Introduction

The insurance industry is a global business. Worldwide, premiums total $4 trillion. In this country, which accounts for about 28 percent of the world’s insurance business, premiums are more than $1 trillion.

The U.S. insurance industry employs more than two million workers, about 2.0 percent of the nation’s workforce. It generates about $190 billion in payroll. It also invests in state and local municipal bonds to finance public works such as the building of roads, schools and libraries. The property/casualty insurance industry invested nearly $370 billion in such bonds in 2009, and the life insurance industry invested $73 billion according to the Federal Reserve. In addition, it pays almost $15 billion in premium taxes to state governments, more than 2 percent of all taxes collected by states and the equivalent of about $48 for each U.S. citizen. In California alone, in 2009, the state counted on insurers for $2.1 billion in premium taxes.

In the United States, the insurance business is generally viewed as three distinct segments, property/casualty, life and health. (Elsewhere, it is divided into two: life and nonlife or general insurance.) The property/casualty part of the industry provides insurance for cars, homes and businesses. The term “casualty” dates back to the time before the 1950s when property/casualty insurers were two distinct kinds of insurance companies, with casualty or liability insurers covering losses that resulted from casualties and property insurers covering damage to or loss of property.

Property/casualty insurance can be broken down into two major categories: commercial lines or types of insurance and personal lines. Personal lines, as the term suggests, includes coverages for individuals –- auto and homeowners insurance. Commercial lines, which accounts for more than half of U.S. property/casualty insurance industry premium, includes the many kinds of insurance products designed for businesses.

Commercial insurance performs a critical role in the world economy. Without it, the economy could not function. Insurers essentially protect the economic system from failure by assuming the risks inherent in the production of goods and services. This transfer of risk frees insured companies from the potentially paralyzing fear that an accident or mistake could cause large losses or even financial ruin.

Managing risk carries a tremendous responsibility. It also requires an almost encyclopedic knowledge of how things work. The North American Industrial Classification System identifies some 1,170 different industries according to the processes used to produce goods or services. In the United States, there are some seven million business establishments, each of which employs one or more of these processes and each of which buys some kind of insurance.

To cover the risk involved in all of these different kinds of businesses, the commercial lines sector sells some 20 major insurance coverages and dozens of specialty products. Since the first fire insurance policies were written in the 1700s, it has responded to new types of risk by creating new coverages to protect its policyholders and carving out niche products to respond to the needs of specific industries. Recent examples of this are technology errors & omissions and cyber-risk liability, both of which were developed in the late 1990s to address risks involved in such businesses as personal information data processing.