A fundamental principle of insurance – risk classification – allows insurers to maintain financially sound and equitable rates. Insurers accomplish this by grouping risks with similar characteristics in order to develop products and classifications that best respond to consumer needs and demands. Similarly, it may be helpful to distinguish the insurance industry by segments based on the similarity of their product offerings because the differences in products require different approaches to public policy and regulation.
The insurance industry is often described in three distinct segments – Life, Health, and Property/Casualty. The life and health segments may sound self- descriptive, but new product offerings in each segment are constantly, if slowly, redefining each. For example, the life insurance segment has increasingly shifted to annuity products with fixed or variable income streams and away from traditional individual and group lump- sum contracts. The health insurance segment today includes HMOs, PPOs, and health management services. Additionally, life and health services and products often have more to do with delivering specified benefits than transferring the risk of loss.
Property and casualty insurance covers a broad array of products that assume the risk of loss for policyholders’ property and legal liability for damages. Property and casualty insurance includes auto, home, workers’ compensation, commercial/business coverages and medical malpractice, for example. These products may have a long payment duration, such as with medical injuries covered by auto insurance, or a short payment duration such as with fire damage covered by home insurance.
Within each insurance segment, competitors strive to identify consumer needs and demands in order develop and deliver products and services that best meet those challenges. Similarly, legislators and regulators are challenged to keep up with an ever-evolving marketplace in order craft public policy and regulation that preserves a vibrant marketplace.
MIC is an association of property and casualty companies. Its interests and activities is limited to that segment of the overall insurance industry except where segment interests overlap – as they frequently do. Because of the differences in products, services, consumer needs and demands, one size does not fit all when it comes to insurance or insurance public policy and regulation.
- Michigan Insurance Code, MCL 500.101 et seq.
- Insurance Information Institute (III) www.iii.org