Terrorism insurance is insurance purchased by property owners to cover their potential losses and liabilities that might occur due to terrorist activities.

It is considered to be a difficult product for insurance companies, as the odds of terrorist attacks are very difficult to predict and the potential liability enormous. For example the September 11, 2001 attacks resulted in an estimated $31.7 billion loss. This combination of uncertainty and potentially huge losses makes the setting of premiums a difficult matter. Most insurance companies therefore exclude terrorism from coverage in casualty and property insurance, or else require endorsements to provide coverage.

1. Industry needs

Concentration of risk is another factor in determining availability for terrorism insurance. Due to the concentrated losses of the World Trade Center, carriers were hit with large losses in one centralized location. Insurers seek to spread the coverage over a wider geographic area than as with other aggregate perils, such as flood.

2. Modelling the risks

Insurance companies are using an approach that is similar to that used with natural catastrophe risks. A Swiss report suggested that in this case where demand is greater than the supply for terrorism coverage that a short-term solution is possible: a mix of government and private resource to make easy the transition. In this situation, the government would serve two functions: to establish rules to overcome the capacity shortage and to be the insurer of last resort.

3. Crisis management

Crisis management planning can save large amounts money in the long run. According to experts, for every dollar spent on developing crisis management plan a head of time, $7 is saved in losses when a disaster comes.

3. By country

3.1 Netherlands

Insurance payments related to terrorism are restricted to a billion euro per year for all insurance companies together. This regards property insurance, but also life insurance, medical insurance, etc.

3.2 United States

On December 26, 2007, the President of the United States signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2007 which extends the Terrorism Risk Insurance Act (TRIA) through December 31, 2014. The law extends the temporary federal Program that provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism.

The United States insurance market offers coverage to the majority of large companies which ask for it in their polices. The price of the policy depends on where the clients are residing and how much limit they buy.

According to The Economist, one of the best studies to understand TRIA has been the one undertaken in 2005 by the Center for Risk Management at the Wharton Business School ("TRIA and Beyond"; available on their website below).

In mid-2007 the idea of another extension to TRIA was tabled and is officially known as TRIREA, (Terrorism Risk Insurance Revision and Extension Act). Initially TRIREA contained several new provisions including a mandatory 'make available' clause for NCBR coverage (Nuclear, Chemical, Biological and Radiological) and the ending of the distinction between domestic and foreign events.

3.3 Iraq

The New York Times reports that in Baghdad personal terrorism insurance is available. One company offers such insurance for $90, and if the customer is a victim of terrorism in the next year, it pays the heirs $3,500.

3.4 United Kingdom

In the UK, following the Baltic Exchange bomb in 1992, all UK insurers stopped including terrorism cover on their commercial insurance policies with effect from 1 January 1993 (home insurance policies were unaffected). As a consequence, the government and insurance industry established Pool Re. Primarily funded by premiums paid by policyholders, the government guarantees the fund although any such support must be repaid from future premiums. To date no government support has been necessary.

4. Countries with long-term terrorism insurance programmes

According to the policy agenda of The Real Estate Roundtable, long-term terrorism insurance is available in the following countries:

1. Australia
2. Austria
3. Finland
4. France
5. Germany
6. Israel
7. Namibia
8. Netherlands
9. Russia
10. South Africa
11. Spain
12. Switzerland
13. Turkey
14. United Kingdom

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Pet health insurance

Pet health insurance pays the veterinary costs if one's pet becomes ill or is injured in an accident. Some policies will also pay out when the pet dies, or if it's lost or stolen.

The purpose of pet insurance is to mitigate the risk of incurring significant expense to treat ill or injured pets. As veterinary medicine is increasingly employing expensive medical techniques and drugs, and owners have higher expectations for their pets' health care and standard of living than previously, the market for pet insurance has increased.

1. History

The first pet insurance policy was written in 1890 by Claes Virgin. Virgin was the founder of Länsförsäkrings Alliance, at that time he focused on horses and livestock.^{[citation needed]} In 1947 the first pet insurance policy was sold in Britain. As of 2009, Britain has the second-highest level of pet insurance in the world (23%), behind only Sweden. In 1982, the first pet insurance policy was sold in the United States, and issued to television's Lassie by Veterinary Pet Insurance (VPI).

2. How policies work

Many pet owners believe pet insurance is a variation of human health insurance; however, pet insurance is actually a form of property insurance. As such, pet insurance reimburses the owner after the pet has received care and the owner submits a claim to the insurance company.

British policies usually pay 100% of vets fees, but this is certainly not always the case. It is typically more common to find UK pet insurance companies discounting their policies by offering their customers the chance to pay an excess fee, just like with motor insurance. Excess fees can range from £40 to £100. The excess is usually fixed by the insurer dependent on the amount of discount they are giving the buyer. In the future more flexible excess levels will probably play an important part of how much one pays for a pet insurance policy.

Policies in the United States and Canada either pay off a benefit schedule or pay a percentage of the vet costs (up to 90%), after reaching a deductible, depending on the company and the specific policy. The owner usually pays the amount due to the veterinarian and then sends in the claim form and receives reimbursement, which some companies and policies limit according to their own schedules of necessary and usual charges. For very high bills, some veterinarians allow the owner to put off payment until the insurance claim is processed . Some insurers pay veterinarians directly on behalf of customers. Most American and Canadian policies require the pet owner to submit a request for fees incurred. 

Previously, most pet insurance plans did not pay for preventative care (such as vaccinations) or elective procedures (such as neutering). Recently, however, some companies in Canada, the United Kingdom, and the United States are offering routine-care coverage, sometimes called comprehensive coverage. Dental care, prescription drugs and alternative treatments, such as physiotherapy and acupuncture, are also covered by some providers.

There are two categories of insurance policies for pets: non-lifetime and lifetime. The first covers buyers for most conditions suffered by their pet during the course of a policy year but, on renewal in a following year, a condition that has been claimed for will be excluded. If that condition needs further treatment the pet owner will have to pay for that himself. The second category covers a pet for ongoing conditions throughout the pet’s lifetime so that, if a condition is claimed for in the first year, it will not be excluded in subsequent years. However, lifetime policies also have limits: some have limits “per condition”, others have limits “per condition, per year”, and others have limits “per year”, all of which have different implications for a pet owner whose pet needs treatment year after year, so it is wise to be clear which type of lifetime policy you are considering.

In addition, companies often limit coverage for pre-existing conditions in order to eliminate fraudulent consumers, thus giving owners an incentive to insure even very young animals, who are not expected to incur high veterinary costs while they are still healthy. There is usually a short period after a pet insurance policy is bought when the holder will be unable to claim for sickness, often no more than 14 days from inception. This is to cover illnesses contracted before the pet was covered but whose symptoms appeared only after coverage has begun.

Some insurers offer options not directly related to pet health, including covering boarding costs for animals whose owners are hospitalized, or costs (such as rewards or posters) associated with retrieving lost animals. Some policies also include travel cancellation coverage if owners must remain with pets who need urgent treatment or are dying.

Some British policies for dogs also include third-party liability insurance. Thus, for example, if a dog causes a car accident that damages a vehicle, the insurer will pay to rectify the damage for which the owner is responsible under the Animals Act 1971.

3. The difference between companies

Many pet insurance companies are beginning to offer the pet owner more of an ability to customize their coverage by allowing them to choose their own level of deductible or co-insurance. This allows the pet owner to control their monthly premium and choose the level of coverage that suits them the best.

The smart consumer will always check the details before signing up for a policy which may not suit the needs of your budget and/or your pet. There are a number of differences between pet insurance companies. These differences often impact the cost of the monthly premium or the way in which you would get reimbursed after a veterinary visit. Some of the main differences are:

• Whether congenital and hereditary conditions (like hip dysplasia, heart defects, eye cataracts or diabetes) are covered;
• How the reimbursement is calculated (based on the actual vet bill, a benefit schedule or usual and customary rates);
• Whether there are any limits or caps applied (per incident, per year or over the pet’s lifetime); and
• Whether there is an annual contract that determines anything diagnosed in the previous year of coverage is considered pre-existing the next year.

4. Glossary

• 'Benefit schedule' – a document created by a pet insurance company that lists allowances paid for a given diagnosis and treatment.
• 'Deductible' - a fixed amount that must be paid by the policy holder for covered veterinary services before the pet insurance company will pay benefits. Higher deductibles usually translate to lower policy premiums. Deductibles are either annual or per-incident. Once a pet owner reaches the annual deductible limit, any future claims during that policy year won't be subject to anymore deductible. The per-incident deductible must be paid each time the pet is presented with a new problem.
• 'Exclusion' - a condition that is excluded, or not covered under a pet insurance policy.
• 'Policy Limits' - there can be several types of policy limits applied to a pet insurance policy. When a policy limit is reached the policy will normally no longer pay applicable claims. Typical policy limits are lifetime, annual and per-incident.
• 'Pre-certification' – when a pet owner to submits a requested treatment to their pet insurance company to see if the treatment will be covered, and at what benefit level.
• 'Pre-existing condition' - an injury or illness that occurred before the pet insurance policy became effective. Some pre-existing conditions are eligible for coverage after being cured and a specified period of time elapses. Other conditions cannot ever be covered regardless of time elapsed.
• 'Coinsurance' - also referred to as 'copay' - the percentage of your claim for which you are liable before any applicable deductible is applied. However, when figuring reimbursements, some companies subtract the deductible before subtracting the copay. Generally, it is preferable to select a lower copay since it is a percentage of the total bill, whereas the deductible is a fixed, known amount.

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Liability insurance

Liability insurance is a part of the general insurance system of risk financing to protect the purchaser (the "insured") from the risks of liabilities imposed by lawsuits and similar claims. It protects the insured in the event he or she is sued for claims that come within the coverage of the insurance policy. Originally, individuals or companies that faced a common peril, formed a group and created a self-help fund out of which to pay compensation should any member incur loss (in other words, a mutual insurance arrangement). The modern system relies on dedicated carriers, usually for-profit, to offer protection against specified perils in consideration of a premium. Liability insurance is designed to offer specific protection against third party insurance claims, i.e., payment is not typically made to the insured, but rather to someone suffering loss who is not a party to the insurance contract. In general, damage caused intentionally as well as contractual liability are not covered under liability insurance policies. When a claim is made, the insurance carrier has the duty (and right) to defend the insured. The legal costs of a defense normally do not affect policy limits unless the policy expressly states otherwise; this default rule is useful because defense costs tend to soar when cases go to trial.

1. What liability insurance provides

Liability insurers have two (or three, in some jurisdictions) major duties: 1) the duty to defend, 2) the duty to indemnify and (in some jurisdictions), 3) the duty to settle a reasonably clear claim.

• To defend

The duty to defend is triggered when the insured is sued and in turn "tenders" defense of the claim to its liability insurer. Usually this is done by sending a copy of the complaint along with a cover letter referencing the relevant insurance policy or policies and demanding an immediate defense. At this point, the insurer has three options, to:(1) seek a declaratory judgment of no coverage; (2) defend; or (3) refuse either to defend or to seek a declaratory judgment .

If a declaratory judgment is sought, the issue of the insurer's duty to defend will be resolved.

If the insurer decides to defend, it has thus either waived its defense of no coverage (later estopped), or it must defend under a reservation of rights. The latter means that the insurer reserves the right to withdraw from defending in the event that it turns out the claim is not covered, and to recover from the insured any funds expended to date.

If the insurer chooses to defend, it may either defend the claim with its own in-house lawyers (where allowed), or give the claim to an outside law firm on a "panel" of preferred firms which have negotiated a standard fee schedule with the insurer in exchange for a regular flow of work. The decision to defend under a reservation of rights must be undertaken with extreme caution in jurisdictions where the insured has a right to Cumis counsel.

The choice to do nothing can be very risky because a later determination that the duty applied often leads to the tort of bad faith. (So, insurers often prefer to defend under a reservation of rights rather than simply do nothing.)

• To indemnify

The duty to indemnify means the duty to pay "all sums" for which the insured is held liable, up to a set policy limit.

• To settle reasonable claims

In some jurisdictions, there is a third duty, the duty to settle a reasonably clear claim against the insured. The duty is of greatest import during situations in which the settlement demand equals or exceeds the policy limits. In that case, the insurer has an incentive not to settle, since if it settles, it will certainly pay the policy limit. But this interest is at odds with the interest of its insured. The company has incentive not to settle since if the case goes to trial, there are only two possibilities: its insured loses and insurer pays the policy limits (nothing gained nothing lost), or its insured wins, leaving the insurer with no liability. But, if the insurer refuses to settle, and the case goes to trial, the insured might be held liable for a sum far exceeding the settlement offer. In turn, the plaintiff might then attempt to recover the difference between the policy limits and the actual judgment by obtaining writs of attachment or execution against the insured's assets.

This is where the duty to settle comes in. To avoid endangering an insured to gain a remote possibility of avoiding paying on the policy, the duty to defend obligates the insurance company to settle reasonably clear claims. The standard judicial test is that an insurer must settle a claim if a reasonable insurer, notwithstanding any policy limits, would have settled the claim.

• Effects of breach

An insurer who breaches any of these three duties may be held liable for the tort of insurance bad faith in addition to breach of contract.

1.1 Retained limits and SIRs

One way for businesses to cut down their liability insurance premiums is to negotiate a policy with a retained limit or self-insured retention (SIR), which is somewhat like a deductible. With such policies, the insured is essentially agreeing to self-insure and self-defend for smaller claims, and to tender only for liability claims that exceed a certain number. However, writing such insurance is itself risky for insurers. The California Courts of Appeal have held that primary insurers on policies with a SIR must still provide an "immediate, 'first dollar' defense" (subject, of course, to their right to later recover the SIR amount from the insured) unless the policy expressly imposes exhaustion of the SIR as a precondition to the duty to defend.

2. Types of liability insurance

In many countries, liability insurance is a compulsory form of insurance for those at risk of being sued by third parties for negligence. The most usual classes of mandatory policy cover the drivers of vehicles, those who offer professional services to the public, those who manufacture products that may be harmful, constructors and those who offer employment. The reason for such laws is that the classes of insured are deliberately engaging in activities that put others at risk of injury or loss. Public policy therefore requires that such individuals should carry insurance so that, if their activities do cause loss or damage to another, money will be available to pay compensation. In addition, there are a further range of perils that people insure against and, consequently, the number and range of liability policies has increased in line with the rise of contingency fee litigation offered by lawyers (sometimes on a class action basis). Such policies fall into three main classes:

2.1 Public liability

Industry and commerce are based on a range of processes and activities that have the potential to affect third parties (members of the public, visitors, trespassers, sub-contractors, etc. who may be physically injured or whose property may be damaged or both). It varies from state to state as to whether either or both employer's liability insurance and public liability insurance have been made compulsory by law. Regardless of compulsion, however, most organizations include public liability insurance in their insurance portfolio even though the conditions, exclusions, and warranties included within the standard policies can be a burden. A company owning an industrial facility, for instance, may buy pollution insurance to cover lawsuits resulting from environmental accidents.

 

Many small businesses do not secure general or professional liability insurance due to the high cost of premiums. However, in the event of a claim, out-of-pocket costs for a legal defense or settlement can far exceed premium costs. In some cases, the costs of a claim could be enough to shut down a small business.

Businesses must consider all potential risk exposures when deciding whether liability insurance is needed, and, if so, how much coverage is appropriate and cost-effective. Those with the greatest public liability risk exposure are occupiers of premises where large numbers of third parties frequent at leisure including shopping centers, pubs, clubs, theaters, sporting venues, markets, hotels and resorts. The risk increases dramatically when consumption of alcohol and sporting events are included. Certain industries such as security and cleaning are considered high risk by underwriters. In some cases underwriters even refuse to insure the liability of these industries or choose to apply a large deductible in order to minimize the potential compensations. Private individuals also occupy land and engage in potentially dangerous activities. For example, a rotten branch may fall from an old tree and injure a pedestrian, and many people ride bicycles and skateboards in public places. The majority of states require motorists to carry insurance and criminalise those who drive without a valid policy. Many also require insurance companies to provide a default fund to offer compensation to those physically injured in accidents where the driver did not have a valid policy.

In many countries claims are dealt with under common law principles established through a long history of case law and, if litigated, are made by way of civil actions in the relevant jurisdiction.

2.2 Product

Product liability insurance is not a compulsory class of insurance in all countries, but legislation such as the UK Consumer Protection Act 1987 and the EC Directive on Product Liability (25/7/85) require those manufacturing or supplying goods to carry some form of product liability insurance, usually as part of a combined liability policy. The scale of potential liability is illustrated by cases such as those involving Mercedes-Benz for unstable vehicles and Perrier for benzene contamination, but the full list covers pharmaceuticals and medical devices, asbestos, tobacco, recreational equipment, mechanical and electrical products, chemicals and pesticides, agricultural products and equipment, food contamination, and all other major product classes.

2.3 Employers

New policies have been developed to cover any liability that might be imposed on an employer if an employee is injured in the course of his or her employment. In many states in the US, the insurers are prohibited from including conditions within their policies that seek to impose any unreasonable conditions precedent to liability, or require the insured either to take reasonable precautions or to comply with current legislation and regulations. In those countries where such insurance is not compulsory, smaller organizations are often driven into bankruptcy when faced by claims not covered by insurance.

Note that in the United Kingdom Employers Liability Insurance is compulsory, unless the only employee is the owner of the company (who holds at least 50% of the shares) or the business is a family business which is not incorporated as a limited company.

Workers' compensation in the United States in most states operates through administrative adjudication outside of the federal and state courts; in turn, workers' comp insurance is regulated and underwritten separately from liability insurance. That is, most businesses will go to a liability insurer for a Commercial General Liability policy, and to a specialized workers' comp insurer for a workers' comp policy (which is usually compulsory unless the employer can demonstrate the capability to self-insure for workers' comp).

3. General liability

Many of the public and product liability risks are often covered together under a general liability policy. These risks may include bodily injury or property damage caused by direct or indirect actions of the insured.

In the United States, general liability insurance coverage most often appears in the Commercial General Liability policies obtained by businesses, and in homeowners' insurance policies obtained by individual homeowners.

4. Insurable risks

Generally, liability insurance covers only the risk of being sued for negligence or strict liability torts, but not any tort or crime with a higher level of mens rea. This is usually mandated either by the policy language itself or case law or statutes in the jurisdiction where the insured resides or does business.

In other words, liability insurance does not protect against liability resulting from crimes or intentional torts committed by the insured. This is intended to prevent criminals, particularly organized crime, from obtaining liability insurance to cover the costs of defending themselves in criminal actions brought by the state or civil actions brought by their victims. A contrary rule would encourage the commission of crime, and allow insurance companies to indirectly profit from it, by allowing criminals to insure themselves from adverse consequences of their own actions.

It should be noted that crime is not uninsurable per se. In contrast to liability insurance, it is possible to obtain loss insurance to compensate one's losses as the victim of a crime.

5. Evidentiary rules regarding liability insurance

Main article: Public policy doctrines for the exclusion of relevant evidence#Ownership of liability insurance

In the United States, most states make only the carrying of auto insurance mandatory. Where the carrying of a policy is not mandatory and a third party makes a claim for injuries suffered, evidence that a party has liability insurance is generally inadmissible in a lawsuit on public policy grounds, because the courts do not want to discourage parties from carrying such insurance. There are two exceptions to this rule:

1. If the owner of the insurance policy disputes ownership or control of the property, evidence of liability insurance can be introduced to show that it is likely that the owner of the policy probably does own or control the property.
2. If a witness has an interest in the policy that gives the witness a motive or bias with respect to specific testimony, the existence of the policy can be introduced to show this motive or bias. Federal rules of civil procedure rule 26 was amended in 1993 to require that any insurance policy that may pay or may reimburse be made available for photocopying by the opposing litigants, although the policies are not normally information given to the jury. Federal Rules of Appellate Procedure rule 46 says that an appeal can be dismissed or affirmed if counsel does not update their notice of appearance to acknowledge insurance. The Cornell University Legal Institute web site includes congressional notes.

6. Liability insurance and the technology industry

Because technology companies represent a relatively new industry that deals largely with intangible yet highly valuable data, some definitions of legal liability may still be evolving in this field. Technology firms must carefully read and fully understand their policy limits to ensure coverage of all potential risks inherent in their work.

Typically, professional liability insurance protects technology firms from litigation resulting from charges of professional negligence or failure to perform professional duties. Covered incidents may include errors and omissions that result in the loss of client data, software or system failure, claims of non-performance, negligent overselling of services, contents of a forum post or email of an employee that are incorrect or cause harm to a reputation, getting rid of office equipment such as fax machines without properly clearing their internal memory, or failing to notify customers that their private data has been breached. For example, some client companies have won large settlements after technology subcontractors’ actions resulted in the loss of irreplaceable data. Professional liability insurance would generally cover such settlements and legal defense, within policy limits.

Additionally, client contracts often require technology subcontractors working on-site to provide proof of general liability and professional liability insurance.

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Group insurance

Group insurance is an insurance that covers a group of people, usually who are the members of societies, employees of a common employer, or professionals in a common group.

Group coverage can help reduce the problem of adverse selection by creating a pool of people eligible to purchase insurance who belong to the group for reasons other than for the purposes of obtaining insurance. In other words, people belong to the group not because they possess some high-risk factor which makes them more apt to purchase insurance (thus increasing adverse selection); instead they are in the group for reasons unrelated to insurance, such as all working for a particular employer.

A feature which is sometimes common in group insurance is that the premium cost on an individual basis may not be risk-based. Instead it is the same amount for all the insured persons in the group. So, for example, in the United States, often all employees of an employer receiving health insurance coverage pay the same premium amount for the same coverage regardless of their age or other factors. In contrast, under private individual health insurance coverage in the U.S., different insured persons will pay different premium amounts for the same coverage based on their age, location, pre-existing conditions, etc.

Group policies are also attractive to consumers because the average price per policy is often lower. Carriers are interested in gaining customers and will cut prices a bit to accommodate members of group. Data shows that, for example, drivers save 29% on average by attaching themselves to a group policy.

Another distinctive feature is that under group coverage, a member of the group is generally eligible to purchase or renew coverage all whilst he or she is a member of the group subject to certain conditions. Again, using U.S. health coverage as an example, under group insurance a person will normally remain covered as long as he or she continues to work for a certain employer and pays the required insurance premiums, whereas under individual coverage, the insurance company often has the right to non-renew a person's individual health insurance policy when the policy is up for renewal, which it may do if the person's risk profile changes (though some states limit the insurance company's ability to non-renew after the person has been under individual coverage with a given company for a certain number of years).

In Canada group insurance is usually purchased through larger brokerage firms because brokers receive better rates than individual companies or unions. There may be slight differences in terms of administration and market related practices world wide, even though the concept may be the same. For example, In India, broker procured group term insurance, unlike Canada, does not intrinsically have any price advantage to the buyer i.e. the Master Policy Holder. In India, Group Term Life Insurance also employs a concept of Free Cover Limit or Non Medical Limit where individual members under a plan, can be exempt from individual underwriting if they are within such limits. Others may be subject to a medical questionnaire or a series of tests. It basically offers a cheaper premium on a basic life cover with less stringent underwriting requirements than individual life covers.

Group Health Insurance is also provided in India. It provides healthcare coverage to a group of people belonging to a common community (typically as employees of a company). These plans are generally uniform in nature, offering the same benefits to all employees or members of the group.

Most professionally run companies today provide Group Health Insurance as a part of their Employee Welfare program. Each company however gets the plan customized based on the employee demographics.

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Crop insurance

Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of their crops due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities. The two general categories of crop insurance are called crop-yield insurance and crop-revenue insurance.

• Crop-yield insurance: There are two main classes of crop-yield insurance:

·         Crop-hail insurance is generally available from private insurers (in countries with private sectors) because hail is a narrow peril that occurs in a limited place and its accumulated losses tend not to overwhelm the capital reserves of private insurers. In early 1820s, crop-hail insurance were available to farmers in France and Germany. That is among the earliest forms of hail insurance from an actuarial perspective. It is possible to implement the hail risk into financial instruments since the risk is isolated.

·         Multi-peril crop insurance (MPCI): Coverage in this type of insurance is not limited to just one risk. Usually multi-peril crop insurance offers hail, excessive rain and drought in a combined package. Sometimes, additional risks such as insect or bacteria-related diseases are also offered. The problem with the multi-peril crop insurance is the possibility of a large scale event. Such an event can cause significant losses beyond the insurer's financial capacity. To make this class of insurance, the perils are often bundled together in a single policy, called a multi-peril crop insurance (MPCI) policy. MPCI coverage is usually offered by a government insurer and premiums are usually partially subsidized by the government. U.S. Department of Agriculture is known to implement the earliest Multi Peril Crop Insurance program in 1938. Federal Crop Insurance Corporation managed this multi-peril insurance program since then. The Risk Management Agency (RMA) is active in calculating the premiums based on individual risk factors since 1996.

• Crop-revenue insurance: Crop-yield times the crop price gives the crop-revenues. Based on farmer's revenues, crop-revenue insurance is based on deviation from the mean revenue. RMA uses the futures prices on harvest-times listed in the commodity exchange markets, to determined the prices. Combining the future price with farmer's average production gives the estimated revenue of the farmer. Accessing the futures market offers enables revenue protection even before the crop planted. There is a single guarantee for a certain number of dollars. The policy pays an indemnity if the combination of the actual yield and the cash settlement price in the futures market is less than the guarantee. In the United States, the program is called Crop Revenue Coverage. Crop-revenue insurance covers the decline in price that occurs during the crop's growing season. It does not cover declines that may occur from one growing season to another.

1. Specialty crops

A farmer or grower may desire to grow a crop associated with a particular defined attribute that potentially qualifies for a premium over similar commodity crops, agricultural products, or derivatives thereof. The particular attribute may be associated with the genetic composition of the crop, certain management practices of the grower, or both. However, many standard crop insurance policies do not differentiate between commodity crops and crops associated with particular attributes. Accordingly, farmers have a need for crop insurance to cover the risk of growing crops associated with particular attributes.

2. Federal crop insurance

In the United States, a subsidized multi-peril federal insurance program, administered by the Risk Management Agency, is available to most farmers. The program is authorized by the Federal Crop Insurance Act (which is actually title V of the Agricultural Adjustment Act of 1938, P.L. 75-430), as amended. Federal crop insurance is available for more than 100 different crops, although not all insurable crops are covered in every county. With the amendments to the Federal Crop Insurance Act made by the Federal Crop Insurance Reform Act of 1994 (P.L. 103-354, Title I) and the Agriculture Risk Protection Act of 2000 (P.L. 106-224), USDA is authorized to offer basically free catastrophic (CAT) coverage to producers who grow an insurable crop. For a premium, farmers can buy additional coverage beyond the CAT level. Crops for which insurance is not available are protected under the Noninsured Assistance Program (NAP). Federal crop insurance is sold and serviced through private insurance companies. A portion of the premium, as well as the administrative and operating expenses of the private companies, is subsidized by the federal government. The Federal Crop Insurance Corporation reinsures the companies by absorbing some of the losses of the program when indemnities exceed total premiums. Several revenue insurance products are available on major crops as a form of additional coverage.

3. India

In India a multiperil crop insurance called National Agriculture Insurance Scheme (NAIS) was implemented. This scheme is being implemented by Agriculture Insurance Company of India, an Indian government owned company. The scheme is compulsory for all farmers who take agricultural loans from any financial institution. It is voluntary for all other farmers. The premium is subsidized for farmers who own less than two hectares of land. This insurance follows the area approach. This means that instead of individual farmers, a specific area is insured. The area may vary from gram panchayat (an administrative unit containing 8-10 villages) or block or district from crop to crop or state to state. The claim is calculated on the basis of crop cutting experiments carried out by agricultural departments of respective states. Any shortfall in yield compared to past 5 years average yield is compensated.

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Crime insurance

Crime insurance is insurance to cover losses due to victimization by criminals. It's also called "fidelity insurance." Many businesses purchase crime insurance that allows them to file claims for employee theft or other offenses with the potential to cause financial ruin.

Insurance companies sell separate crime insurance because regular property insurance policies usually don't cover losses caused by dishonest employees.

Crime insurance pays when an organization suffers a loss from things like:

• embezzlement
• theft
• forgery
• computer fraud
• counterfeiting
• breaking into a safe
• general crime and dishonesty

Some organizations buy crime insurance instead of a surety bond.

Anarcho-capitalists favor the use of crime insurance by individuals as well, to cover losses due to murder, rape, and other violent crimes in addition to property crimes; this type of crime insurance is termed aggression insurance.

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Casualty insurance

Casualty insurance, often equated to liability insurance, is used to describe an area of insurance not directly concerned with life insurance, health insurance, or property insurance. It is mainly used to describe the liability coverage of an individual or organization's for negligent acts or omissions. However, the "elastic" term has also been used to describe property insurance for aviation insurance, boiler and machinery insurance, and glass and crime insurance. It may include marine insurance for shipwrecks or losses at sea or fidelity and surety insurance. It may also include earthquake, political risk insurance, terrorism insurance, fidelity and surety bonds.

 

One of the most common kinds of casualty insurance today is automobile insurance. In its most basic form, automobile insurance provides liability coverage in the event that a driver is found "at fault" in an accident. This can cover medical expenses of individuals involved in the accident as well as restitution or repair of damaged property, all of which would fall into the realm of casualty insurance coverage.

If coverage were extended to cover damage to one's own vehicle, or against theft, the policy would no longer be exclusively a casualty insurance policy.

The state of Illinois includes vehicle, liability, worker's compensation, glass, livestock, legal expenses, and miscellaneous insurance under its class of casualty insurance.

In 1956, in the preface to the fourth edition of Casualty Insurance Clarence A. Kulp wrote:

• It has never been possible really to define casualty insurance. Broadly speaking, it may be defined as a list of individual insurances, usually written in a separate policy, in three broad categories: third party or liability, disability or accident and health, material damage. One of the results of comprehensive policy-writing .... is to raise the question of the usefulness of the traditional concept of casualty insurance ... some insurance men predict that the casualty insurance of the future will include liability and disability lines only.

•  Later in Chapter 2 the book states that insurance was traditionally classified under life, fire-marine, and casualty. Since multiple-line policies began to be written (insurance contracts covering several types of risks), the last two began to merge. When the NAIC approved multiple underwriting in 1946, casualty insurance was defined as a blanket term for legal liability except marine, disability and medical care, and some damage to physical property.

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Reinsurance

Reinsurance is insurance that is purchased by an insurance company (insurer also sometimes called a "cedant" or "cedent") from another insurance company (reinsurer) as a means of risk management. The insurer and the reinsurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay the insurer's losses (in terms of excess of loss or proportional to loss). The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues insurance policies to its own policyholders. The main reason for insurers to buy reinsurance is to transfer risk from the insurer to the reinsurer, but reinsurance has various other functions as explained below.

For example, assume an insurer sells one thousand policies, each with a $1 million policy limit. Theoretically, the insurer could lose $1 million on each policy – totaling up to $1 billion. It may be better to pass some risk to a reinsurance company (reinsurer) as this will reduce the insurer's exposure to risk.

There are two basic methods of reinsurance:

1. Facultative Reinsurance In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk assumed by a particular specified insurance policy. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured. Facultative reinsurance normally is purchased by ceding companies for individual risks not covered by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties and for unusual risks. Underwriting expenses and, in particular, personnel costs, are higher relative to premiums written on facultative business because each risk is individually underwritten and administered. The ability to separately evaluate each risk reinsured, however, increases the probability that the underwriter can price the contract to more accurately reflect the risks involved.
2. Treaty Reinsurance is a method of reinsurance in which the insurer and the reinsurer formulate and execute a reinsurance contract. The reinsurer then covers all the insurance policies coming within the scope of that contract. The reinsurance contract may oblige the reinsurer to accept reinsurance of all contracts within the scope (known as "obligatory" reinsurance), or it may require the insurer to give the reinsurer the option to reinsure each such contract (known as "facultative-obligatory" or "fac oblig" reinsurance).

There are two basic methods of treaty reinsurance:

·         Quota Share Treaty Reinsurance, and

·         Excess of Loss Treaty Reinsurance.

In the past 30 years there has been a major shift from Quota Share to Excess of Loss in the property and casualty fields.

1. Functions

Almost all insurance companies have a reinsurance program. The ultimate goal of that program is to reduce their exposure to loss by passing the exposure to loss to a reinsurer or a group of reinsurers. Therefore, they are 'transferring some of the risk to the reinsurer or a group of reinsurers'. In the USA, insurance, which is regulated at the state level, permits an insurer only to issue policies with a maximum limit of 10% of their surplus (net worth), unless those policies are reinsured.

1.1 Risk transfer

With reinsurance, the insurer can issue policies with higher limits than it would otherwise be allowed, therefore being permitted to take on more risk because some of that risk is now transferred to the reinsurer. Reinsurance has gone from a relatively unsophisticated business to a highly sophisticated endeavor. The reason for this is the number of reinsurers that have suffered significant losses and become financially impaired. From 2000 onward, reinsurers have become much more reliant on actuarial models and tight review of the companies they are willing to reinsure. They review their financials closely, examine the experience of the proposed business to be reinsured, review the underwriters that will write that business, review their rates, and much more. Almost all reinsurers now visit the insurance company and review underwriting and claim files and more.

1.2 Income smoothing

Reinsurance can help to make an insurance company’s results more predictable by absorbing larger losses and reducing the amount of capital needed to provide coverage. The risk factor is diversified with the reinsurer bearing some of the loss incurred by insurance company.

1.3 Surplus relief

An insurance company's writings are limited by its balance sheet (this test is known as the solvency margin). When that limit is reached, an insurer can do one of the following: stop writing new business, increase its capital, or buy "surplus relief".

1.4 Arbitrage

The insurance company may be motivated by arbitrage in purchasing reinsurance coverage at a lower rate than they charge the insured for the underlying risk, which can be in the area of risk associated with any form of the asset that is being issued or loaned against. It can be a car, a mortgage, an insurance (personal, fire, business, etc.) and the like.

In general, the reinsurer may be able to cover the risk at a lower premium than the insurer because:

• The reinsurer may have some intrinsic cost advantage due to economies of scale or some other efficiency
• Reinsurers may operate under weaker regulation than their clients. This enables them to use less capital to cover any risk, and to make less prudent assumptions when valuing the risk.
• Even if the regulatory standards are the same, the reinsurer may be able to hold smaller actuarial reserves than the cedant if it thinks the premiums charged by the cedant are excessively prudent.
• The reinsurer may have a more diverse portfolio of assets and especially liabilities than the cedant. This may create opportunities for hedging that the cedant could not exploit alone. Depending on the regulations imposed on the reinsurer, this may mean they can hold fewer assets to cover the risk.
• The reinsurer may have a greater risk appetite than the insurer.

1.5 Reinsurer's expertise

The insurance company may want to avail itself of the expertise of a reinsurer, or the reinsurer's ability to set an appropriate premium, in regard to a specific (specialised) risk.

1.6 Creating a manageable and profitable portfolio of insured risks

By choosing a particular type of reinsurance method, the insurance company may be able to create a more balanced and homogenous portfolio of insured risks. This would lend greater predictability to the portfolio results on net basis (after reinsurance) and would be reflected in income smoothing. While income smoothing is one of the objectives of reinsurance arrangements, the mechanism is by way of balancing the portfolio.

1.7 Managing cost of capital for an insurance company

By getting a suitable reinsurance, the insurance company may be able to substitute "capital needed" as per the requirements of the regulator for premium written. It could happen that the writing of insurance business requires x amount of capital with y% of cost of capital and reinsurance cost is less than x*y%. Thus more unpredictable or less frequent the likelihood of an insured loss, the more profitable it can be for an insurance company to seek reinsurance.

2. Types

2.1 Proportional

Proportional reinsurance (the types of which are quota share and surplus reinsurance) involves one or more reinsurers taking a stated percent share of each policy that an insurer produces ("writes"). This means that the reinsurer will receive that stated percentage of each dollar of premiums and will pay that percentage of each dollar of losses. In addition, the reinsurer will allow a "ceding commission" to the insurer to cover the initial costs incurred by the insurer (marketing, underwriting, claims etc.).

The insurer may seek such coverage for several reasons. First, the insurer may not have sufficient capital to prudently retain all of the exposure that it is capable of producing. For example, it may only be able to offer $1 million in coverage, but by purchasing proportional reinsurance it might double or triple that limit. Premiums and losses are then shared on a pro rata basis. For example, an insurance company might purchase a 50% quota share treaty; in this case they would share half of all premium and losses with the reinsurer. In a 75% quota share, they would share (cede) 3/4 of all premiums and losses.

The other form of proportional reinsurance is surplus share (also known as surplus of line or variable quota share treaty). In this case, a retained “line” is defined as the ceding company's retention - say $100,000. In a 9 line surplus treaty the reinsurer would then accept up to $900,000 (9 lines). So if the insurance company issues a policy for $100,000, they would keep all of the premiums and losses from that policy. If they issue a $200,000 policy, they would give (cede) half of the premiums and losses to the reinsurer (1 line each). The maximum automatic underwriting capacity of the cedant would be $ 1,000,000 in this example.

2.2 Non-proportional

Non-proportional reinsurance only responds if the loss suffered by the insurer exceeds a certain amount, which is called the "retention" or "priority." An example of this form of reinsurance is where the insurer is prepared to accept a loss up to $1 million and purchases a layer of reinsurance of $4 million in excess of this $1 million. If a loss of $3 million were then to occur, the insurer would "retain" $1 million of the loss and would recover $2 million from its reinsurer. In this example, the insured also retains any loss exceeding $5 million unless it has purchased a further excess layer of reinsurance.

The main forms of non-proportional reinsurance are excess of loss and stop loss.

Excess of loss reinsurance can have three forms - "Per Risk XL" (Working XL), "Per Occurrence or Per Event XL" (Catastrophe or Cat XL), and "Aggregate XL". In per risk, the cedant’s insurance policy limits are greater than the reinsurance retention. For example, an insurance company might insure commercial property risks with policy limits up to $10 million, and then buy per risk reinsurance of $5 million in excess of $5 million. In this case a loss of $6 million on that policy will result in the recovery of $1 million from the reinsurer. These contracts usually contain event limits to prevent their mis-use as a substitute for Catastrophe XLs.

In catastrophe excess of loss, the cedant’s retention is usually a multiple of the underlying policy limits (anyhow, these contracts usually contain a 2 risk warranty i.e. they are designed to protect the reinsured against catastrophic events that involve more than 1 policy, usually very many policies). For example, an insurance company issues homeowner's policies with limits of up to $500,000 and then buys catastrophe reinsurance of $22,000,000 in excess of $3,000,000. In that case, the insurance company would only recover from reinsurers in the event of multiple policy losses in one event (e.g., hurricane, earthquake, flood, etc.).

Aggregate XL affords a frequency protection to the reinsured. For instance if the company retains $1 million net any one vessel, $5m annual aggregate limit in excess of $5m annual aggregate deductible, the cover would equate to 5 total losses (or more partial losses)in excess of 5 total losses (or more partial losses). Aggregate covers can also be linked to the cedant's gross premium income during a 12 month period, with limit and deductible expressed as percentages and amounts. Such covers are then known as "Stop Loss" contracts.

2.3 Risks attaching basis

A basis under which reinsurance is provided for claims arising from policies commencing during the period to which the reinsurance relates. The insurer knows there is coverage during the whole policy period even if claims are only discovered or made later on.

All claims from cedant underlying policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. Any claims from cedant underlying policies incepting outside the period of the reinsurance contract are not covered even if they occur during the period of the reinsurance contract.

2.4 Losses occurring basis

A Reinsurance treaty under which all claims occurring during the period of the contract, irrespective of when the underlying policies incepted, are covered. Any claims occurring after the contract expiration date are not covered.

As opposed to claims-made or risks attaching contracts. Insurance coverage is provided for losses occurring in the defined period. This is the usual basis of cover for short tail business.

2.5 Claims-made basis

A policy which covers all claims reported to an insurer within the policy period irrespective of when they occurred.

3. Contracts

Most of the above examples concern reinsurance contracts that cover more than one policy (treaty). Reinsurance can also be purchased on a per policy basis, in which case it is known as facultative reinsurance. Facultative reinsurance can be written on either a quota share or excess of loss basis. Facultative reinsurance is commonly used for large or unusual risks that do not fit within standard reinsurance treaties due to their exclusions. The term of a facultative agreement coincides with the term of the policy. Facultative reinsurance is usually purchased by the insurance underwriter who underwrote the original insurance policy, whereas treaty reinsurance is typically purchased by a senior executive at the insurance company.

 

Reinsurance treaties can either be written on a “continuous” or “term” basis. A continuous contract continues indefinitely, but generally has a “notice” period whereby either party can give its intent to cancel or amend the treaty within 90 days. A term agreement has a built-in expiration date. It is common for insurers and reinsurers to have long term relationships that span many years.

4. Fronting

Sometimes insurance companies wish to offer insurance in jurisdictions where they are not licensed: for example, an insurer may wish to offer an insurance programme to a multi-national company, to cover property and liability risks in every country in the world. In such situations, the insurance company may find a local insurance company which is authorised in the relevant country, arrange for the local insurer to issue an insurance policy covering the risks in that country, and enter into a reinsurance contract with the local insurer to transfer the risks. In the event of a loss, the policyholder would claim against the local insurer under the local insurance policy, the local insurer would pay the claim and would claim reimbursement under the reinsurance contract. Such an arrangement is called "fronting". Fronting is also sometimes used where an insurance buyer requires its insurers to have a certain financial strength rating and the prospective insurer does not satisfy that requirement: the prospective insurer may be able to persuade another insurer, with the requisite credit rating, to provide the coverage to the insurance buyer, and to take out reinsurance in respect of the risk. An insurer which acts as a "fronting insurer" receives a fronting fee for this service to cover administration and the potential default of the reinsurer. The fronting insurer is taking a risk in such transactions, because it has an obligation to pay its insurance claims even if the reinsurer becomes insolvent and fails to reimburse the claims.

5. Markets

Most reinsurance placements are not placed with a single reinsurer but are shared between a number of reinsurers. For example a $30,000,000 excess of $20,000,000 layer may be shared by 30 or more reinsurers. The reinsurer who sets the terms (premium and contract conditions) for the reinsurance contract is called the lead reinsurer; the other companies subscribing to the contract are called following reinsurers.

About half of all reinsurance is handled by reinsurance brokers who then place business with reinsurance companies. The other half is with “direct writing” reinsurers who have their own production staff and thus reinsure insurance companies directly. In Europe reinsurers write both direct and brokered accounts.

Using game-theoretic modeling, Professors Michael R. Powers (Temple University) and Martin Shubik (Yale University) have argued that the number of active reinsurers in a given national market should be approximately equal to the square-root of the number of primary insurers active in the same market. Econometric analysis has provided empirical support for the Powers-Shubik rule.

Insurers (that is to say, reinsureds) tend to choose their reinsurers with great care as they are exchanging insurance risk for credit risk. Risk managers monitor reinsurers' financial ratings (S&P, A.M. Best, etc.) and aggregated exposures regularly.

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