National Health Insurance

I INTRODUCTION

National Health Insurance, government-operated system of insurance that provides financial benefits and medical services to people disabled by sickness or accident. National health insurance systems are found in many countries, particularly in Europe.

Systems of national health insurance frequently are coordinated with other national programmes of social insurance, such as pension programmes, programmes of unemployment insurance, and workers’ compensation.

II HISTORY

The first country to provide health insurance on a national scale was Germany. The German chancellor Prince Otto von Bismarck obtained passage of a compulsory sickness insurance law in 1883, which was financed by a state subsidy. Various types of national health insurance were adopted by other European countries, including Austria-Hungary later in the 19th century, Norway in 1909, Sweden in 1910, and Great Britain and Russia in 1911. After World War II the growth of national systems of health insurance in Europe was extensive, although a number of benefits, conditions of eligibility, treatment of dependents, and provisions for maternity care varied widely.

III GREAT BRITAIN

The British system of national health insurance, comprising social security and the National Health Service, was thoroughly reorganized after World War II and is one of the most comprehensive systems in operation. National health insurance is under the jurisdiction of the Department of Health and Social Security, which administers the payment of cash benefits for sickness and maternity. All employed and self-employed people up to the age of 65 are eligible for benefits, and the funds for the programme are derived from weekly contributions by employers and employees. Sickness benefits are payable up to pensionable age if a sufficient number of weekly contributions have been made. Maternity benefits include weekly allowances, before and after confinement, to women who ordinarily work, as well as certain cash grants.

The National Health Service administers the National Health Service Act, which went into effect in 1948. The cost of the programme is met largely from public funds. Benefits, which are of unlimited duration, include hospital services, general medical services outside hospitals, and local health services. Hospital services are provided in general and special hospitals, for in-patient, outpatient, and day-patient care, including the services of specialists. General medical services include those of general practitioners and dental, pharmaceutical, and ophthalmic services. The local health services include maternity and child welfare services, domiciliary nursing care, aftercare, immunization, and some mental-health services.

A person may use all the facilities of the National Health Service, or only a part of the service. He or she may, for example, make private arrangements with a practitioner for medical care and apply for free hospitalization. Practitioners are not required to participate in the programme. Those who participate and work outside of hospitals receive a fee for each patient as well as a basic practice allowance. Participating doctors may also engage in private practice. Almost all of the hospitals in Great Britain are administered by the National Health Service.

Controversial government reforms to the National Health Service were introduced in the 1980s and 1990s. These included the establishment of trusts, making NHS bodies self-governing purchasers of health care resources, and fundholding status for local practices, allowing general practitioners to manage and allocate their own resources. The overall aim was to bring the benefits of competition into the National Health service through an “internal market”, and to counteract bureaucratic inefficiency.

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National Health Service

I INTRODUCTION

National Health Service (NHS), the British institution, set up and run by the state, which aims to provide all aspects of health care for all citizens free at the point of use. It includes all levels of provision, from school nurses to the largest hospitals.

II HISTORY

The National Health Service was established in 1948 as a major part of the “welfare state” created by the Labour government of 1945-1951. It was a part of the social reforms recommended by the civil servant Sir William Beveridge, in the Beveridge Report of 1942. Previously, health care in the United Kingdom consisted of a mixture of charitable and private provision, the latter paid for by private and state-sponsored insurance.

The aim of the founders of the NHS was that the state should care for its citizens “from the cradle to the grave”. Its establishment involved the compulsory takeover of almost all health provision in the country. This was made simpler by the extensive powers of direction which government agencies had exercised during the war.

However, the NHS has been politically controversial from its outset: it was opposed by doctors before it began, and the government minister responsible for it, Aneurin Bevan, said that he had “stuffed their mouths with gold” in order to preclude opposition. In fact, he was compelled to compensate family doctors for their future inability to sell their practices when they retired; such sales had traditionally produced their retirement income. Bevan subsequently resigned in 1951, from a different Cabinet post, over the imposition of charges for “teeth and spectacles”. He was accompanied by his fellow ministers, Harold Wilson and John Freeman, although Wilson failed to abolish the same charges when he became prime minister in 1964. The charges are payable today, and in the 1980s the universal entitlement to free dental and ophthalmic tests was removed. A charge has also been introduced to drugs dispensed on a doctor’s prescription, although prescription charges were abolished in Wales in April 2007. There are exemptions from all these charges for people on low incomes and other nominated groups, such as children, students, and pregnant women. Changes to legislation were announced in 2003 to cut down on overseas visitors receiving free treatment. Only those permanently resident in the United Kingdom are eligible for free treatment, although pensioners who choose to spend up to six months living in another European country are eligible. Accident and emergency treatment remains free to all.

Commodity

Throughout the existence of the NHS, the private provision of health care has survived and mostly thrived. At one time, people sought private provision for the fringe advantages it offered, such as private rooms in hospital and the opportunity of a longer consultation with the specialist; it is now popular in addition because the increasing pressure on resources in the state system means that the private sector often provides much faster treatment and because modern insurance schemes, often paid for by employers, make private care affordable.

III STRUCTURE AND REFORM OF THE NHS

At its inception, the NHS was a centrally directed institution. The Secretary of State for Health controlled the service through a hierarchy of Regional, Area, and District Health Authorities, which provided the institutions of the NHS such as hospitals; and through a network of Family Practitioner Committees which organized the provision of General Practitioner (GP, family doctor) care. Patients were dealt with as they always had been, by attending their GP and being referred to a specialist at the hospital if such treatment was necessary. NHS management dealt with budgetary and financial matters, and these only impinged upon doctors’ work to the extent that facilities were or were not available.

In the 1970s, the concern that individuals mistreated by state bodies had no realistic source of redress led to the appointment of an ombudsman or Health Service Commissioner who was appointed with a brief to investigate complaints from the public of bad administration in the NHS. The holder of the post has always, in fact, been the same person as the Parliamentary Commissioner for Administration, the ombudsman for government generally.

Financial management in the NHS was, and remains, subject to consultation with non-financial concerns. The professional workers in the NHS are represented on local advisory committees, which give their views on the requirements of the local patient population. That population has its say in the Community Health Councils, which are formed from a variety of local interests. To an extent, these means of consultation have been sidelined by reforms in 1990 which concentrated on bringing financial decisions nearer to those who are affected by them, so that they might directly influence decision-making.

The 1990 reforms were intended to make the practices of the NHS more financially disciplined. The health care budget is enormous, and demand appears limitless; the intention of the reforms was to make it more apparent what resources were spent on what services, and to introduce an element of competition into the provision of services, thus reducing costs.

Besides some structural reforms (the Family Practitioner Committees became Family Health Service Authorities, and the Area Health Authorities were abolished), the reforms centred on creating “purchasing” and “providing” authorities. In each District Health Authority area, there is now a provider, who manages the service, and a purchaser, who determines what services are required for the patients in its area and negotiates with providers from its own and other District providers to obtain the service as efficiently as possible. The contracts so made are not enforceable at law, but there is an arbitration procedure.

In a further step, most provision is now made by trusts, which each consists of a health service unit. This is usually one or more hospitals, although it may be a bundle of services such as the mental health care in an area. The trust is to an extent autonomous and negotiates itself with the purchasing authority. Trusts can, in theory, make tenders for work done by other trusts; in practice, this does not mean the closure of the other trust’s infrastructure, but rather its takeover by new management.

The most radical reform has been the creation of fundholding general practices (comprising one or more GPS). In these cases, GPs are paid a sum to spend on each patient’s entire health care, and thus the GP becomes the purchaser of services so far as his or her patients are concerned. Partly as a consequence of these developments, and partly due to new concepts of health care delivery, the old distinction between primary GP care and hospital services is to an extent breaking down. Whereas GPs were once, in effect, gatekeepers, determining what and what not to pass on to the specialist services, they now provide a broader range of care at their practices. This has gone as far as the provision of minor surgery in some medical centres.

At the same time, smaller hospitals have tended to close or amalgamate with larger ones in the hope that the hospital system will consist of only the best examples of in-patient care. The fact that, for example, accident and emergency (“casualty”) provision may now be a considerable distance away for many people, has been justified by the observation that when there were much more, smaller, units, the expertise is shown in them was not always up to the best standards. The process began with the smallest cottage hospitals and extended to encompass all but the largest institutions. Some specialities, such as child health or maternity care, have retained their own dedicated institutions. Another development is the use of less in-patient treatment and shorter periods of stay for patients in the hospital.

Although the reforms may seem to have devolved much of the financial power within the NHS to a level nearer the grass roots, the service remains quite closely tied to the political centre. The health authorities and the trusts are controlled by people appointed by the Secretary of State for Health; even in the case of fund-holding GPs, their accession to that status is decided upon by the government-appointed Family Health Services authorities.

There is no simpler way to provide a service than to budget for and make provision according to hierarchical directives; inevitably the complexity of the new system has attracted controversy because it has required the appointment of more managers to run it. There is also criticism over the claim that a more commercial approach to health care has bred a commercial attitude in managers, particularly with regard to their own remuneration; and that making finance a priority, and allowing competition within the service, sits ill with a universal service providing equal treatment for all. It seems unlikely, however, that the principle of healthcare free at the point of use will be jeopardized. Whatever the organization and mode of delivery of the service, the evident public support for the NHS suggest that it will remain a permanent feature of social and political life in the United Kingdom.

Contributed By:
David Watson

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National Insurance

National Insurance, payments made by employers and employees in the United Kingdom to fund state benefits, such as unemployment pay and pensions. The money goes into a separate fund and technically does not form part of central government revenue. National insurance has some of the characteristics of a tax, though the payments employers and employees make are referred to as “contributions”. The distinction made by William Beveridge (the national insurance system set up in 1946 implemented proposals of the Beveridge Report) was “that taxation is or should be related to assumed capacity to pay rather than to the value of what the payer may expect to receive, while insurance contributions are or should be related to the value of the benefits and not to the capacity to pay”.

National insurance contributions are based on earnings; the percentage of earnings paid by employees is different from that paid by employers, and that paid by the self-employed is different again. Those earning below a certain amount do not have to pay national insurance at all and those earning more than a certain amount does not pay national insurance on earnings above that amount. In the case of someone earning just under £23,000 (the national insurance ceiling), the employee’s total national insurance contribution is currently set at just over £2,000, which is about 9 percent of earnings, and the employer’s contribution is higher (equivalent to slightly more than 10 percent of earnings). However, for those earning up to about £10,660, the employer’s contribution ranges from 3 to 7 per cent.

Many countries operate similar systems, in which there is a distinction between taxes that finance such things as public sector wages and compulsory social insurance that finances welfare benefits.

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Marine Insurance

Marine Insurance, insurance that generally applies to the risk associated with the transport of goods. Over time, marine insurance has become a mixture of broad property coverages, divided between land risks (inland marine) and sea risks (ocean marine).

Inland marine insurance covers domestic risks associated with some element of transport. It has been broadened to include perils incidental to the transport of property and now deals mostly with a personal and commercial property of a mobile nature. Its most familiar form is the personal articles “floater”, which offers an opportunity to insure many valuables, such as jewellery, furs, silverware, and fine arts, in a single policy.

Ocean marine insurance is broken into three basic types: hull (involving loss or damage to the ship); cargo (involving loss or damage to cargoes); and protection and indemnity (involving the liability of shipowners to others).

Hull insurance affords protection to owners of all types of ships for loss or damage to their waterborne property. Typical perils insured against are stranding, sinking, fire, and collision. The hull policy offers an unusual coverage under its collision clause, which provides liability insurance for loss or damage to the other vessel involved in a collision, as well as to its cargo.

Cargo insurance is available for shippers of goods moving by sea or air in international trade. The terms of insurance can be specific (for example, loss or damage resulting from sinking or fire) or “all risk” and can be underwritten for a single transaction (special policy) or on an open-ended contract (open cargo policy) for the international trader. The open cargo policy is the most common form used and usually covers the cargo “warehouse to warehouse”, thus including exposure to those risks that are associated with land transport as well.

When a ship is imperilled at sea because of fire, storm, or other danger, all efforts must be made to keep the ship afloat. Such efforts often cause damage to portions of the ship or cargo. To prevent inequity, each owner assumes a share of the property damaged or lost as a result of actions taken to save the ship. This method of apportioning losses is known as general averaging.

Protection and indemnity (called P & I) insurance protects the vessel owners against their liability for damage to cargo in their care and custody; death or injury to passengers, crew, cargo loaders, and others; damage caused to piers, docks, underwater cables, and bridges; and, more recently, damage caused by pollution.

Other forms of related coverages are included in ocean marine insurance, such as miscellaneous liability policies for owners of piers, docks, marine repair facilities, marinas, and shipyards. Policies on yachts can be underwritten by an ocean marine insurer (usually for larger pleasure craft), providing property and liability insurance in one policy. Powerboats and smaller pleasure craft are more often insured by inland marine insurers. Builder’s risk insurance is available to cover damage to a ship under construction.

Common exclusions found in marine insurance policies are loss or damage resulting from strikes, riots, civil commotions, and war. These risks can be, and frequently are, insured through the use of endorsements for additional premiums.

Ocean marine insurance rates and policy forms are not regulated by any government authority, only by norms operating within the shipping industry. Coverage can be tailored to suit the individual needs of ship and cargo owners, and rates are based on the underwriter’s experience and judgement in a competitive worldwide marketplace.

Underwriters consider many factors in setting terms and rates for a risk. Factors common to all marine policies are the underwriter’s experience with a commodity or vessel, the cargo owner’s or shipowner’s loss history, and current competition in the industry. Important factors relating to the ship include owner management, crew experience, trade routes, ports frequented, and age and maintenance of a vessel.

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Life Insurance

I INTRODUCTION

Life Insurance, assumption by the an insuring organization of the risk of death of a policyholder. Unlike loss in insurance on property, loss in life insurance is certain to occur and is total. The element of uncertainty is when death will occur. Mortality is subject to the laws of probability, however, and life-insurance premiums can be calculated from mortality tables, which indicate the average number of people in each age and gender group that will die each year. A person trained to make such calculations, known as an actuary, determines the amount of premiums to be collected yearly from each group in order for the principal (the premiums) and its earned interest to equal the benefits to be paid to the policyholders’ beneficiaries. The principal payment required annually constitutes the net premium. A loading charge to cover company expenses and contingencies is added to the net premium, yielding the total, or gross premium, which the insured pays.

II HISTORY

The earliest known type of life insurance was the burial benefits that Greek and Roman religious societies provided for their members. Neither these religious societies nor any pre-modern systems for paying death benefits employed actuarial calculations. They were frequently financed on a post-assessment basis; that is, contributions were made by all surviving members following one member’s death. As a result, funds were not always available to pay claims.

The tontine annuity system, founded in Paris by the 17th-century Italian-born banker Lorenzo Tonti, although essentially a form of gambling, has been regarded as an early attempt to use the law of averages and the principle of life expectancies in establishing annuities. Under the tontine system, associations of individuals were formed without any reference to age, and a fund was created by equal contributions from each member. The sum was invested, and at the end of each year the interest was divided among the survivors. The last remaining survivor received both the year’s interest and the entire amount of the principal. Modern life insurance has achieved global popularity. It is most popular in Ireland, Belgium, the Netherlands, the United States, Canada, Australia, New Zealand, South Korea, and Japan. In these countries the face value of current life insurance policies is usually greater than the national income.

III TYPES OF LIFE INSURANCE

Life insurance may be classified in a variety of ways. A classification depending primarily on the manner in which the premium is collected comprises ordinary, debit, and group life insurance. Ordinary insurance can be further classified into whole life, limited-payment life, endowment, and term. Debit life insurance can be classified into debit ordinary and industrial. Classification by type of contract yields term, whole life, and universal life. Life insurance may also be classified as participating and non-participating, depending on whether or not the policyholder shares in the savings or the profits of the insurer.

IV ORDINARY LIFE INSURANCE

Ordinary life insurance may be used to provide a lump sum or continuing income to family beneficiaries, or it may be used by a firm to insure the life of a business executive. Premiums are paid on a periodic basis. With the exception of term life insurance, ordinary life insurance builds cash values that can be borrowed to help families meet emergencies or take advantage of business opportunities. A medical examination usually is required to buy life insurance. Almost all ordinary policies are sold on a level premium basis, which means that premiums in the early years are greater than the value of the insurance. This is not a true overcharge, but is designed to compensate for the greater costs in later years, when mortality rates increase.

V WHOLE-LIFE INSURANCE

Whole life insurance provides for the payment of the face amount of the policy on the death of the insured, whenever it might occur. Premium payments are made during the entire lifetime of the insured person; this differs from limited-payment and endowment policies. The cash value of the policy, which is less than its face value, is paid when the contract matures or is surrendered.

All cash-value policies like whole life, endowment, and limited payment life are required to provide values that cannot be lost should the insured terminate the policy. Such benefits provide that the insured may obtain the cash surrender value and terminate the policy; or the insured may obtain a paid-up whole life policy in a reduced amount; or he or she may obtain term insurance for the full face amount of the policy for a specified period. A loan provision in all such policies permits the insured to borrow up to the full amount of the cash surrender value at any time, subject to specified limitations.

VI LIMITED-PAYMENT LIFE INSURANCE

The limited payment life policy is a subtype of whole-life policy providing for premium payments for a specified number of years (for example, 10 or 20, or until age 65) unless the insured person dies sooner. The policy remains effective once paid for, unless surrendered. A single-premium life policy is a special case of a limited-payment policy. Premium rates for limited-payment policies are higher than for ordinary life insurance policies because the paying-in period is shorter.

VII ENDOWMENT INSURANCE

Endowment policies are payable at the death of the insured or on a specified maturity date if the insured is alive. Premiums generally are payable from the date of issue until the date of maturity but may be limited to fewer years or even to a single lump-sum payment. Premium payments on endowments are high because a large cash value is built up in a relatively short time. Endowments combine savings with insurance, and such policies may be used to provide for education, mortgage payments, or retirement purposes.

VIII TERM LIFE INSURANCE

Term insurance provides benefits only if the insured dies within a specified period. If the insured survives up to the end of the specified period, the contract is terminated unless renewed. Because the premium for a term policy pays only for the cost of the insurance protection during the term of the policy, term insurance generally has no cash surrender value. The insured may be allowed to renew for another term without a medical examination. The premium, however, increases with each renewal because it is calculated on the age of the insured at the time of renewal.

Term insurance is often used by the head of a family to obtain additional temporary insurance when the children are young. Term insurance policies frequently provide the insured with conversion options to whole-life policies. Credit life insurance is term insurance against a loan taken out on some major purchase such as a car. It generally decreases in amount as the loan is repaid. It protects the insurer as well as the lender against the debt that remains unpaid at death.

IX UNIVERSAL LIFE INSURANCE

Universal life insurance, a type first introduced in the United States in the 1970s, allows the policyholder to decide details of the premium (size and frequency) and the amount of death benefits. Policies may yield either a set benefit or a fixed sum plus any cash value accumulated in the policy. The insurer charges for general expenses and mortality costs and credits the policyholder with any interest earned, which usually gives an interest rate equivalent to mortgages and long-term bonds. If protection requirements change in the course of time, the policyholder can have the policy terms altered.

X DEBIT LIFE INSURANCE

Two types of debit life insurance are available. Debit ordinary insurance was designed for wage earners with modest incomes. Premiums are collected by company agents at policyholders’ homes. Other than this mode of collection, the coverage has the same characteristics as ordinary life insurance. Industrial life insurance is also designed to meet the needs of low-income industrial workers. Premiums are payable periodically.

XI GROUP LIFE INSURANCE

Group life insurance is often included as a fringe benefit in collective bargaining agreements, or as a benefit for employees. It provides a means of insuring a number of people in a business establishment, society, or other organization. This form of insurance is common in Japan, as part of the tradition of lifetime employment, and nearly all Japanese life insurance companies offer group schemes.

A master contract is issued, and each insured person receives a certificate specifying the amount of the insurance and his or her beneficiary. Employer and employee may each pay a set portion of the premium, or the employer may pay the whole; the amount of insurance is usually proportionate to seniority and salary. Because group insurance is a form of wholesale buying with low incurred costs, its economies are passed on to policyholders in the form of lower premiums. It does not usually require a medical examination. Group insurance policies are normally convertible to individual policies upon leaving the establishment.

XII COMBINATION POLICIES

The variety of policies available in modern life insurance allows for tailor-made combinations made to suit customers’ needs. Especially common are family income policies, where a whole-life policy is combined with term life insurance to yield an income over a set period, often the period when children are young. A similar policy, the mortgage protection policy, provides for income to pay off a mortgage on a property, usually with the term insurance decreasing as the mortgage is paid. In each case the whole-life policy is unaffected by the parallel term policy.

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Liability Insurance & Accident Insurance

Liability Insurance, type of insurance used to cover the risk of incurring legal liability to pay money damages. Such insurance guarantees financial protection to an insured party who might be required to pay damages resulting from negligence. The negligent act may be one that causes personal injury, death, or property damage. Liability for negligence may result not only from the conduct of the insured but also from the conduct of his or her agents and employees. Acts of negligence resulting in liability occur in connection with a wide variety of private and commercial activities, such as the operation of a motor vehicle, the conduct of a business, and the ownership or occupancy of the property. Liability insurance sometimes is called third-party insurance, because the insurance company protects the insured against suit by a third party, that is, the claimant.

A policy of liability insurance generally provides for investigation, negotiations for private settlement of claims, the defense of suits brought against the insured, and the payment of judgments or judicially approved settlements up to the limits specified in the policy. Ordinarily, the assistance and cooperation of the insured are required in the defence against the claim.

Since legal liability may arise in many situations, liability policies usually do not assume all the risks of liability.

Accident Insurance

Accident Insurance covers the insured party against accidents, usually caused by himself or herself. It is compulsory in most countries, including the United Kingdom, Australia, and New Zealand, for employers and drivers of motor cars to have insurance to cover any damage to others for which they may be responsible. However, the major insurers in the United Kingdom have set up the Motor Insurers’ Bureau, which provides cover if the negligent driver is uninsured or cannot be identified. These provisions have made courts more willing to find that injuries to a person in an accident were caused by negligence so that the person receives compensation. Under the Road Traffic (NHS Charges) Act of 1999, where compensation has been paid out, the treatment costs incurred by a hospital in treating a traffic accident victim can be reclaimed from the compensator.

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Insurance

I INTRODUCTION

Insurance, in law and business, the contractual arrangement that provides for compensation by an insurer to an insured party if or when a specified set of circumstances occurs. Such circumstances may include death or personal injury, accident, unemployment or old age, loss of or damage to property, or any one of a number of instances that can be compensated for financially. The insurer conducts its operations by amassing relatively small contributions from many people who are exposed to the risk of occurrence of an unforeseen event in order to create a fund that is used to reimburse those insured who actually suffer from such an occurrence. The contributions of the policyholders are called premiums. A contract of insurance is embodied in a policy that specifies the terms under which the insurer agrees to indemnify the policyholder for loss in consideration of the payment of a stated premium or premiums. For specific details on Life Insurance, see that article.

II INSURANCE POLICIES

An insurance contract often contains an element of contingency, that is, the event insured against must be possible but not certain to occur in a given period of time and must be substantially beyond the control of either insured or insurer. However, this is clearly not so in those cases where, for example, insurance policies are used as a form of old-age pension and the contingency element of reaching a certain age is negligible. Generally, the number of risks involved must be sufficient to compute the chances of occurrence of the event based on the law of averages, and thereby to determine the amount of premium required. In addition to the requirement that the risk is contingent, the policyholder must generally have an insurable interest, that is, the policyholder must be one who would suffer a material loss by the happening of the event. A policy in which the insured does not have such an interest would be deemed a gambling contract and therefore void; an example of such a void policy is one by which a person insured the house of a stranger against fire.

III PROTECTION

Insurance plays a major role in the modern economy, providing an orderly means for the replacement of property lost or destroyed and for sustaining purchasing power adversely affected by illness, injury, or death. Moreover, the huge reserves accumulated by insurance companies to meet expected claims are invested, thus providing the industry with needed funds for capital expansion or other investments.

Insurance companies constantly search for the additional business by providing insurance protection against new types of hazards. Most standard homeowners’ policies do not protect against catastrophes, such as earthquakes, nuclear explosion or radiation, war, and certain other perils. Over the past decade, however, insurance companies have provided a wider range of coverage to their clients and it is now possible to insure against most eventualities.

IV TYPES OF INSURANCE

Perils often covered by insurance include burglary and theft, vehicle collision, and dishonesty of employees (fidelity insurance). Forms of insurance such as life insurance or maritime insurance are effectively whole subtypes of insurance, with their own norms. Insurance is also available to cover the extension of credit and to guarantee the title to a property, or as part of a mortgage policy. In addition, specialized types of insurance cover damage to glass, boilers, and machinery, lifts, animals, and other property, as well as losses to property arising from lightning, wind, tornadoes, hail, storms, insects, blight, bombardment, explosion, and water damage. Many insurance policies are comprehensive, that is, they cover a group of related perils; but most also have exclusion clauses, detailing what events are not covered by the policy.

V TYPES OF INSURERS

A variety of organizations, chiefly commercial but including some fraternal or non-profit bodies, underwrite insurance. Insurance companies are owned by their shareholders, who in return for providing the company with capital by their share purchases, share in the profits in the form of dividends. Mutual insurance companies, however, do not issue shares but operate solely on the money obtained as premiums; these organizations are owned by the policyholders, who share in the profits and losses.

Under the Lloyd’s type of insuring organization, patterned after the celebrated British firm of Lloyd’s, a number of individuals (generally grouped into syndicates which act on their behalf) each agree to accept a portion of a risk for a specified premium and to share in the profit or loss in proportion to the percentage of the risk assumed. Non-profit insurance corporations are cooperatives maintained and operated for the benefit of their members and subscribers. Welfare insurance plans generally are trust funds established or maintained in some countries by employers and their employees to provide life insurance, health benefits, and pensions to employees.

In addition to the private insurance organizations described above, certain types of insurance are provided in most countries by governmental organizations. Notable examples include social security and health insurance, although in many countries government insurance is only partial, with the individual having to bear some risk. Partial insurance can help overcome “moral hazard” problems. That is, if a person is completely insured against a loss, the probability of which can be influenced by his or her actions, then there will be little incentive to take care, which would raise the cost of insurance greatly.

VI REINSURANCE

In order to avoid retaining the full amount of insurance on risks, insurers frequently resort to reinsurance; that is, they pay a premium to another insurer, who then assumes part of the risk. Based on the same principle as insurance itself, reinsurance is a mechanism to provide for a further sharing of the risk so as to help insurance companies meet their obligations to policyholders. Reinsurance has proved a fertile but volatile field for some insurers and contributed to the serious problems experienced in the 1990s by Lloyd’s of London.

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