In a nutshell, insurance is all about sharing the risks the risk of fire, flood, theft, damage, death, injury, litigation, creditors, acts of man, acts of God, and loss. If a risk to your person or property exists, you can buy insurance to cover it.
Famous actresses have insured their best features. Paranoid X-Files nuts have insured themselves against UFO abductions. Couples have insured their weddings against injuries and illnesses, lost rings, weather disruptions, and more. Numerous people are discovering the benefits of getting health insurance for their pets.
Drawing from massive pools of capital, the worlds insurance companies blanket everything of value, sharing the risks that individuals, families, governments and companies cant afford to take.
During the famous Quebec ice storm of 1998, more than 700,000 claims were filed for a total of $1.14 billion in payouts. Without insurance, thousands of families would have had to pay for damage to their homes and cars out of their own pockets. Without insurance, hundreds of people and businesses would have been ruined.
Insurance pools the resources of the many to pay for the misfortunes of the few.
Now, with misfortunes piling up, the insurance industry is reeling. A number of dire financial setbacks have forced insurers to raise premiums, and to become more selective in the risks they are willing to take.
The financial setbacks came on a number of fronts, and seemingly all at once.
For example, the 1990s and the early years of this decade have seen an increase in the frequency and scope of natural disasters. Floods, hurricanes, forest fires and other natural phenomena have been more common and more devastating than in the past, resulting in more payouts by insurance companies. Companies on the east coast of the U.S. wouldnt offer Hurricane Insurance at all if they werent legally obligated to provide it.
In February of 2001, the United Nations Environment Programme estimated that the global costs of natural disasters that can be related to climate change will hit $300 billion US a year over the next decade. Thats why insurance companies and associations were among the worlds biggest supporters of the Kyoto Protocol on climate change.
Insurance companies also point to the terrorist attacks of Sept. 11, 2001 as having a significant impact on the industry not just in terms of honouring $40 billion US in claims filed as a result of the attacks, but also as part of the economic downturn that resulted from the attacks, severely impacting the tourism and air travel industries. The $40 billion in payouts was double the impact of Hurricane Andrew, which resulted in claims for $20 billion.