Well the Mayan calender may be coming to an end and the planets aligned with the centre of the universe, but I’m sure well see just as many interesting developments in Insurance in 2012!

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1. Apocalypse Now for Natural Disaster Insurance Claims
2. Lloyds prepares for Solar Meltdown!

Insurance Blog is remembering the hundreds of insurance workers and employees who perished in the WTC ten years ago.

Related posts:

1. 9/11 Insurance Workers Remembered

Part Eight: The emergence of Lloyd’s as the worlds major insurance organisation:

In the previous article in this series we learnt about the humble beginnings of Lloyd’s as a relatively small coffee shop on Tower street. Whether it was an incredible piece of foresight or simple luck Lloyd developed a very specific clientèle of sailors, ship owners and merchants for boat insurance and marine cargo insurance risks.

Lloyds wasn’t the only coffee shop to do insurance business but it set the standards. In 1748 nearly one hundred houses including the famous coffef houses of Jonathan’s, Garraways and others were destroyed by a fire that ravaged Cornhill and in which scores of people perished and damage to the exent of £200,000 (nearly 200million in todays money) was caused. This event and another in the Cornhill when it was again destroyed by fire in 1765, left Lloyds in a prominent trading position.

It is evident however, that Lloyd cultivated this customer base by providing reliable and regular updates on the shipping news to those that visited his coffee house and soon Lloyd’s had established itself as a focal point within the very heart of the Shipping industry.

It was therefore inevitable that the coffee shop also quickly became a second home to a number of early insurers seeking to business with the Lloyd’s clientèle. Similarly it soon became accepted that if you were a merchant seeking insurance, then Lloyd’s was always a recommended first port of call. In fact within just three years Lloyd’s had grown to a level of importance and popularity that a new location was required and Lloyd moved his coffee shop to Lombard St – where it would remain for the next 83, years long after Lloyd himself had passed away.

As Britain established itself as a leading economic power through the exploitation of the slave trade, the shipping industry was at the heart of this economic boom. As slave trading was a high risk trade (1053 slave vessels are recorded as having been lost between 1689 and 1807) the insurers of Lloyd’s also found themselves in high demand.

Lloyd himself died in 1713 however his legacy remained strong.

In 1774 when the participating members of the insurance arrangement formed a committee and moved to the Royal Exchange in London, they became The Society of Lloyd’s. The Society’s objectives included the promotion of its members’ interests and the collection and dissemination of information amongst members helping them to further dominate the marine insurance industry which indeed they had created.

The first Lloyd’s act was passed in parliament in 1871 and it was this act that gave the Society a firm footing both  commercially and legally and it continued to remain at the heart of the insurance industry, growing in tandem with the industry to eventually become one of the most powerful and well respected organisations in the world today.

In fact in many ways very little of Lloyd’s of London then changed for almost a century and this is even true of their motor insurance risks department. The membership of the society, which was made up in the main of market participants, became the market specialists. Lloyd’s continued to grow, and it’s members continued to flourish, mostly due to the force of economics. Insurance moved from being desirable to essential across just a few centuries. If you were in shipping you needed marine insurance. If you needed marine insurance you got it from Lloyd’s. It was as simple as that.

However, eventually the bubble had to burst. Just under a hundred years after the first Lloyd’s Act had been passed, the membership of Lloyd’s was realised to be too small for the risks that it was underwriting. The Cromer report commissioned in 1968 advocated opening membership options to both non-market participants and crucially to non-British subjects for the first time.

The insurance industry had become a global industry and Lloyd’s had to adapt to survive. In the next article in this series we shall explore the rise of insurance in the US and how they too had to adapt to the globalisation of the industry within the twentieth century.

Related posts:

1. A Brief History of Insurance: Part 7 Lloyds and the London Market
2. A Brief History of Insurance: Part 1 The Ancient World
3. A look at Lloyd’s Insurance Market

However a bit of light relief went around the office with the results of the Insurance company department favourite gameshows of all time poll.

Here are the results in no particular order…….

Insurance All Time Favourite Game Shows

Underwriters – Jeopardy
Loss Adjusters – The Price is Right
Actuaries – 15 to One
Marketing Department – Catchphrase
Claims  – Total Wipeout
Accounts – Double Your Money
New Business – Blind Date
Personnel – Britains Got Talent
Senior Management – Big Brother
Claims Fraud – Give Us a Clue
IT Dept – Eggheads
Call Centre – 100 to 1
Products Department – Take it or Leave it
Risk Assessors – The Weakest Link
Account Executives – In it to Win it

Well its nearly silly season…

If your Insurance company department has a favourite gameshow or even maybe a favourite song, write and let us know at the email address at the bottom of the page……

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1. Public Sector Employees Facing Redundancy Should Consider Unemployment Insurance
2. UK Finance Giants withdraw Unemployment Mortgage Protection Insurance for own employees
3. How Insurance Companies Use Your Credit Rating To Decide Your Premiums

The UK has just introduced new bribery laws and one area that could fall foul of this,  is that of corporate entertainment.

Well certainly not in Germany, and especially if you work for Munich Re, one of the worlds largest reinsurance companies who threw an orgy in a spa baths complete with prostitutes for all its major clients and top staff, according to a report on Radio 5 of the BBC!

One of Munich Re’s divisions, Ergo, told the BBC that the party had taken place to reward salesmen in 2007.

A spokesman said the people who organised it had since left.

The gathering was held at a thermal baths in the Hungarian capital Budapest as a reward to particularly successful salesmen.

‘Whatever they liked’

There were about 100 guests and 20 prostitutes were hired. There was one prostitute for every five guests.

A German business newspaper said the prostitutes had worn colour-coded arm-bands designating their availability, and the women had their arms stamped after each service rendered.

According to Handelsblatt, quoting an unnamed participant, guests were able to take the women to four-poster beds at the spa “and do whatever they liked”.

“After each such encounter the women were stamped on the lower arm in order to keep track of how often each woman was frequented,” the paper quoted the man as saying.

“The women wore red and yellow wrist bands. One lot were hostesses, the others would fulfil your every wish.

“There were also women with white wrist bands. They were reserved for board members and the very best sales reps.”

A spokesman for Ergo told the BBC that the party had happened, but said it was not the usual way of rewarding their employees.

The company said it had introduced a new code of conduct.

“We’ve taken all the right steps to prevent it happening again,” he said. “It was a mistake but we are very sure that it was a unique event.

“The new people of the sales organisation introduced a very personal commitment that these things should not happen again.”

Insurance Blog does not suggest that you approach your marketing director in the morning………

To hear the full interview visit the BBC.

No related posts.

In the last article in this series we had arrived at the seventeenth century after a whistle-stop tour of the continuous evolution of insurance across the last 7,000 years or so!

We had just discovered that what is generally regarded as the worlds first ever Insurance company – The Fire Office, was created from the ashes of the Great Fire of London and it is with the Fire Office that we shall continue our journey through the history of insurance….

‘The Fire Office’ was opened by Nicholas Barbon not long after the Great Fire had ravaged some 13,000 homes across the English capital. Barbon himself is acknowledged as being one of the first proponents of the free market and a leading economist and financial speculator of the time – he also had a ruthless eye for a business opportunity.

Predictably as the Fire Office flourished so other companies soon mirrored his business model and a precedent had now been created for insurance to evolve once more. Providing insurance was no longer limited to wealthy private individuals, but instead a developing industry, with dedicated companies establishing specialist commercial insurance and personal insurance products.

This period thus introduced a legacy of professionals who would ultimately establish an insurance industry which would impact upon the lives of almost everyone within the modern world. It is interesting to note that one of The Fire Office’s earliest major competitors was the Sun Fire Office, who, after numerous mergers and acquisitions across the centuries we now know as RSA – one of the worlds largest insurers.

Whilst these early insurance companies actually resembled something more akin to a private fire service (there was no state fire service until 1865), they were soon to develop into far more sophisticated organisations and a large part of this development was made possible by the scientific and more specifically mathematic progress of the time.

As the great fire had swept through London, so through Europe spread an appetite for understanding and a series of extraordinary advances in mathematics established themselves and flourished across Germany, France and England. With them the ability, need and desire to asses and place a valuation on personal risk through more refined, scientific systems also appeared. Economic concepts such as compound interest were re evaluated and revitalised for this modern era where innovative fledgling financial products were rapidly appearing. At the same time more complicated concepts such as probability theory emerged allowing for more sophisticated methods of evaluating risk to appear.

It was through the application of these newly developing mathematic disciplines that London draper John Graunt was able to establish predictable patterns of longevity and death within a defined group of people, regardless of any uncertainty about the future longevity and death of any one individual.

The work that Graunt completed was to become the foundations of an actuarial life table, which is absolutely fundamental to establishing costs for premiums in modern insurance.

However, it was a certain Edmond Halley (yes the same chap that discovered Halley’s comet) who further expanded upon Graunt’s work some thirty years later. Halley was able to demonstrate how to create an insurance scheme to provide life insurance for a group of people, and then calculate with a far greater degree of accuracy than had ever previously been possible, exactly how much each person in the group should contribute to a common fund assumed to earn a fixed rate of interest. Indeed Halley went on to create a life table to calculate the  premium a person of any given age should pay when purchase a life-annuity.

With a business model beginning to establish itself through the development of the Fire Insurers and a new attitude towards assessing risk and applying premiums accordingly being shaped for the first time by complex mathematical theory, insurance was primed to flourish and it soon did.

It was at this point, as the end of the seventeenth century approached, that we see one of the insurance world’s most famous names appear for the first time. In 1688, in Tower Street, London Edward Lloyd opened a coffee shop.

In the next  insurance history article in this series Insurance Blog will reveal how from these relatively humble beginnings his venture went on to become Lloyd’s of London, one of the most powerful organisations in insurance today.

Related posts:

1. A Brief History of Insurance: Part 5 Post Renaissance Europe
2. A Brief History of Insurance: Part 4 Genoa and the first ever single independent insurance contracts
3. A Brief History of Insurance: Part 2 Early Marine Insurance

Insurance Blog will be the first to admit that the FSA in it’s swansong is at least trying to do the right thing, with some notable recent successes in prosecutions and forcing the banks to heel over the mis-selling of payment protection insurance.

Those small insurance brokers, insurance agents, consultants and intermediaries whose rising FSA authorisation costs and annual fees have helped fund the Financial Services Compensation Scheme to pay for the banks mis-selling crimes would be the first to disagree, however their contempt for the organisation might be tempered some if they were aware of the FSA’s latest moves against their largest competitors……

The Insurance price comparison websites and aggregators selling general insurance products on the Internet.

If the FSA’s latest proposals for the regulated Selling of Insurance on the Internet are enforced, this could be a good thing for all small insurance intermediaries out there, who collectively currently receive less than 5% of the total internet traffic searching for Insurance.

First in the line of fire has been the Insurance price comparison websites, particularly those that compare car insurance and home insurance, and recommend insurance products to the public. In it’s investigation the FSA found serious breaches of it’s rules on the regulation of giving advice and selling of insurance. It subsequently wrote to 19 firms that it considers are breaking these rules in regards to advice and arranging contracts of insurance.

The letter advised the 19 Price Comparison websites:

· review your regulated activities and ensure you are appropriately authorised or otherwise exempt;

· ensure that you only enter into contracts with firms holding the appropriate authorisation and permissions to conduct that regulated activity (or who are exempt);

· withdraw your assistance from third parties if they are in breach of the general prohibition;

· review your disclosure documentation, sales procedures and your terms and conditions and make sure that these are compliant with all relevant regulatory requirements including our Guidance consultation Principles, ICOBS and the Unfair Terms in Consumer Contracts Regulations 1999. In particular, you should ensure they comply with  requirements on: customer eligibility, status disclosure, advice suitability, providing a proper statement of demands and needs, and that you do not seek in your terms and conditions to exclude liability for the regulated activities you are undertaking; and
establish, implement and maintain adequate policies and procedures to ensure your firm complies with all relevant obligations under the regulatory system and for countering the risk of furthering financial crime, in particular breaches of the general prohibition and restrictions on financial promotion.

A price comparison firm may be arranging contracts of insurance where its activities involve any of the following:

· the firm provides links to product companies or intermediaries for the purpose of enabling the customer to purchase a chosen insurance product;

· the firm requires a pre-purchasing questionnaire to be completed in order to filter sales (i.e. where the intermediary asks a series of questions and then suggests several specific products.

Under these guidelines it would appear that any website that collects information with the view to arranging insurance or even provides a link, is breaking the FSA rules if not authorised to do so….

The FSA found the folowing types of Insurance websites in breach where they are not FSA regulated:

· the firm provides a comparison of the terms of different policies as opposed to a passive display of the features of different policies;

· the firm runs a website which is funded by one or more insurance or mortgage providers (i.e. it is not ‘independent’); and/or
· the firm offers a special discount on the product to its website users.

. Even where no financial benefit is derived, the firm may still be making arrangements if it brands the comparison service with its own name, endorses the service or otherwise encourages users to respond to it, negotiates special rates for users, or holds out the service as something arranged for the benefit of users.

Advising on insurance
The FSA now considers any type of recommendation as giving advice. In addition where the effect of the firm’s arrangements constitutes a recommendation to purchase a specific product or products, that recommendation is likely to involve the firm giving regulated advice.

Some indicators of where a website or price comparison website may contain advice which is regulated by law include:

· where the name or logo of only one insurance product is displayed on the website in a manner that suggests that the particular product is to be preferred over other products (for example, a particular logo might appear on a webpage containing generic advice on the merits of incapacity insurance contracts);

· where a particular insurance product is recommended as the ‘pick of the best’ product out of a number of other products in its category;

· where a particular insurance product is star-rated by a website, for example, the product is awarded five out of five stars, by contrast to a similar product which is awarded two out of five stars;

· where a scripted questionnaire gives a recommendation or opinion which influences the choice of insurance product and then goes on to identify a particular insurance or regulated mortgage product to which the advice relates;

· where the questioning process has resulted in the identification of one or more particular contracts of insurance based on a non-objective assessment of the product features;

· where the website generally makes any value judgement as to the merits of one or more insurance products or regulated mortgage contracts, by way of scripted questioning or otherwise;

· where generic best buy tables are used and are not populated from specific consumer information this might be advice depending on the consumer’s experience of it. So, for example, a website containing solely generic ‘best buy’ tables explaining the merits of futures as opposed to options would not be advice, but if those tables guide the consumer to a particular insurance product based on the consumer’s personal requirements, this is likely to be regulated advice;

· where generic statements on a website are not dependent on consumer information being populated; this could be regulated advice where they are displayed in such a way that the website operator is making value judgements as to the merits of buying, selling, etc. For example, ‘The products of the month are XYZ, ABC and DEF investments because they offer the best returns’.

Clearly if implemented to the full the following types of insurance marketing would be illegal on the Internet in the UK for all websites that are not authorised and regulated and will have huge ramifications for the way insurance is distributed online in the future:

· Linking of any sort to Insurance Provider or Insurance Comparison website (Text links and Banner ads)
· Distributing Articles and Media that link to or promote insurance products (Article Directories, Video Directories, Social Media, Blogs)
· Affiliate Marketing and Vertical Marketing by non regulated affiliates
· Review Websites
· White Labelled Websites
· Marketing Websites

Insurance Blog thinks that this is a good thing, if it is properly policed as it will remove a lot of the chaff from the Internet, much eminating from unqualified webmasters both inside and outside of the UK. We are of course authorised and regulated under our Insurance Publishing Group owners Insuretec Ltd. FSA no. 422934 and would love to see our FSA fees used in this way! And as a word of advice, when filling out an insurance proposal form online, no matter it’s detail, always check that the website states its FSA number and regulatory status, which can also be found at the FSA’s website.

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1. Google Buys Insurance Aggregator Beatthatquote.com
2. Quotezone comes out top in UK car insurance price comparison website review!
3. UK TV Ad Revenue Underwritten by Car Insurance Price Comparison War!

The Summerland complex was opened 40 years ago in May 1971 in Douglas on the Isle of Man in the Irish Sea.
The 3.5 acre resort was cut into the cliff on the promenade and claimed to be the biggest and most innovative indoor entertainment centre in the World, providing artificial sunshine all year round for the holiday resort. 

The aim was to attract British holidaymakers to the Island to compete with the threat posed by the rapid development of package holidays to Spain, that were becoming ever popular with the public.

The Summerland Resort was a spectacular success…..until it’s destruction by fire.

The Resort which was built in modern materials of concrete, steel and plastics, boasted continuous live entertainment, a plethora of restaurants and bars, an Olympic sized indoor heated swimming pool, saunas, massages and Turkish baths, artificial sunshine, a children’s entertainment and theatre,  cascading waterfalls and……..an underground disco and nightclub.

The fire is believed to have been started outside by some smokers next to a plastic kiosk adjoining the main complex building which housed the nightclub. The building was packed with holidaymakers relaxing at the time and the disco was full.

The melting plastic kiosk collapsed against the side of the main complex and rapidly ignited the building that was covered in a damp proofing bitumous material called Galbestos. The fire spread extremely rapidly through the wall cavities which contained flammable materials and quickly engulfed the flammable acrylic see through roof, which came crashing down on the 3000 people inside who were trying to escape the flames.
Many were crushed to death in the ensuing panic or injured by falling flammable debris, however the biggest amount of casualties were in the underground nightclub where the majority of bodies dead through asphixiation were piled against locked security doors.

Following the tragedy Business Insurance Companies tightened up their cover offerings for nightclub insurance, specialist insurance providers emerged and many new building regulations were put into law. Specifically, building materials of flammable quality were forbidden in construction and many health and safety regulations for nightclubs were introduced. The industry is now very well regulated and the covers offered under a nightclub insurance policy sit well with the establishments legal responsibilities of risk management.
Fortunately the measures have worked in the UK to date which has avoided such a similar nightclub disaster although that cannot be said for other places around the world……

* Rhythm Nightclub fire 23 April 1940; Natchez, Mississippi; 209 dead
* Cocoanut Grove fire 28 November 1942; Boston, Massachusetts; 492 dead
* Club Cinq-Sept fire 1 November 1970; Saint-Laurent-du-Pont, France; 146 dead
* Beverly Hills Supper Club fire 28 May 1977; Southgate, Kentucky; 165 dead
* Stardust fire 14 February 1981; Dublin, Ireland; 48 dead
* Alcalá 20 Nightclub fire 17 December 1983; Madrid, Spain; 82 dead
* HappyLand fire 25 March 1990; New York City, New York; 87 dead
* Kheyvis Nightclub fire 20 December 1993; Olivos, Buenos Aires, Argentina; 17 dead
* Ozone Disco Club fire 18 March 1996; Quezon City, Philippines; 162 dead
* Gothenburg Nightclub fire 29 October 1998; Gothenburg, Sweden; 63 dead
* Luoyang Christmas fire 25 December 2000; Luoyang, People’s Republic of China; 309 dead
* E2 Nightclub stampede 17 February 2003; Chicago, Illinois; 21 dead
* The Station Nightclub fire 20 February 2003; West Warwick, Rhode Island; 100 dead
* Cro-magnon Republic Nightclub fire 30 December 2004; Buenos Aires, Argentina; 194 dead
* Wuwang Club fire 21 September 2008; Shenzhen, People’s Republic of China; 43 dead
* Bangkok Nightclub fire 1 January 2009; Watthana, Bangkok, Thailand; 61 dead
* Lame Horse club fire 5 December 2009; Perm, Russian Federation; 149 dead

Insurance Blog thinks it is rather ironic that the Summerland fire was started by smokers outside the building, when the current policy of most nightclubs is to force smokers to outside areas.

Related posts:

1. Commercial Insurance Risks Explained

As you may recall from earlier articles within this series, both the Romans and the Greeks had contributed to the development of insurance, shaping it into the complex financial product that it is now quite considerably. However it was from the ashes of the Roman empire that we see insurance start to fully develop.

As we move through history and reach the medieval period which is universally acknowledged as beginning when the western Roman Empire fell in 471AD, we see the Guilds rise to prominence and amongst their functions is something remarkably akin to that of the early Roman Burial Clubs. However, they also provide rudimentary medical insurance, fire insurance, marine insurance and even personal accident insurance to their members as well as a whole host of other social and economic benefits.

In fact despite the fall of the Empire the insurance practices that have become part of every day life across Europe for Merchants, Noblemen and Serfs alike remain in place. With the importance of insurance now firmly established as a key element within any society with commerce at its heart, the varieties of insurance and the complexity of the products continues to develop throughout the Middle Ages.

Again it was Maritime insurance which proved to be the area which established itself as both the innovative and indeed original category of insurance. This is of course is easily attributable to the fact that at this point in history, the overwhelming driving force in any economy was the merchants of the sea. Boat Insurance developed more rapidly and technically than any other form of insurance at the time out of sheer economic necessity.

After the fall of the Western Roman Empire, a number of successful city-states developed to fill the vacuum created by the failure of Rome. These included Pisa, Milan, Venice and Genoa. Each of these mini- empires have a rich and fascinating history, but for the world of insurance, it was Genoa who would play the major role.

In fact Genoa is able to lay a fairly indisputable claim to be the home of modern insurance.

It was here in the fourteenth century that we saw some huge landmark moments appear on the insurance development time-line. It is at this point in history that we start to see commercial insurance begin to establish itself as a product independent of investment. This is evident from both the inception and invention of insurance contracts which were neither included as a guild benefit, nor based on a loan.

The earliest ever recorded insurance policy discovered to date is believed to be between Amiguetto Pinello (the insurer) and Tomaso Grillo (the insured) and is dated the 13th February 1343. The contracts between the two parties are hugely important in that they mark the first steps away from what are now the ancient and archaic traditions of Marine Loans.

Whilst traditional marine loans of ancient Rome and Greece (and even Mesopotamia before them) had provided adequate coverage throughout the ancient and early medieval periods, as the commercial revolution that was rapidly spreading throughout the coastal micro empires of Italy and the Mediterranean grew, these archaic laws no longer succeeded in meeting the requirements of the modern ‘sedentary merchant’.

So the need for insurance to once again evolve led to the birth of the stand alone insurance contract.

A fascinating insight into the politics of the time is hidden away in this original contract. In fact much of the content of this original contract was necessarily fictitious. This fictitious wording was required to cloak the contracts within the phraseology of Roman Law, as at this point in history insurance contracts still had no legal standing Per Se.

In fact the work of these early pioneer insurers was constantly frustrated by existing clerical usury law and the insistence of those in authority that despite the legislation being out dated, it was relentlessly enforced.

It seems that there are more similarities than we could have imagined then!

In the next article within this series we shall look at post-renaissance Europe and perhaps arguably the most important period in the history of insurance ever – the 17th Century. This is where we see insurance arrive at what is now regarded as it’s modern day home – Lloyd’s of London.

Related posts:

1. A Brief History of Insurance: Part 2 Early Marine Insurance
2. A brief history of Insurance: Part 3 Roman Life Insurance
3. A Brief History of Insurance: Part 1 The Ancient World

Welcome back to this fascinating series exploring the history of insurance…
To briefly recap, in the previous article we discovered that many phrases we are still aware of today within marine insurance such as General Average and indeed the very concept of Maritime Loans were created by the ancient Greek civilisation nearly two and a half millennia ago.

As with so much of the Greek culture these concepts of early insurance were integrated and absorbed into Roman culture which followed. It was under the influence of the arguably more economically aware Romans that these concepts began to become more progressively monetised and more in keeping with our understanding of modern insurance.

However one area of insurance that was to last throughout the ages clearly originated solely as a Roman concept – this was in fact Life Insurance.

The popularisation of Roman ‘Burial Clubs’ was indeed the very first format for life insurance and holds many of the core principals that we now include within a modern Life Insurance policy.

The Burial Clubs arose out of a commonly held Roman belief that unless a man was buried correctly his spirit would remain troubled. The troubled spirit would be unable to pass into the next world and instead would remain locked to this existence becoming a particularly miserable ghost – something that most of us would like to avoid if at all possible.

So the superstitions and religious views of the times made it pretty damned important the Romans to make sure that when they did head off to Elysium, that they had a decent send off. Whilst this is all well and good for those in power and with wealth, for your average Legionnaire trying to carve out an honest living, this could of course could be a bit of a worry.

And so the ‘Burial Club’ was born.

These groups, originally consisted primarily of soldiers but eventually grew to incorporate all levels of Roman society. The simple premise was that the group required members to regularly donate to a common fund, which was then used in the event of a members death to fund the funeral. As the popularity of these clubs grew so did their complexities, ultimately resulting in not only payment for pre agreed funeral arrangements but also an inclusion of an additional stipend to provide for the surviving members of the immediate family of the deceased.

It is interesting to note that during this period of Rome’s history groups which encouraged the proletariat to come together either economically or politically were generally outlawed by the government. The thinking was that the meetings themselves could become dangerous incubators for rebellious individuals, who may in turn rise up and threaten the current status quo.

However, not only were Burial Clubs accepted, they were actively encouraged by the government and military. Such was the strength of conviction that it was absolutely essential for each member of the community, regardless of their standing in society, be buried in the correct manner.

So while none of the major life insurers are basing their sales pitch around ‘you better pay your premium otherwise you’ll end up a miserable ghost for eternity’, the fundamental ideals of the Roman Burial club, which are well over two thousand years old, are likely to seem reasonably familiar to any of us with a a life insurance policy today.

Through modern life insurance, we still steadfastly hold to the principle that by aggregating the financial power of many, we can provide support for those in need which would simply not be available otherwise. It was this simple principal that led to the development of the ancient Roman Burial Clubs and indeed the fact that this underlying ethos remains unchanged is the heart of modern Life insurance also.
In the next instalment of this series we shall return to the seas as we discuss the invention of separate insurance contracts in Genoa in the 14th Century.

Related posts:

1. A Brief History of Insurance: Part 2 Early Marine Insurance
2. A Brief History of Insurance: Part 1 The Ancient World
3. Euro On The Point Of Collapse – Victim Of A Trojan Horse?

A mature student friend of ours was struggling with his first year accountancy exams when asked to write an essay on the following, so he thought he’d approach us for some answers and help writing his assignment.

1.Explain how Insurance shares risk across the population?
2.What is a fair insurance premium?
3.How can adverse selection prevent Insurance being available at a fair premium?
4.What strategies do insurance companies follow to reduce the problem of adverse selection?

So we farmed it out to our technical expert Dave Healey and this is what he came up with.

The Primary Functions Of Insurance As A Service Industry

By Dave Healey

There are three primary functions of Insurance which determine how Insurance companies operate and how the public interacts with these companies.

The first is as a risk transfer mechanism, whereby the individual or business can shift some of the uncertainty of life onto the shoulders of others. In return for a known premium, usually a very small amount compared to the potential loss, the cost of that loss can be transferred to an insurance company. Without Insurance there would be a great deal of uncertainty experienced by both the individual and the enterprise, not only as to how and whether a loss would occur, but also to the extent and size of the potential loss.

The second primary function is the establishment of the common pool. The Insured’s premium is received by the Insurer into a fund or pool for that type of risk, and the claims of those suffering losses are paid out this pool. Applying Bernoulli’s ‘Law of Large Numbers’, because of the large number of clients that any particular risk fund or pool will have, Insurance companies can predict with high accuracy the amount of claims or losses that might be suffered over a period of time. The will be some variations in losses over different years and Insurance companies include an element of premium to build up a reserve, to pay for additional losses in bad or catastrophic years. Therefore in principle, subject to the limitations of the type of cover bought, the client should not have to pay additional premiums into the common fund after a loss or claim.

The third primary function of Insurance is to provide fair and equitable premiums. Assuming that a risk transfer mechanism has been set up through a common fund or pool, the contributions paid into the fund should be fair to all parties participating. Each party wishing to insure and paying into the fund will bring with it varying degrees of risk. To avoid adverse selection and provide equitable premiums each risk is broken down into various components and rating factors that can be priced individually on a statistical scale of probability determined by Actuaries. Therefore those who present the greater statistical risk will pay more into the common fund for the same cover, when their individual premiums are calculated.

Insurance companies employ underwriters to reduce the problem of adverse selection and protect the fund. The underwriters will determine parameters of the hazard and value of a risk that is acceptable for the fund, and decline risks that fall outside these parameters. In fixing a fair level of premium they must also take into account the contributions made by others into the common fund and price accordingly.

Underwriters and insurance companies will employ many techniques to deter or price adverse selection out of the risk pool. These typically include exclusions to cover in the form of policy wordings and additional conditional clauses, exempting the risk under certain conditions. They will employ all types of mechanisms and devices to install fear into the population to increase the size of the risk pool and attract the niche or sector of the market that they are aiming for. For example large marketing campaigns aimed at the ‘safe’ sector e.g. women drivers who are statistically less likely to claim. On the Internet, Insurance companies employ automated underwriting that excludes cover to everything that does not fit the desired risk pool parameters.

Ultimately the Government can in certain cases decide the size of the risk pool through leglislation and compulsory insurance as is the case for car insurance where it is illegal to drive without cover and business insurance where it is illegal to trade without liability insurance cover.

Insurance companies can also take further risk transfer from the insurer to a reinsurer (reinsurance) laying of some of their exposure as a mechanism for adverse risk control.

We originally published the Article at: http://EzineArticles.com/?expert=Dave_Healey

http://EzineArticles.com/?The-Primary-Functions-Of-Insurance-As-A-Service-Industry&id=6292397

Well there’s obviously a lot more to write on this subject so if some of you FCII fellows out there who read this blog  wish to contribute, feel free to leave your comments on the questions!

Related posts:

1. How Insurance Companies Use Your Credit Rating To Decide Your Premiums
2. UK Car Insurance Rates Must Harden As Loss Making Companies Claims Reserves Run Dry!
3. The Hidden Costs of Uninsured Drivers in Your Car Insurance Premiums

Lloyds Bank  has decided to settle all the PPI misselling claims after UK banks lost a High court judicial review called by Barclays and others over PPI  claims compensation last month.

Payment protection insurance also known as ASU, Income Protection Insurance and Mortgage Protection Insurance,  was sold by the large banking corporations at inflated rates to cover in particular credit cards, personal loans and mortgage repayments  if income ceases or falls because of accident sickness or unemployment.

Since 2009 thousands of Uk complainants have received compensation because their policies were mis-sold. Missold, because they were sold policies that were either not explained to them, did not cover them because of certain exclusions or in the majority of cases was only taken out for fear of not obtaining the loan.

The Financial Services Authority (FSA) published guidelines last year which said banks should contact all PPI past policyholders to ask them to complain if they believed they had been mis-sold PPI.

Insurance Blog is pleased that the UK Government owned bank is leading the way on payment protection insurance compensation claims. The other banks will now have to follow suit.

It is only fitting that the big banks who were the main offenders in the misselling of PPI should be made to pay and not the hard pressed insurance industry, and particularly the Insurance Brokers, that has so far footed most of the bill with ridiculously high FSA fees, which in many cases has created barriers to entry for the UK Financial Services market.

On a footnote if the Bank of England keeps Interest Rates at the same level today, it will be a good day for the UK Public.

Related posts:

1. Payment Protection Insurance Claims and Premiums Rocket
2. Insurance Brokers Pay for UK Banks PPI Claims
3. Mis-Sold Payment Protection Insurance? Claim It Back Now!

Hmm……..what do they show then?

Here’s the top fifty of the most complained about Insurance companies in the UK:

Firm name | Number of complaints opened |Number of complaints closed |Complaints closed within 8 weeks (%) | Closed complaints upheld by firm (%)

Lloyds TSB Bank Plc 84,775 39,789 97 68
Barclays Bank Plc 59,003 40,230 65 68
Bank of Scotland plc 49,566 28,239 88 72
MBNA Europe Bank Limited 36,195 19,256 93 48
National Westminster Bank Plc 26,967 18,126 40 57
The Royal Bank of Scotland Plc 21225 13779 36 49
Capital One (Europe) plc 20,799 23,014 64 30
British Gas Services Limited 19,366 13,085 98 84
Santander UK Plc 18,588 19,956 90 71
Aviva Insurance UK Limited 18,011 18,390 96 55
HSBC Bank Plc 17,157 9,583 56 31
Direct Line Insurance Plc 17,004 16,589 75 54
UK Insurance Limited 15299 15455 73 54
Black Horse Limited 13,959 7,468 87 83
Egg Banking Plc 9,965 7,297 91 58
Churchill Insurance Company Limited 9,949 10,031 76 55
Homeserve Membership Limited 9,504 9,837 97 31
Northern Rock (Asset Management) plc 8,870 8,257 95 72
Royal & Sun Alliance Insurance Plc 8,337 6,677 93 53
HFC Bank Limited 8,151 5,752 91 46
ACE European Group Limited 7,823 8,458 92 41
EUI Limited 7,540 7,663 96 42
Automobile Association Insurance Services Limited 6,549 6,744 99 52
Clydesdale Bank Plc 6,343 3,995 30 41
Marks & Spencer Financial Services Plc 6,049 3,941 88 5
BISL Limited 5,723 5,464 94 21
AXA Insurance UK Plc 5,722 6,137 94 40
Eisis Ltd 5,187 5,676 96 55
The Co-operative Bank Plc 4962 2914 92 60
Ageas Insurance Limited 4,727 3,818 89 51
CIS General Insurance Limited 4,659 4,462 98 64
Nationwide Building Society 4,640 3,371 95 37
Liverpool Victoria Insurance Company Limited 4,629 4,626 95 56
The Carphone Warehouse Ltd 4075 4301 98 22
Firstplus Financial Group Plc 3,967 3,916 65 11
Hastings Insurance Services Ltd 3,916 3,701 88 61
BUPA Insurance Services Limited 3,879 4,128 90 42
Tesco Personal Finance PLC 3791 3785 72 24
Zurich Insurance PLC 3658 2812 90 57
Domestic & General Insurance Plc 3,545 3,636 99 79
RAC Financial Services Ltd 3,459 3,084 98 56
esure Insurance Limited 3,291 3,273 97 41
Shop Direct Finance Company Limited 3,276 2,507 98 7
St Andrew’s Insurance Plc 2,699 2,679 98 28
Endsleigh Insurance Services Ltd 2,698 2,605 98 42
Firstassist Insurance Services Ltd 2,675 2,623 77 34
Allianz Insurance Plc 2,606 2,655 95 35
Lloyds TSB General Insurance Limited 2,221 2,231 97 41

The Financial Services Authority also points out that these figures reflect the number of complaints recorded by the companies themselves and passed to the FSA.

So is the FSA a paper tiger?
Well according to reports today the FSA has handed out more fines to financial firms this swansong year than any year to date…..
The amount of fines that FSA has handed out this quarter has risen from £33.1m last year to £96.7m as the dying institution ups its enforcement activity in a response to public atitiude about financial services in general.

The average fine handed out to perpetrators by the FSA last year was up 49% on the 2010 figures, from £739,284 to £1,099,159.

Related posts:

1. UK Insurance and US Insurance Regulatory Bodies Swap Notes!
2. Insurance Brokers Pay for UK Banks PPI Claims
3. UK Government CON DEM The FSA Insurance Regulator

The big insurance industry story that made the headlines of both the trade papers and the nationals this month was mega global search engine come media owner come O/S provider come whatever else they are now, company Google have bought financial comparison site Beat That Quote for a cool £37.7m.

It was an interesting if somewhat fairly inevitable move from the mega global search engine come…. well you get the point.

I say inevitable as apart from the fact that Google are trying to get their grubby little mitts into pretty much every possible vertical there is to be had, it was also a fairly well known industry ‘secret’ that they were looking to step into the financial comparison site arena, ever since news of their failed attempt to purchase LoveMoney.com.

In many ways Beat That Quote fit the acquisition profile perfectly for Google. They are a ‘two click’ property (a website which has short, quick user journey) and Google have often shown a taste for these in the past.  Also the business model of aggregators is proven to be successful as long as you have traffic and Google have more traffic than you can shake a big, digital stick at.

The proprietary comparison technology Beat That Quote represents is arguably the strongest in the sector with exception of Moneysupermarket.com which would have proven to be a much more complex acquisition. They brought in £6m in revenue last year but due to a hugely aggressive (and expensive) customer acquisition strategy made a £2m loss. Google can take a large part of the cost away from delivering ‘eye balls on the page’ so has the opportunity to turn the deficit around within a relatively short time.

So on the surface the move makes sense however there are a number of under currents to this deal that have got those in the insurance mergers and acquisitions sector and beyond questioning the wisdom of the move.  The biggest question marks are about Beat That Quotes existing ties with Google’s two biggest rivals Yahoo! and MSN.

One particularly interesting conflict is that Beat That Quote essentially engineered MSN Compare on a white label basis – whether maintenance and further development is part of the contract remains unclear but it will be interesting to see if Beat That Quote will continue its white label policies now they are under Google’s banner. It also seems that Beat That Quote already has agreements in place with both MSN and Yahoo! which provide a  big chunk of their existing traffic. Will these two major competitors of Google’s be so happy to continue to push traffic to their nemesis?

Of course this second issue is a lesser worry to Google and they will probably bring far more traffic to the table than Beat That Quote could lose from MSN and Yahoo! This is certainly more than feasible when given Google’s growing dominance of all things… well just all things.

Yet despite their omnipresent magnificence, it was just hours after the takeover that Google was having SEO issues with Beat That Quote. Embarrassingly Google were forced to remove all of Beat That Quotes SERPs (Search Engine Results Pages) due to certain alleged questionable SEO practices (Link buying etc – just the type of questionable practices that Google had recently made a big song and dance about clamping down on.

To be fair to Google they stood by their own rules in this case even though it was their new baby getting hit. However, the timing of removing the SERPs could be interpreted as a pretty slick PR move by the cynical amongst us. Their PR machine does seem to be currently entrenched in a full on battle to stem the growing tide of distrust amongst the masses of Google’s ever growing claim of total world dominance.

In fact in my humble opinion the Google PR team is only just about managing to stop the company overtaking Microsoft as the worlds most loathed organization – although on these shores the UK Government is having a fair crack at the title as well at the moment, but we’ll save that for another day.

For now however, Google have magnanimously allowed their own company back onto the SERPs (after what one assumes was some vigorous housekeeping) and have swiftly established a very firm footing in the financial services market.

What this means to the market remains to be seen, but it is clear that the fiercely competitive insurance aggregator sector now has a new contender with the technology, the audience and the financial backing to seriously shake things up. It’ll be an interesting ride that’s for sure.

Related posts:

1. Go Compare Elsewhere! Google slaps aggregator
2. Don’t Renew Your Car Insurance Until You’ve Read This!
3. Google Arrested – We Hope It Had Valid Car Insurance!

Part Two: Rhodian General Average and Athenan Maritime Loans:

OK, so in the first article in this series we discovered that whilst those amazing Chinese chaps were out inventing everything and anything, they put together the worlds first ever risk management systems. We also discovered that it was a thousand years or so later that a rather brilliant Babylonian, a first dynasty king called Hammurabi came up with something that many scholars consider to be the first recorded form of monetised insurance.

This system was in fact set to become incredibly wide spread largely down to the Babylonian’s sphere of influence within the young, growing markets of commerce within early history.  The practice of paying what we would now consider an insurance premium, to cover the cost of a merchant’s cargo should it be lossed due to theft or accident on the high seas, had become common place across the mediteranean in its many fledgling cultures.

As the cultures of the meditaranean developed and in particular that of Ancient Greece, so we see further complexities within insurance as a financial product within these cultures and also their growing importance within the daily lives of members of these societies.

The inhabitants of Rhodes were to establish a rule of general average amongst their merchants and traders. In essence this was very much in the same vein as a general mutual insurance fund, a term many of us are more familiar with. This general average was created to allow groups of merchants to pay to insure their goods which were to be shipped together.  Under this very community minded statute, should a merchant be unfortunate enough to have his goods jettisoned due to reasons of sinkage or storm, then each of the merchants whose cargo was also on the journey would share the cost of this loss  by paying a premium. Of course the term and principals of  general average are still applicable in many modern marine insurance policies today.

It was during this period in history that the concepts of insurance and risk management really began to beccome more refined and complexities within risk calculations started to emerge.  And it all started with boat insurance.

The ancient Athenians created what was termed a maritime loan. This loan provided advanced money for voyages and repayment  was cancelled if the ship was lost at sea, much like the laws in the older Codes of Hammurabi and indeed the maritime loans of modern times. It was circa the fourth century that the rates of interest for loans differed accordingly to the relative ease or danger of the passage. The time of the year, the prevalent weather conditions, the route to be taken, even the socio politcal enviroment were all taken into account, which would suggest a level of intuitve pricing for risk begining to very much resemble modern day insurance.

As with so many elements of modern society, we  see that what began in Mesoptamia, was once again absorbed and developed by the Greeks, and as is true with many other facets to civilisation, was so then absorbed and further explored within the Graeco-Roman and then Roman cultures. Insurance was to be no different and as other lines of insurance developed in our modern era out of marine insurance so it was to be the case in the ancient empires of Greece and Rome.

In the next installement we shall explore this further as we discover how the Greeks and Romans introduced the concepts of Health  Insurance and Life insurance to their civilisations.

Related posts:

1. A Brief History of Insurance: Part 1 The Ancient World
2. Transport, Marine Insurance and Marine Cargo Insurance
3. Marine Insurance Counts the Cost of Increased Attacks by Pirates!