Australian and New Zealand Institute of Insurance and Finance
  • Underwriting Agencies Council http://www.uac.org.au
  • Institute of Actuaries of Australia
  • ACORD  which is the insurance industry global standards organisation. ACORD has standards for personal and commercial lines and has been working with the Australian General Insurers to develop those XML standards, standard applications for insurance, and certificates of currency.
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U.S. insurance companies

This is a list of insurance companies based in the United States. These are companies with a strong national or regional presence having insurance as their primary business.

Life Annuity

  • Allstate
  • American Family Insurance
  • American Fidelity Assurance
  • Amica Mutual Insurance
  • Aviva
  • AXA Equitable Life Insurance Company
  • Bankers Life and Casualty
  • Conseco
  • Farmers Insurance Group
  • Fidelity
  • Genworth Financial
  • ING Group
  • Jackson National Life
  • John Hancock Insurance
  • Lincoln National Corporation
  • MetLife
  • Mutual of Omaha
  • Nationwide Mutual Insurance Company
  • Old Mutual
  • Pacific Life
  • Protective Life
  • Prudential Financial
  • Standard Insurance Company
  • State Farm Insurance
  • Thrivent Financial for Lutherans
  • TIAA-CREF
  • Transamerica Corporation
  • UNIFI Companies
  • United of Omaha
  • Western & Southern Financial Group

Health insurance (major medical insurance)

  • AARP
  • Aetna
  • American Family Insurance
  • American National Insurance Company
  • Amerigroup
  • Anthem Blue Cross and Blue Shield
  • Assurant
  • Blue Cross and Blue Shield Association
  • Celtic Insurance Company, subsidiary of Centene Corporation
  • Centene Corporation
  • Cigna
  • Coventry Health Care
  • EmblemHealth
  • Fortis
  • Golden Rule Insurance Company
  • Group Health Cooperative
  • GHI
  • Health Net
  • HealthMarkets
  • HealthSpring
  • Highmark
  • Humana
  • Independence Blue Cross
  • Kaiser Permanente
  • LifeWise Health Plan of Oregon
  • Medical Mutual of Ohio
  • Molina Healthcare
  • Premera Blue Cross
  • Principal Financial Group
  • The Regence Group
  • Shelter Insurance
  • Thrivent Financial for Lutherans
  • UnitedHealth Group
  • Unitrin
  • Universal American Corporation
  • WellCare Health Plans
  • WellPoint

Medicare

  • Aetna
  • American Family Insurance
  • Bankers Life and Casualty
  • Conseco
  • Mutual of Omaha
  • Premera Blue Cross
  • Thrivent Financial for Lutherans
  • Kaiser Permanente

Supplemental insurance

  • Aflac
  • Allstate
  • American Fidelity Assurance
  • Colonial Life & Accident Insurance Company
  • Conseco
  • Liberty National Life Insurance Company
  • Mutual of Omaha

Supplemental health insurance

  • Aflac
  • Allstate
  • MEGA Life and Health Insurance
  • State Farm Insurance
  • AARP

Travel insurance

  • Access America, a brand of Mondial Assistance Group
  • International Medical Group
  • Seven Corners, Inc.
  • Travel Guard
  • Usa-Assist Worldwide Protection
  • Aeromedevac
  • Missionary Travel Association
  • MediMundi Travel Directory

Workers' compensation

Assist Card
  • Accident Fund
  • American International Group (AIG)
  • CompWest
  • Erie Insurance Group
  • Hanover Insurance
  • The Hartford
  • Liberty Mutual
  • Merchants Insurance Group
  • Missouri Employers Mutual
  • Nationwide Mutual Insurance Company
  • Penn National Insurance
  • Sentry Insurance
  • State Accident Insurance Fund
  • State Compensation Insurance Fund
  • State Farm Insurance
  • Third Coast Underwriters (3CU)
  • United Heartland
  • WellPoint
  • Zenith Insurance Company 
http://en.wikipedia.org/wiki/List_of_United_States_insurance_companies
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    21st Century Insurance

    21st Century Insurance is an auto insurance company and is wholly owned by the Farmers Insurance Group of Companies®. They are headquartered in Wilmington, Delaware, and provide private passenger auto insurance in 48 states and the District of Columbia.

    History

    21st Century Insurance was founded in 1958 by Louis W. Foster as an inter-insurance exchange offering auto insurance, primarily in California. Initially, the company was called 20th Century Insurance.
    The company was purchased in 2005 by AIG and then later sold in 2009 to Farmers Insurance Group of Companies®.

    Type:    Subsidiary
    Industry :      Insurance
    Founded:               Los Angeles, California, U.S. (1958)

    Headquarters:        Wilmington, Delaware, United States
    Area served :          U.S.
    Key people:             Anthony J. DeSantis, President and CEO
    Products:                 Auto Insurance
    Parent:                     Farmers Insurance Group
    Website:                   http://www.21st.com
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    Detecting insurance fraud

    The detection of insurance fraud generally occurs in two steps. The first step is to identify suspicious claims that have a higher possibility of being fraudulent. This can be done by computerized statistical analysis or by referrals from claims adjusters or insurance agents. Additionally, the public can provide tips to insurance companies, law enforcement and other organizations regarding suspected, observed, or admitted insurance fraud perpetrated by other individuals. Regardless of the source, the next step is to refer these claims to investigators for further analysis.
    Due to the sheer number of claims submitted each day, it would be far too expensive for insurance companies to have employees check each claim for symptoms of fraud.Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation. There are two main types of statistical analysis tools used: supervised and unsupervised. In both cases, suspicious claims are identified by comparing data about the claim to expected values. The main difference between the two methods is how the expected values are derived.
    In a supervised method, expected values are obtained by analyzing records of both fraudulent and non-fraudulent claims. According to Richard J. Bolton and David B. Hand, both of Imperial College in London, this method has some drawbacks as it requires absolutely certainty that those claims analyzed are actually either fraudulent or non-fraudulent, and because it can only be used to detect types of fraud that have been committed and identified before.
    Unsupervised methods of statistical detection, on the other hand, involve detecting claims that are abnormal. Both claims adjusters and computers can also be trained to identify “red flags,” or symptoms that in the past have often been associated with fraudulent claims. Statistical detection does not prove that claims are fraudulent; it merely identifies suspicious claims that need to be investigated further.
    Fraudulent claims can be one of two types. They can be otherwise legitimate claims that are exaggerated or “built up,” or they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identified, insurance companies usually try to negotiate the claim down to the appropriate amount. Suspicious claims can also be submitted to “special investigative units”, or SIUs, for further investigation. These units generally consist of experienced claims adjusters with special training in investigating fraudulent claims.These investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough.
    Determining fraud committed by the health insurance companies can sometimes be found be comparing revenues from premiums paid against the expenditure by the health insurance companies on claims.
    As an example, in 2006 the Harris County Medical Society, in Texas, had a health insurance rate increase of 22 percent for “consumer-driven” health plan from Blue Cross and Blue Shield of Texas. This was despite the fact that during the previous year Blue Cross had paid out only 9 percent of the collected premium dollars for claims.

    Legislation

    National and local governments, especially in the last half of the twentieth century, have recognized insurance fraud as a serious crime, and have made efforts to punish and prevent this practice. Some major developments are listed below:

    United States

    • Insurance Fraud is specifically classified as a crime in all states, though a minority of states only criminalize certain types (i.e. Oregon only outlaws Worker Compensation and Property Claim fraud).
    • 19 states require mandatory insurer fraud plans. This requires companies to form programs to combat fraud and in some cases to develop investigation units to detect fraud.
    • 41 states have fraud bureaus. These are law enforcement agencies where “investigators review fraud reports and begin the prosecution process.”
    • Section 1347 of Title 18 of the United States Code states that whoever attempts or carries out a “scheme or artifice” to “defraud a health care benefit program” will be “fined under this title or imprisoned not more than 10 years, or both.” If this scheme results in bodily injury, the violator may be imprisoned up to 20 years, and if the scheme results in death the violator may be imprisoned for life.

    Canada

    • The Insurance Crime Prevention Bureau was founded in 1973 to help fight insurance fraud. This organization collects information on insurance fraud, and also carries out investigations. Approximately one third of these investigations result in criminal conviction, one third result in denial of the claim, and one third result in payment of the claim.
    • British Columbia’s Traffic Safety Statutes Amendment Act of 1997 states that any person who submits a motor vehicle insurance claim that contains false or misleading information may on the first offence be fined C$25,000, imprisoned for two years, or both. On the second offense, that person may be fined C$50,000, imprisoned for two years, or both.

    United Kingdom

    • A major portion of the Financial Services Act of 1986 was intended to help prevent fraud.
    • The Serious Fraud Office, set up in 1987 under the Criminal Justice Act, was established to “improve the investigation and prosecution of serious and complex fraud.”
    • The Fraud Act 2006 specifically defines fraud as a crime. This act defines fraud as being committed when a person “makes a false representation,” “fails to disclose to another person information which he is under a legal duty to disclose,” or abuses a position in which he or she is “expected to safeguard, or not to act against, the financial interests of another person.” This act also defines the penalties for fraud as imprisonment up to ten years, a fine, or both.
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    Types of insurance fraud

    Life insurance Fraud

    An example of life insurance fraud is the John Darwin disappearance case, an ongoing investigation into the faked death of British former teacher and prison officer John Darwin, who turned up alive in December 2007, five years after he was thought to have died in a canoeing accident. Darwin was reported as "missing" after failing to report to work following a canoeing trip on March 21, 2002. He reappeared on December 1, 2007, claiming to have no memory of the past five years.

    Health care insurance Fraud

    According to The Coalition Against Insurance Fraud, health fraud depletes taxpayer-funded programs like Medicare, and may victimize patients in the hands of certain doctors. Some scams involve double-billing by doctors who charge insurers for treatments that never occurred, and surgeons who perform unnecessary surgery.
    According to Roger Feldman, Blue Cross Professor of Health Insurance at the University of Minnesota, one of the main reasons that medical fraud is such a prevalent practice is that nearly all of the parties involved find it favorable in some way. Many physicians see it as necessary to provide quality care for their patients. Many patients, although disapproving of the idea of fraud, are sometimes more willing to accept it when it affects their own medical care. Program administrators are often lenient on the issue of insurance fraud, as they want to maximize the services of their providers.
    The most common perpetrators of healthcare insurance fraud are health care providers. One reason for this, according to David Hyman, a Professor at the University of Maryland School of Law, is that the historically prevailing attitude in the medical profession is one of “fidelity to patients”. This incentive can lead to fraudulent practices such as billing insurers for treatments that are not covered by the patient’s insurance policy. To do this, physicians often bill for a different service, which is covered by the policy, than that which was rendered.
    Another motivation for insurance fraud in the healthcare industry, just as in all other types of insurance fraud, is a desire for financial gain. Public healthcare programs such as Medicare and Medicaid are especially conducive to fraudulent activities, as they are often run on a fee-for-service structure.Physicians use several fraudulent techniques to achieve this end. These can include “up-coding” or “upgrading,” which involve billing for more expensive treatments than those actually provided; providing and subsequently billing for treatments that are not medically necessary; scheduling extra visits for patients; referring patients to another physician when no further treatment is actually necessary; "phantom billing," or billing for services not rendered; and “ganging,” or billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services.
    Perhaps the greatest total dollar amount of fraud is committed by the health insurance companies themselves. There are numerous studies and articles detailing examples of insurance companies intentionally not paying claims and deleting them from their systems, denying and cancelling coverage, and the blatant underpayment to hospitals and physicians beneath what are normal fees for care they provide.Although difficult to obtain the information, this fraud by insurance companies can be estimated by comparing revenues from premium payments and expenditures on health claims.

    Automobile insurance Fraud

    The Insurance Research Council estimated that in 1996, 21 to 36 percent of auto-insurance claims contained elements of suspected fraud. There is a wide variety of schemes used to defraud automobile insurance providers. These ploys can differ greatly in complexity and severity. Richard A. Derrig, vice president of research for the Insurance Fraud Bureau of Massachusetts, lists several ways that auto-insurance fraud can occur.
    Examples of soft auto-insurance fraud can include filing more than one claim for a single injury, filing claims for injuries not related to an automobile accident, misreporting wage losses due to injuries, or reporting higher costs for car repairs than those that were actually paid. Hard auto-insurance fraud can include activities such as staging automobile collisions, filing claims when the claimant was not actually involved in the accident, submitting claims for medical treatments that were not received, or inventing injuries. Hard fraud can also occur when claimants falsely report their vehicle as stolen. Soft fraud accounts for the majority of fraudulent auto-insurance claims.
    Another example is that a person may illegally register their car to a location that would net them cheaper insurance rates than where they actually live, sometimes called "rate evasion". For example, some drivers in Brooklyn drive with Pennsylvania license plates because registering their car in a rural part of Pennsylvania will cost a lot less than registering it in Brooklyn. Another form of automobile insurance fraud, known as "fronting," involves registering someone other than the real primary driver of a car as the primary driver of the car. For example, parents might list themselves as the primary driver of their children's vehicles to avoid young driver premiums.
    "Crash for cash" scams may involve random unaware strangers, set to appear as the perpetrators of the orchestrated crashes. Such techniques are the classic rear-end shunt (the driver in front suddenly slams on the brakes, eventually with brake lights disabled), the decoy rear-end shunt (when following one car, another one pulls in front of it, causing it to brake sharply, then the first car drives off) or the helpful wave shunt (the driver is waved in to a line of queuing traffic by the scammer who promptly crashes, then denies waving)
    Organized crime rings can also be involved in auto-insurance fraud, sometimes carrying out schemes that are very complex. An example of one such ploy is given by Ken Dornstein, author of Accidentally, on Purpose: The Making of a Personal Injury Underworld in America. In this scheme, known as a “swoop-and-squat,” one or more drivers in “swoop” cars force an unsuspecting driver into position behind a “squat” car. This squat car, which is usually filled with several passengers, then slows abruptly, forcing the driver of the chosen car to collide with the squat car. The passengers in the squat car then file a claim with the other driver’s insurance company. This claim often includes bills for medical treatments that were not necessary or not received.
    An incident that took place on Golden State Freeway June 17, 1992, brought public attention to the existence of organized crime rings that stage auto accidents for insurance fraud. These schemes generally consist of three different levels. At the top, there are the professionals--doctors or lawyers who diagnose false injuries and/or file fraudulent claims and these earn the bulk of the profits from the fraud. Next are the "cappers" or "runners", the middlemen who obtain the cars to crash, farm out the claims to the professionals at the top, and recruit participants. These participants at the bottom-rung of the scheme are desperate people (poor immigrants or others in need of quick cash) who are paid around $1000 USD to place their bodies in the paths of cars and trucks, playing a kind of Russian roulette with their lives and those of unsuspecting motorists around them. According to investigators, cappers usually hire within their own ethnic groups. What makes busting these staged-accident crime rings difficult is how quickly they move into jurisdictions with lesser enforcement, after a crackdown in a particular region. As a result, in the US several levels of police and the insurance industry have cooperated in forming task forces and sharing databases to track claim histories.
    In the United Kingdom, there is an increasing incidence of false whiplash claims to car insurance companies from motorists involved in minor car accidents (for instance; a shunt). Because the mechanism of injury is not fully understood, A&E doctors have to rely on a patient's external symptoms (which are easy to fake). Resultingly, "no win no fee" personal injury solicitors exploit this "loophole" for easy compensation money (often a £2500 payout). Ultimately this has resulted in increased motor insurance premiums, which has had the knock-on effect of pricing younger drivers off the road.

    Property insurance Fraud

    Possible motivations for this can include obtaining payment that is worth more than the value of the property destroyed, or to destroy and subsequently receive payment for goods that could not otherwise be sold. According to Alfred Manes, the majority of property insurance crimes involve arson.One reason for this is that any evidence that a fire was started by arson is often destroyed by the fire itself. According to the United States Fire Administration, in the United States there were approximately 31,000 fires caused by arson in 2006, resulting in losses of $755 million. Example: The Moulin Rouge in Las Vegas was struck by arson twice within 6 years

    Council compensation claims

    The fraud involving claims from the councils' insurers suppose staging damages blamable on the local authorities (mostly falls and trips on council owned land) or inflating the value of existing damages.
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    Insurance fraud

    Insurance fraud is any act committed with the intent to fraudulently obtain payment from an insurer.
    Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise.Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are very diverse, and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities also affect the lives of innocent people, both directly through accidental or purposeful injury or damage, and indirectly as these crimes cause insurance premiums to be higher. Insurance fraud poses a very significant problem, and governments and other organizations are making efforts to deter such activities

    Causes

    The “chief motive in all insurance crimes is financial profit.”Insurance contracts provide both the insured and the insurer with opportunities for exploitation. One reason that this opportunity arises is in the case of over-insurance, when the amount insured is greater than the actual value of the property insured. This condition can be very difficult to avoid, especially since an insurance provider might sometimes encourage it in order to obtain greater profits. This allows fraudsters to make profits by destroying their property because the payment they receive from their insurers is of greater value than the property they destroy.
    Insurance companies are also susceptible to fraud because false insurance claims can be made to appear like ordinary claims. This allows fraudsters to file claims for damages that never occurred, and so obtain payment with little or no initial cost.
    The most common form of insurance fraud is inflating of loss. 

    Losses due to insurance fraud

    It is virtually impossible to determine an exact value for the amount of money stolen through insurance fraud. Insurance fraud is designed to be undetectable, unlike visible crimes such as robbery or murder. As such, the number of cases of insurance fraud that are detected is much lower than the number of acts that are actually committed.The best that can be done is to provide an estimate for the losses that insurers suffer due to insurance fraud. The Coalition Against Insurance Fraud estimates that in 2006 a total of about $80 billion was lost in the United States due to insurance fraud.According to estimates by the Insurance Information Institute, insurance fraud accounts for about 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses.The National Health Care Anti-Fraud Association estimates that 3% of the health care industry’s expenditures in the United States are due to fraudulent activities, amounting to a cost of about $51 billion. Other estimates attribute as much as 10% of the total healthcare spending in the United States to fraud—about $115 billion annually.In the United Kingdom, the Insurance Fraud Bureau estimates that the loss due to insurance fraud in the United Kingdom is about £1.5 billion ($3.08 billion), causing a 5% increase in insurance premiums. The Insurance Bureau of Canada estimates that personal injury fraud in Canada costs about C$500 million annually.


    Hard vs. soft fraud

    Insurance fraud can be classified as either hard fraud or soft fraud.
    Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to receive payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.
    Soft fraud, which is far more common than hard fraud, is sometimes also referred to as opportunistic fraud. This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in a collision an insured person might claim more damage than was really done to his or her car. Soft fraud can also occur when, while obtaining a new insurance policy, an individual misreports previous or existing conditions in order to obtain a lower premium on their insurance policy.
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    Insurance patent

    Under some patent laws, patents may be obtained for insurance-related inventions. Historically, patents could only cover the technological aspects of a new insurance invention. This is still the case in most countries. In the United States, however, recent court decisions have encouraged more inventors to file patent applications on methods of doing business. These patents may be used to get more comprehensive coverage of improvements in basic insurance processes, such as the methods of calculating premiums, reserves, underwriting, etc. This is causing controversy in the insurance industry as some see it as a positive development and others see it as a negative development.

    Growth

    Historically, only about one or two patents per year issued in the US on inventions specifically related to insurance policies.
    This changed dramatically, however, with the 1998 State Street Bank Decision. The State Street Bank Decision was a ruling by the Court of Appeals for the Federal Circuit that confirmed that there was no “business method exception” under United States patent law. The number of patent applications filed per year after this decision was handed down jumped to about 150. The number of patents issuing per year jumped to about 30

    Litigation

    In September 2006, Lincoln National Corporation filed a patent infringement lawsuit against Transamerica Life Insurance Company and other entities for allegedly infringing U.S. Patent 7,089,201, “Method and apparatus for providing retirement income benefits”. This patent covers methods for administering variable annuities. The jury found the patent valid and infringed. The court ordered Transamerica to pay Lincoln $13 million in damages. At a rate of 11 basis points of assets under management, this was considered a reasonable royalty. In June 2010, however, the verdict against Transamerica was overturned on appeal
    In June 2010, Progressive Auto Insurance filed a patent infringement lawsuit against Liberty Mutual over one of Progressive’s Pay As You Drive auto insurance patents

    Controversy

    Some in the insurance industry see the growth in insurance patents as a positive development. They cite that by being able to protect inventions, insurance companies will be more inclined to invest in new product development.
    Some are concerned that the growth in patent claims will be negative. They are concerned that invalid patents will issue and that this will lead to patent trolls inhibiting new product introductions by demanding excessive license fees for these questionable patents.

    Notable patents

    • EP 0700009 “Individual evaluation system for motorcar risk”. First patent on telematic automobile insurance. Commercialized as PAYD auto insurance in the UK.
    • US 6235176 “Computer apparatus and method for defined contribution and profit sharing pension and disability plan”. Patented disability insurance for a defined contribution pension plans. Adopted by IBM for their employees.
    http://en.wikipedia.org/wiki/Insurance_patent
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    Controversies Of Insurance

    Insurance insulates too much

    In United States, an insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer), a concept known as moral hazard. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability.
    For example, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports. Liability insurance providers do not provide coverage for liability arising from intentional torts committed by or at the direction of the insured. Even if a provider were so irrational as to want to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal

    Complexity of insurance policy contracts

    [[[[[[[[[[[[[[[[[[[[[[9/11 was a major insurance loss, but there were disputes over the World Trade Center's insurance policy]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]
    Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.
    For example, most insurance policies in the English language today have been carefully drafted in plain English; the industry learned the hard way that many courts will not enforce policies against insureds when the judges themselves cannot understand what the policies are saying. Typically, courts construe ambiguities in insurance policies against the insurance company and in favor of coverage under the policy.
    Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer (not the insurance company), and typically counsels the buyer on appropriate coverage and policy limitations, it should be noted that in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.
    Insurance may also be purchased through an agent. Unlike a broker, who represents the policyholder, an agent represents the insurance company from whom the policyholder buys. Just as there is a potential conflict of interest with a broker, an agent has a different type of conflict. Because agents work directly for the insurance company, if there is a claim the agent may advise the client to the benefit of the insurance company. It should also be noted that agents generally can not offer as broad a range of selection compared to an insurance broker.
    An independent insurance consultant advises insureds on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers and/or agents. However, such a consultant must still work through brokers and/or agents in order to secure coverage for their clients.

    Limited consumer benefits

    In United States, conomists and consumer advocates generally consider insurance to be worthwhile for low-probability, catastrophic losses, but not for high-probability, small losses. Because of this, consumers are advised to select high deductibles and to not insure losses which would not cause a disruption in their life. However, consumers have shown a tendency to prefer low deductibles and to prefer to insure relatively high-probability, small losses over low-probability, perhaps due to not understanding or ignoring the low-probability risk.This is associated with reduced purchasing of insurance against low-probability losses, and may result in increased inefficiencies from moral hazard.

    Redlining

    Redlining is the practice of denying insurance coverage in specific geographic areas, supposedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Racial profiling or redlining has a long history in the property insurance industry in the United States. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.
    In July, 2007, The Federal Trade Commission (FTC) released a report presenting the results of a study concerning credit-based insurance scores in automobile insurance. The study found that these scores are effective predictors of risk. It also showed that African-Americans and Hispanics are substantially overrepresented in the lowest credit scores, and substantially underrepresented in the highest, while Caucasians and Asians are more evenly spread across the scores. The credit scores were also found to predict risk within each of the ethnic groups, leading the FTC to conclude that the scoring models are not solely proxies for redlining. The FTC indicated little data was available to evaluate benefit of insurance scores to consumers.The report was disputed by representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice, for relying on data provided by the insurance industry.
    All states have provisions in their rate regulation laws or in their fair trade practice acts that prohibit unfair discrimination, often called redlining, in setting rates and making insurance available.
    In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used.
    An insurance underwriter's job is to evaluate a given risk as to the likelihood that a loss will occur. Any factor that causes a greater likelihood of loss should theoretically be charged a higher rate. This basic principle of insurance must be followed if insurance companies are to remain solvent. Thus, "discrimination" against (i.e., negative differential treatment of) potential insureds in the risk evaluation and premium-setting process is a necessary by-product of the fundamentals of insurance underwriting. For instance, insurers charge older people significantly higher premiums than they charge younger people for term life insurance. Older people are thus treated differently than younger people (i.e., a distinction is made, discrimination occurs). The rationale for the differential treatment goes to the heart of the risk a life insurer takes: Old people are likely to die sooner than young people, so the risk of loss (the insured's death) is greater in any given period of time and therefore the risk premium must be higher to cover the greater risk. However, treating insureds differently when there is no actuarially sound reason for doing so is unlawful discrimination.
    What is often missing from the debate is that prohibiting the use of legitimate, actuarially sound factors means that an insufficient amount is being charged for a given risk, and there is thus a deficit in the system. The failure to address the deficit may mean insolvency and hardship for all of a company's insureds. The options for addressing the deficit seem to be the following: Charge the deficit to the other policyholders or charge it to the government (i.e., externalize outside of the company to society at large)

    The insurance industry and rent-seeking

    Certain insurance products and practices have been described as rent-seeking by critics. That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events. Under United States tax law, for example, most owners of variable annuities and variable life insurance can invest their premium payments in the stock market and defer or eliminate paying any taxes on their investments until withdrawals are made. Sometimes this tax deferral is the only reason people use these products.Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds themselves are immune from the estate tax.

    Religious concerns

    Muslim scholars have varying opinions about insurance. Insurance policies that earn interest are generally considered to be a form of riba (usury) and some consider even policies that do not earn interest to be a form of gharar (speculation). Some argue that gharar is not present due to the actuarial science behind the underwriting.
    Jewish rabbinical scholars also have expressed reservations regarding insurance as an avoidance of God's will but most find it acceptable in moderation.
    Some Christians believe insurance represents a lack of faith and there is a long history of resistance to commercial insurance in Anabaptist communities (Mennonites, Amish, Hutterites, Brethren in Christ) but many participate in community-based self-insurance programs that spread risk within their communities.
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    Regulation of insurance companies

    Insurance regulation that governs the business of insurance is typically aimed at assuring the solvency of insurance companies. Thus, this type of regulation governs capitalization, reserve policies, rates and various other "back office" processes.

    Insurance in European Union

    Insurance in United Kingdom

    Insurance in United States

    Insurance in Rest of World

     

     

     

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    Insurance in World

    Every developed sovereign state regulates the provision of insurance in different ways. Some regulate all insurance activity taking place within the particular jurisdiction, but allow their citizens to purchase insurance "offshore". Others restrict the extent to which their citizens may contract with non-locally regulated insurers. Still others do both. In consequence, a complicated muddle has developed in which many international insurers provide insurance coverage on an unlicensed or "non-admitted" basis with little or no knowledge of whether the particular jurisdiction in or into which cover is provided is one that prohibits the provision of insurance cover or the doing of insurance business without a licence.
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    Insurance in United States

    Insurance in the United States refers to the market for risk in the United States of America. Insurance, generally, is a contract in which the insurer (stock insurance company, mutual insurance company, reciprocal, or Lloyd's syndicate, for example), agrees to compensate or indemnify another party (the insured, the policyholder or a beneficiary) for specified loss or damage to a specified thing (e.g., an item, property or life) from certain perils or risks in exchange for a fee (the insurance premium).For example, a property insurance company may agree to bear the risk that a particular piece of property (e.g., a car or a house) may suffer a specific type or types of damage or loss during a certain period of time in exchange for a fee from the policyholder who would otherwise be responsible for that damage or loss. That agreement takes the form of an insurance policy.

    The State-Based Insurance Regulatory System

    Historically, the insurance industry in the United States was regulated almost exclusively by the individual state governments. The first state commissioner of insurance was appointed in New Hampshire in 1851 and the state-based insurance regulatory system grew as quickly as the insurance industry itself.Prior to this period, insurance was primarily regulated by corporate charter, state statutory law and de facto regulation by the courts in judicial decisions.

    Under the state-based insurance regulation system, each state operates independently to regulate their own insurance markets, typically through a state department of insurance. Stretching back as far as the Paul v. Virginia case in 1869, challenges to the state-based insurance regulatory system have risen from various groups, both within and without the insurance industry. The state regulatory system has been described as cumbersome, redundant, confusing and costly.

    The United States Supreme Court found in the 1944 case of United States v. South-Eastern Underwriters Association that the business of insurance was subject to federal regulation under the Commerce Clause of the U.S. Constitution.The United States Congress, however, responded almost immediately with the McCarran-Ferguson Act in 1945. The McCarran-Ferguson Act specifically provides that the regulation of the business of insurance by the state governments is in the public interest. Further, the Act states that no federal law should be construed to invalidate, impair or supersede any law enacted by any state government for the purpose of regulating the business of insurance, unless the federal law specifically relates to the business of insurance.

    A wave of insurance company insolvencies in the 1980s sparked a renewed interest in federal insurance regulation, including new legislation for a dual state and federal system of insurance solvency regulation In response, the National Association of Insurance Commissioners (NAIC) adopted several model reforms for state insurance regulation, including risk-based capital requirements, financial regulation accreditation standards and an initiative to codify accounting principles. As more and more states enacted versions of these model reforms into law, the pressure for federal reform of insurance regulation waned.

    The NAIC acts as a forum for the creation of model laws and regulations. Each state decides whether to pass each NAIC model law or regulation, and each state may make changes in the enactment process, but the models are widely, albeit somewhat irregularly, adopted. The NAIC also acts at the national level to advance laws and policies supported by state insurance regulators. NAIC model acts and regulations provide some degree of uniformity between states, but these models do not have the force of law and have no effect unless they are adopted by a state. They are, however, used as guides by most states, and some states adopt them with little or no change.

    Federal Regulation of Insurance

    Nevertheless, federal regulation has continued to encroach upon the state regulatory system. The idea of an optional federal charter was first raised after a spate of solvency and capacity issues plagued property and casualty insurers in the 1970s. This OFC concept was to establish an elective federal regulatory scheme that insurers could opt into from the traditional state system, somewhat analogous to the dual-charter regulation of banks. Although the optional federal chartering proposal was defeated in the 1970s, it became the precursor for a modern debate over optional federal chartering in the last decade.

    In 1979 and the early 1980s the Federal Trade Commission attempted to regulate the insurance industry, but the Senate Commerce Committee voted unanimously to prohibit the FTC's efforts. President Jimmy Carter attempted to create an "Office of Insurance Analysis" in the Treasury Department, but the idea was abandoned under industry pressure.

    Over the past decade, renewed calls for optional federal regulation of insurance companies have sounded, including the Gramm-Leach-Bliley Act in 1999, the proposed National Insurance Act in 2006 and the Patient Protection and Affordable Care Act in 2010. 

    In 2010, Congress passed the Dodd–Frank Wall Street Reform and Consumer Protection Act which is touted by some as the most sweeping financial regulation overhaul since the Great Depression. The Dodd-Frank Act has significant implications for the insurance industry. Significantly, Title V of created the Federal Insurance Office (FIO) in the Department of the Treasury. The FIO is authorized to monitor all aspects of the insurance industry and identify any gaps in the state-based regulatory system. The Dodd-Frank Act also establishes the Financial Stability Oversight Council (FSOC), which is charged with monitoring the financial services markets, including the insurance industry, to identify potential risks to the financial stability of the United States.

    Organization

    Insurers in the U.S. may be "admitted," meaning that they have been formally admitted to a state's insurance market by the state insurance commissioner, and are subject to various state laws governing organization, capitalization, and claims handling. Or they may be "surplus," meaning that they are nonadmitted in a particular state but are willing to write coverage there. Surplus insurers are supposed to underwrite only very unusual risks. Although insurance brokers are well aware of what risks an admitted insurer will not accept, they must go through a ritual of shopping around a risk to admitted insurers (who will reject it, of course) before applying for coverage with a surplus insurer.
    Only the smallest insurers exist as a single corporation. Most major insurance companies actually exist as insurance groups. That is, they consist of holding companies which own several admitted and surplus insurers (and sometimes a few excess insurers and reinsurers as well). There are dramatic variations from one insurance group to the next in terms of how its various business functions are divided up among its subsidiaries or outsourced to third party corporations altogether.
    An example of how insurance groups work is that when people call GEICO and ask for a rate quote, they are actually speaking to GEICO Insurance Agency, which may then write a policy from any one of GEICO's four insurance companies. The customer then pays their premium to one of those four insurance companies (the one that actually wrote their policy), and any claims against their policy are charged to the issuing company. But as far as most layperson customers know, they are simply dealing with GEICO.

    Types

    • Life, Health, and Variable Annuities
      • Health (dental, vision, medications)
      • Life (long-term care, accidental death and dismemberment, hospital indemnity)
      • Annuities (securities)
      • Life and Annuities
    • Property and Casualty (P n C)
      • Property (flood, earthquake, home, auto, fire, boiler, pet)
      • Casualty (errors and omissions, workers' compensation, disability, liability)
    • Reinsurance

    Institutions

    Various associations, government agencies, and companies serve the insurance industry in the United States. The National Association of Insurance Commissioners provides models for standard state insurance law, and provides services for its members, which are the state insurance divisions. Many insurance providers use the Insurance Services Office, which produces standard policy forms and rating loss costs and then submits these documents on the behalf of member insurers to the state insurance divisions.

    Definition

    In recent years this kind of operational definition proved inadequate as a result of contracts that had the form but not the substance of insurance. The essence of insurance is the transfer of risk from the insured to one or more insurers. How much risk a contract actually transfers proved to be at the heart of the controversy. This issue arose most clearly in reinsurance, where the use of Financial Reinsurance to reengineer insurer balance sheets under US GAAP became fashionable during the 1980s. The accounting profession raised serious concerns about the use of reinsurance in which little if any actual risk was transferred, and went on to address the issue in FAS 113, cited above. While on its face, FAS 113 is limited to accounting for reinsurance transactions, the guidance it contains is generally conceded to be equally applicable to US GAAP accounting for insurance transactions executed by commercial enterprises.

    Risk transfer requirement

    FAS 113 contains two tests, called the '9a and 9b tests,' that collectively require that a contract create a reasonable chance of a significant loss to the underwriter for it to be considered insurance.
    9. Indemnification of the ceding enterprise against loss or liability relating to insurance risk in reinsurance of short-duration contracts requires both of the following, unless the condition in paragraph 11 is met:
    a. The reinsurer assumes significant insurance risk under the reinsured portions of the underlying insurance contracts.
    b. It is reasonably possible that the reinsurer may realize a significant loss from the transaction.
    Paragraph 10 of FAS 113 makes clear that the 9a and 9b tests are based on comparing the present value of all costs to the PV of all income streams. FAS gives no guidance on the choice of a discount rate on which to base such a calculation, other than to say that all outcomes tested should use the same rate.
    Statement of Statutory Accounting Principles ("SSAP") 62, issued by the National Association of Insurance Commissioners, applies to so-called 'statutory accounting' - the accounting for insurance enterprises to conform with regulation. Paragraph 12 of SSAP 62 is nearly identical to the FAS 113 test, while paragraph 14, which is otherwise very similar to paragraph 10 of FAS 113, additionally contains a justification for the use of a single fixed rate for discounting purposes. The choice of an "reasonable and appropriate" discount rate is left as a matter of judgment.

    No brightline test

    Neither FAS 113 nor SAP 62 defines the terms reasonable or significant. Ideally, one would like to be able to substitute values for both terms. It would be much simpler if one could apply a test of an X percent chance of a loss of Y percent or greater. Such tests have been proposed, including one famously attributed to an SEC official who is said to have opined in an after lunch talk that at least a 10 percent chance of at least a 10 percent loss was sufficient to establish both reasonableness and significance. Indeed, many insurers and reinsurers still apply this "10/10" test as a benchmark for risk transfer testing.
    An attempt to use any numerical rule such as the 10/10 test will quickly run into problems. Suppose a contract has a 1 percent chance of a 10,000 percent loss? It should be reasonably self-evident that such a contract is insurance, but it fails one half of the 10/10 test.
    Excess of loss contracts, like those commonly used for umbrella and general liability insurance, or to insure against property losses, will typically have a low ratio of premium paid to maximum loss recoverable. This ratio (expressed as a percentage), commonly called the "rate on line" for historical reasons related to underwriting practices at Lloyd's of London, will typically be low for contracts that contain reasonably self-evident risk transfer. As the ratio increases to approximate the present value of the limit of coverage, self-evidence decreases and disappears.
    Contracts with low rates on line may survive modest features that limit the amount of risk transferred. As rates on line increase, such risk limiting features become increasingly important.

    "Safe harbor" exemptions

    The analysis of reasonableness and significance is an estimate of the probability of different gain or loss outcomes under different loss scenarios. It takes time and resources to perform the analysis, which constitutes a burden without value where risk transfer is reasonably self-evident.
    Guidance exists for insurers and reinsurers, whose CEO's and CFO's attest annually as to the reinsurance agreements their firms undertake. The American Academy of Actuaries, for instance, identifies three categories of contract as outside the requirement of attestation:
    • Inactive contracts. If there are no premiums due nor losses payable, and the insurer is not taking any credit for the reinsurance, determining risk transfer is irrelevant.
    • Pre-1994 contracts. The attestation requirement only applies to contracts that were entered into, renewed or amended on or after 1 January 1994. Prior contracts need not be analyzed.
    • Where risk transfer is "reasonably self-evident."
    “ Risk transfer is reasonably self-evident in most traditional per-risk or per-occurrence excess of loss reinsurance contracts. For these contracts, a predetermined amount of premium is paid and the reinsurer assumes nearly all or all of the potential variability in the underlying losses, and it is evident from reading the basic terms of the contract that the reinsurer can incur a significant loss. In many cases, there is no aggregate limit on the reinsurer's loss. The existence of certain experience-based contract terms, such as experience accounts, profit commissions, and additional premiums, generally reduce the amount of risk transfer and make it less likely that risk transfer is reasonably self-evident. ”

    Risk limiting features

    An insurance policy should not contain provisions that allow one side or the other to unilaterally void the contract in exchange for benefit. Provisions that void the contract for failure to perform or for fraud or material misrepresentation are ordinary and acceptable.
    The policy should have a term of not more than about three years. This is not a hard and fast rule. Contracts of over five years duration are classified as ‘long-term,’ which can impact the accounting treatment, and can obviously introduce the possibility that over the entire term of the contract, no actual risk will transfer. The coverage provided by the contract need not cease at the end of the term (e.g., the contract can cover occurrences as opposed to claims made or claims paid).
    The contract should be considered to include any other agreements, written or oral, that confer rights, create obligations, or create benefits on the part of either or both parties. Ideally, the contract should contain an ‘Entire Agreement’ clause that assures there are no undisclosed written or oral side agreements that confer rights, create obligations, or create benefits on the part of either or both parties. If such rights, obligations or benefits exist, they must be factored into the tests of reasonableness and significance.
    The contract should not contain arbitrary limitations on timing of payments. Provisions that assure both parties of time to properly present and consider claims are acceptable provided they are commercially reasonable and customary.
    Provisions that expressly create actual or notional accounts that accrue actual or notional interest suggest that the contract contains, in fact, a deposit.
    Provisions for additional or return premium do not, in and of themselves, render a contract something other than insurance. However, it should be unlikely that either a return or additional premium provision be triggered, and neither party should have discretion regarding the timing of such triggering.
    All of the events that would give rise to claims under the contract cannot have materialized prior to the inception of the contract. If this "all events" test is not met, then the contract is considered to be a retroactive contract, for which the accounting treatment becomes complex.


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    Insurance in United Kingdom

    Insurance in the United Kingdom, particularly long-term insurance, is divided into different categories. The categorisation is currently set out in sections 333B, and 431B to 431F of the Income and Corporation Taxes Act 1988 (ICTA) with each category of business given a different tax treatment.

    Categorisation

    Life and non-life

    The first basic categorisation of long-term insurance is between life and non-life business. Life insurance business is insurance that is contingent on human life. Examples would include a policy that pays out £100,000 if the policy holder dies within a specified time; a policy that pays out £100,000 in 10 years time, but will pay out £101,000 if the policy holder dies before the policy matures; a pension in payment, which will end once the pensioner dies.
    The main example of non-life long-term insurance business is permanent health insurance, but the category includes pensions management. Capital redemption business, which is business written for a premium in exchange for a payment of an annuity over a period of, say, 99 years, is also long-term non-life business. However, for taxation purposes, only capital redemption business written before 1 January 1938 is treated as non-life assurance business.

    Basic life assurance and general annuity business

    Basic life assurance and general annuity business is defined as being life assurance business not fitting within any other category of business under section 431F ICTA. It is often abbreviated to BLAGAB. BLAGAB is taxed on the so called "I minus E basis" (i.e. the company is taxed on its investment return minus its expenses of management). The I minus E basis raises the UK Exchequer more revenue than it would get if it were taxed on a trading basis. This is because a trading computation would tax Premiums plus Investment return minus Expenses minus Claims, and the expectation is that policy holder claims will be greater than the premiums they pay, as policy holders tend to hold life assurance policies as an investment that they hope will grow. To ensure the Exchequer does not lose out in a year where a trading basis would yield greater tax revenues, E (expenses of management) is restricted so the I minus E cannot be lower than the measure of trading profits, with any restricted E being carried forward and deemed to be E of the subsequent period.
    Before 1 January 1992, there were separate tax computations for basic life assurance business and for general annuity business, since then the two categories have been combined into BLAGAB.
    Capital redemption business written since 31 December 1937 has been treated as though it were BLAGAB from the first accounting period of a company ending on or after 1 July 1999. Before then, it was treated as a separate business taxed on an I minus E basis

    Pension business

    The concept of pension business, in section 431B ICTA, was introduced in the Finance Act 1956, which was introduced as a tax-advantaged way of saving for retirement. The tax advantage comes through taxing it on a trading profit basis rather than on an I minus E basis. The precise definition of what it constitutes is closely defined by statute so that only schemes approved by the Government qualify for the tax advantages. Pension business includes business relating both to the accrual of pension benefits whilst the policy holder is working and pensions in payment. Pension business includes reinsurance of pension business.

    Life reinsurance business

    Life reinsurance business is broadly just that: the reinsurance of life assurance business, but there are some exceptions. The concept of life reinsurance business was introduced in 1995 as part of an anti-avoidance measure and is in section 431B ICTA. Companies writing basic life assurance and general annuity business were reinsuring their business with reinsurers, typically in Bermuda, but sometimes to another UK company or to another country that would not be taxed on its investment return. Later on they would receive reinsurance recoveries equal to the premiums the UK company paid plus investment return, minus the expenses and profits of the Bermudian reinsurer. The UK company would therefore have converted taxable investment return into a reinsurance recovery and would not be taxed on the reinsurance recovery.
    The 1995 Finance Act changed the law to impose an imputed investment return on the UK company. In order to avoid double taxation, a UK company reinsuring this business needed to not be taxed on the same investment return again: therefore "life reinsurance business" was born. There are exemptions to the rules for UK companies within the same group with 90% common ownership, where the imputed investment return would be negligible or nil, and where the reinsurer is in the European Union and is taxed on a regime that produces a result equivalent to I minus E.

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