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From Wikipedia, the free encyclopedia
Insurance
Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of potential financial loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium and duty of care.
Contents
1 Principles of insurance
2 Insurance Contract Principles
2.1 Personal Contract
2.2 Conditional Contract
2.3 Unilateral Contract
2.4 Contract of Adhesion
2.5 Contract of Indemnity
2.6 Insurable Interest
3 Indemnification
4 How an insurance company makes money
5 Determination of rate structures
6 Gambling analogy
7 History of insurance
8 Types of insurance
9 Types of insurance companies
10 Life insurance and saving
11 Size of global insurance industry
12 Life Insurance Industry - India
13 Financial viability of insurance companies
14 Controversies
14.1 Insurance insulates too much
14.2 Complexity of insurance policy contracts
14.3 Redlining
14.4 Health insurance
14.5 Dental insurance
14.6 Insurance Patents
14.7 The insurance industry and rent seeking
15 Glossary
16 Quote
17 See also
17.1 Lists
18 External links

Principles of insurance
The timing or occurrence of the loss must be uncertain.
The rate of losses must be relatively predictable: In order to set premiums (prices) insurers must be able to estimate them accurately. This is done using the Law of Large Numbers which states that: The larger the number of homogenous exposures considered, the more closely the losses reported will equal the underlying probability of loss. If the coverage is unique, the insured will pay a correspondingly higher premium. Lloyd's of London often accepts unique coverages. (e.g., the insuring of Tina Turner's legs and Jennifer Lopez's buttocks)
The losses must be predictable on a macro level: Insurers need to know how much they would be required to pay when the insured-for event occurs. Most types of insurance have maximum levels of payouts, but not all do, notably health insurance.
The loss must be significant: The legal principle of De minimis dictates that trivial matters are not covered. Furthermore, rational insurance uses existing insurance when the transaction costs dictate that filing a claim is not rational.
The loss must not be catastrophic: If the insurer is insolvent, it will be unable to pay the insured. In the United States, there is a system of Guaranty Funds run at the state level to reimburse insured people whose insurance companies have become insolvent. [1] This program is run by the National Association of Insurance Commissioners (NAIC). [2] To avoid catastrophic depletion of their own capital, insurers almost universally purchase reinsurance to protect them against excessively large accumulations of risk in a single area, and to protect them against large-scale catastrophes.

Insurance Contract Principles
A property or liability insurance policy is a "personal contract," a "conditional contract," a "unilateral contract," a "contract of adhesion," a "contract of indemnity," and a contract which requires that the person insured have an insurable interest at the time of the insured-against contingency.

Personal Contract
Property and liability insurance policies cover persons and not property or operations. Although the terms "insured my house" or "insured my motorcycle" are used commonly, they are not technically correct. The contract between the insurer and the insured is a personal contract between an insuring entity and a person(s) and not the object being insured. In other words, the question of whether payment is due upon the occurrence of a contingency, and how such payment will be measured, depends upon economic loss suffered by the person(s).

Conditional Contract
Property and liability insurance policies are said to be "conditional contracts" because the obligation of the insurer to perform may be conditioned upon the insured satisfying certain conditions.

Unilateral Contract
Only one party is legally bound to contractual obligations after the premium is paid to the insurer. Only the insurer has made a promise of future performance, and only the insurer can be charged with breach of contract.

Contract of Adhesion
Property and liability insurance policies are said to be "contracts of adhesion" because the insurer and insured parties are of unequal bargaining power where the insured party cannot negotiate the terms of the contract and must take the offer of the insurer as made. Importantly, the rule of law regarding "contracts of adhesion" is that any ambiguities resolve in favor of the insured.

Contract of Indemnity
Property and liability insurance policies are said to be "contracts of indemnity" because the purpose of insurance is to indemnify the insured--that is, to make good a loss that the insured has suffered. The principle of indemnification is that the insured should not profit from the policy. This does not preclude that the insured will suffer some loss. In fact, many policies include a deductible which guarantees that the insured will pay part of each loss himself.

Insurable Interest
Insurable interest is one wherein economic loss would be suffered from an adverse occurrence to the person(s) insured.

Indemnification
An entity seeking to transfer risk (an individual, corporation, or association of any type) becomes the 'insured' party once risk is assumed by an 'insurer', the insuring party, by means of a contract, defined as an insurance 'policy'. This legal contract sets out terms and conditions specifying the amount of coverage (compensation) to be rendered to the insured, by the insurer upon assumption of risk, in the event of a loss, and all the specific perils covered against (indemnified), for the term of the contract.
When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a 'claim' against the insurer for the amount of loss as specified by the policy contract. The fee paid by the insured to the insurer for assuming the risk is called the 'premium'. Insurance premiums from many clients are used to fund accounts set aside for later payment of claims - in theory for a relatively few claimants - and for overhead costs. So long as an insurer maintains adequate funds set aside for anticipated losses, the remaining margin becomes their profit.

How an insurance company makes money
A customer might pay one or more premium payments over time. The company collects these payments from one or more customers. If something happens which triggers a claim, the company then pays out a certain amount of money. If, during the lifetime of all of the company's insurance contracts, it pays out less than it has taken in, it makes what is known as an underwriting profit. One measure of an insurance company's performance is their loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium). The loss ratio is added to the expense ratio (underwriting expenses divided by net premium written) to determine the company's combined ratio. The combined ratio is a reflection of the company's overall underwriting profitability. A combined ratio of less than 100 percent indicates a profit, while anything over 100 is a loss. One company that is famous for achieving underwriting profit is American International Group. Berkshire Hathaway, by contrast, is famous for making its money on "float" rather than underwriting profit. Float is the concept that as insurance premiums are collected up front, and claims paid over time (sometimes up to periods of 10 years or more), the insurance companies are able to collect investment income on the money they have reserved for claims that have not occurred yet, or have not yet been paid. Over time, this interest is compounded into significant dollars, particularly for a company as large as Berkshire Hathaway.
In many cases a company's combined ratio is greater than 100 percent, however the company still manages to make money. This is because in between the time the company collects premiums and when it pays out claims, it can invest that money. The return from these investments may offset an underwriting loss resulting in profit. For example, if a company has to pay out 10 percent more than it took in, but made a 20 percent return on its investment, then it made a 10 percent profit. However, since most insurance companies consider it only prudent (and may be mandated to do so by laws controlling insurance businesses in the territory in which they operate) to invest in risk-free government bonds, or other lower risk and lower return forms of investments, it's important that the extra amount it has to pay out compared to what it has to take in is less than the percent return of these investments. If it isn't, the company loses money. The extra amount that a company has to pay out can be considered a "cost of funds" and be compared to an interest rate of the same company borrowing money. Because of this, most insurance companies don't have a goal just to have any amount of profit over the cost of funds, but rather to have this cost of funds be lower than what they would have been able to get by borrowing somewhere else. If this isn't the case, the insurance company does not add any value to their owners, who theoretically could have borrowed money from somewhere else and made the same investments themselves.
Although insurers traditionally depended upon underwriting profit to provide them with operating profit, market forces now require that insurers earn the bulk of their profit on investment income on premiums held pending claims occurrence. This is a form of financial leveraging.

Determination of rate structures
The insurer uses actuarial science to quantify the risk they are willing to assume. Data is generated to approximate future claims, ordinarily with reasonable accuracy. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used by insurers, in conjunction with additional factors, to determine rate structures.
For example, many individuals purchase homeowner's insurance policies by signing a contract paying a premium to an insurance company. If a covered loss occurs, the insurer is obliged by the terms of the contract to honor the insured's claim. For some policyholders, the amount of insurance benefits received from their insurer will greatly exceed the expense of premiums paid. Others may never make a claim or receive any benefit other than the peace of mind rendered by the security of an insurance policy. When averaged, the total claims expense paid by an insurer should be less than the total premiums paid by their policyholders, with the difference allocated to overhead and profit.
Insurance companies also earn investment profits. These are generated by investing premiums received until they are needed to pay claims. This money is called the 'float'. The insurer may make profits or losses from the value change in the float as well as interest or dividends on the float. In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, at the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held.

Gambling analogy
Some people consider insurance a type of wager (particularly as associated with moral hazard) that executes over the policy period. The insurance company bets that you or your property will not suffer a loss while you put money on the opposite outcome. The difference in the fees paid to the insurance company versus the amount for which they can be held liable if an accident happens is roughly analogous to the odds one might expect when betting on a racehorse (for example, 10 to 1). For this reason, a number of religious groups, including the Amish and Muslims, avoid insurance and instead depend on support provided by their communities when disasters strike. This can be thought of as "social insurance," as the risk of any given person is assumed collectively by the community who will all bear the cost of rebuilding. In closed, supportive communities where others can be trusted to step in to rebuild lost property, this arrangement can work.
However, most societies could not effectively support this type of system, and the system will not work for large risks. For very large risks, Western insurance can also run into difficulties. This is the reason why most US homeowner's insurance does not cover floods. A company that sells homeowner's insurance in a given city can accurately estimate the number of claims it would have to pay due to fires, tornadoes, and other smaller-scale disasters. However, a flood may impact a large percentage of the city and the company might be unable to deal with this. A prime example of this is the flooding in New Orleans as a result of Hurricane Katrina. For the same reason, losses due to war and earthquakes are generally excluded. In the case of floods and earthquakes (which are smaller-scale than war) homeowners can purchase separate insurance from national companies with larger resources, which are able to distribute the risk across regions rather than individual buildings.
In gaming or gambling, the game is fixed at the start so that the odds are not affected by the players. However, to obtain certain types of insurance, such as fire insurance, policyholders are often required to conduct risk mitigation practices, such as installing sprinklers and using fireproof building materials to reduce the odds of loss to fire. In addition, after a proven loss, insurers specialize in providing rehabilitation to minimize the total loss.
While insurance is analogous to gambling in terms of risk and reward, the main difference is in the motivation behind the process (risk seeking vs. risk avoidance). When gambling, you are assuming risk that you would not otherwise be exposed to that has the possibility of either a loss or a gain (speculative risk). With insurance, you are managing risk that you could not otherwise avoid, and which does not present the possibility of gain (pure risk). Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. Avoiding, mitigating and transferring certain risk creates greater predictability for consumers and business, and allows people and organizations to use risk intelligently to maximize their opportunities.
Historically, gambling has been considered an uninsurable risk. Recent developments, however, have led to the invention and patenting of new types of insurance to protect against gambling losses. An example is United States Patent 6,869,362, "Method and apparatus for providing insurance policies for gambling losses"

History of insurance
Early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennium BC respectively. Chinese merchants traveling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen.
A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage.
The Greeks and Romans introduced the origins of health and life insurance c. 600 AD when they organized guilds called "benevolent societies" which acted to care for the families and funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used in case of emergency.
Separate insurance contracts (i.e. insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post-Renaissance Europe, and specialized varieties developed.
Toward the end of the seventeenth century, the growing importance of London as a center for trade led to rising demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee house which became a popular haunt of ship owners, merchants, and ships� captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.
Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster Nicholas Barbon opened an office to insure buildings. In 1680 he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.
The first insurance company in the United States provided fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina, in 1732.
Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses.
In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual State insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioner's organization. In recent years, some have called for a federal regulatory system for insurance similar to that of the banking industry.
In the State of New York, which has unique laws in keeping with its stature as a global business center, Attorney General Eliot Spitzer has been in a unique position to grapple with major national insurance brokerages. Spitzer alleged that Marsh & McLennan steered business to insurance carriers based on the amount of contingent commissions that could be extracted from carriers, rather than basing decisions on whether carriers had the best deals for clients. Several of the largest commercial insurance brokerages have since stopped accepting contingent commissions and have adopted new business models.

Types of insurance
Any risk that can be quantified probably has a type of insurance to protect it. Among the different types of insurance are:
Automobile insurance, also known as auto insurance, car insurance and in the UK as motor insurance, is probably the most common form of insurance and may cover both legal liability claims against the driver and loss of or damage to the vehicle itself. Over most of the United States purchasing an auto insurance policy is required to legally operate a motor vehicle on public roads. Recommendations for which policy limits should be used are specified in a number of books. In some jurisdictions, bodily injury compensation for automobile accident victims has been changed to No Fault systems, which reduce or eliminate the ability to sue for compensation but provide automatic eligibility for benefits.
Boiler insurance (also known as Boiler and Machinery insurance or Equipment Breakdown Insurance)
Casualty insurance insures against accidents, not necessarily tied to any specific property.
Credit insurance pays some or all of a loan back when certain things happen to the borrower such as unemployment, disability, or death.
Financial loss insurance protects individuals and companies against various financial risks. For example, a business might purchase cover to protect it from loss of sales if a fire in a factory prevented it from carrying out its business for a time. Insurance might also cover failure of a creditor to pay money it owes to the insured. Fidelity bonds and surety bonds are included in this category.
Health insurance covers medical bills incurred because of sickness or accidents.
Liability insurance covers legal claims against the insured. For example, a homeowner's insurance policy provides the insured with protection in the event of a claim brought by someone who slips and falls on the property, and brings a lawsuit for her injuries. Similarly, a doctor may purchase liability insurance to cover any legal claims against him if his negligence (carelessness) in treating a patient caused the patient injury and/or monetary harm. The protection offered by a liability insurance policy is two-fold: a legal defense in the event of a lawsuit commenced against the policyholder, plus indemnification (payment on behalf of the insured) with respect to a settlement or court verdict.
Life insurance provides a cash benefit to a decedent's family or other designated beneficiary, and may specifically provide for burial and other final expenses.
Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance.
Total permanent disability insurance insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance.
Locked Funds Insurance is a little known hybrid insurance policy jointly issued by governments and banks. It is used to protect public funds from tamper by unauthorised parties. In special cases, a government may authorise its use in protecting semi-private funds which are liable to tamper. Terms of this type of insurance are usually very strict. As such it is only used in extreme cases where maximum security of funds is required.
Marine Insurance covers the loss or damage of goods at sea. Marine insurance typically compensates the owner of merchandise for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier.
Nuclear incident insurance - damages resulting from an incident involving radioactivive materials is generally arranged at the national level. (For the United States, see Price-Anderson Nuclear Industries Indemnity Act.)
Environmental Liability Insurance protects the insured from bodily injury, property damage and clean-up costs as a result of the dispersal, release or escape of a pollutant.
Political risk insurance can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions will result in a loss.
Professional Indemnity Insurance is normally a mandatory requirement for professional practitioners such as Architects, Lawyers, Doctors and Accountants to provide insurance cover against potential negligence claims. Non licensed professionals may also purchase malpractice insurance, it is commonly called Errors and Omissions Insurance and covers a service provider for claims made against them that arise out of the performance of specified professional services. For instance, a web site designer can obtain E&O insurance to cover them for certain claims made by third parties that arise out of negligent performance of web site development services.
Property insurance provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance.
Terrorism insurance
Title insurance provides a guarantee that title to real property is vested in the purchaser and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records done at the time of a real estate transaction.
Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, lost of personal belongings, travel delay, personal liabilities.. etc.
Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expense incurred due to a job-related injury.
A single policy may cover risks in one or more of the above categories. For example, car insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from say, causing an accident). A homeowner's insurance policy in the US typically includes property insurance covering damage to the home and the owner's belongings, liability insurance covering certain legal claims against the owner, and even a small amount of health insurance for medical expenses of guests who are injured on the owner's property.
Potential sources of risk that may give rise to claims are known as "perils". Examples of perils might be fire, theft, earthquake, hurricane and many other potential risks. An insurance policy will set out in details which perils are covered by the policy and which are not.

Types of insurance companies
Insurance companies may be classified as
Life insurance companies, who sell life insurance, annuities and pensions products.
Non-life or general insurance companies, who sell other types of insurance.
In most countries, life and non-life insurers are subject to different regulations, tax and accounting rules. The main reason for the distinction between the two types of company is that life business is very long term in nature � coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year.
Insurance companies are generally classified as either mutual or stock companies. This is more of a traditional distinction as true mutual companies are becoming rare. Mutual companies are owned by the policyholders, while stockholders, (who may or may not own policies) own stock insurance companies.
Reinsurance companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves.
Captive Insurance companies may be defined as limited purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short terms, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% a subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of industry members) and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors due to the reductions on costs they help create, the ease for insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which are neither available nor offered in the traditional insurance market at reasonable prices.
The types of risk that a captive can underwrite for the parent include property damage, public and products liability, professional indemnity, employee benefits, employers liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance.
Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background:
heavy and increasing premium costs in almost every line of coverage;
difficulties in insuring certain types of fortuitous risk;
differential coverage standards in various parts of the world;
rating structures which reflect market trends rather than individual loss experience;
insufficient credit for deductibles and/or loss control efforts.
There are also companies known as 'insurance consultants'. Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies .
Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client.
Third Party Administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.

Life insurance and saving
Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed. See life insurance.
In many countries, such as the US and the UK, tax law provides that the interest on this cash value is not taxable under certain circumstances. This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death.

Size of global insurance industry
Global insurance premiums grew by 9.7% in 2004 to reach $3.3 trillion. This follows 11.7% growth in the previous year. Life insurance premiums grew by 9.8% during the year due to rising demand for annuity and pension products. Non-life insurance premiums grew by 9.4% as premium rates increased. Over the past decade, global insurance premiums rose by more than a half as annual growth fluctuated between 2% and 10%.
Advanced economies account for the bulk of global insurance. With premium income of $1,217bn in 2004, North America was the most important region, followed by the EU ($1,198bn) and Japan ($492bn). The top four countries accounted for nearly two-thirds of premiums in 2004. The US and Japan alone accounted for a half of world insurance, much higher than their 7% share of the global population. Emerging markets accounted for over 85% of the world�s population but generated only 10% of premiums. The volume of UK insurance business totalled $295bn in 2004 or 9.1% of global premiums. [3]

Life Insurance Industry

Financial viability of insurance companies
Financial stability and strength of the insurance company should be a major consideration when purchasing an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool with less attractive payouts for losses). A number of independent rating agencies, such as Best's, provide information and rate the financial viability of insurance companies.

Controversies
Insurance insulates too much
By creating a "security blanket" for its insureds, an insurance company may inadvertently find that its insureds may not be as risk-averse as they should be (since the insured assumes the risk belongs to the insurer). This problem is known to the insurance industry as moral hazard. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in some kind of behavior that grossly magnifies their risk of loss or liability.
For example, liability insurance providers do not provide coverage for liability arising from intentional torts committed by the insured. Even if a provider was irrational enough to try to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal.

Complexity of insurance policy contracts
Insurance policies can be complex and some policyholders may not understand all the fees, regulation and coverages included in a policy. As a result, people could buy policies at unfavorable terms. In response to these issues, governments often make detailed regulations that set down minimum standards for policies and govern how they may be advertised and sold.
Many individuals purchase policies through an insurance broker. The broker can counsel the policyholder on which coverage to purchase and limitations of the policy. A broker generally holds contracts with many insurers which allows the broker to "shop" the market for the best rates and coverage possible.

Redlining
Redlining is the practice of some insurance companies to deny the issuance of coverage in specific geographic areas, with the purported reason of an increased likelihood of risk; the validity of the assessment is often attributed to discrimination.
Evaluation of risk, when an insurer determines a premium or premium rate structure, considers quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. However, the use of these essential factors, whether inappropriately or not, are often considered to be unfair or discriminatory by some consumers and their advocates, sometimes leading to political disputes about insurers' determination of premiums and possible government intervention to limit the factors used.
A refutation to this is that the job of an insurance underwriter is to properly categorize a given risk as to the likelihood that the loss will occur. Any factor that causes a greater likelihood of loss should in theory, be charged a higher rate. This is a basic principle of insurance and must be followed for insurance companies or groups to operate properly, even for non-profit organizations. Thus, discrimination of potential insureds by legitimate factors is central to insurance. Therefore the only thing that can be considered legitimately unfair are practices that discriminate against a given group without actual factors that show that the group is a higher risk. So, eliminating real factors discriminates against other insureds by forcing them to bear part of the cost of the disallowed perceived factors.

Health insurance
Health insurance, which is coverage for individuals to protect them against medical costs, is a highly charged and political issue in the United States, which does not have socialized health coverage. In theory, the market for health insurance provision should function in a manner similar to other insurance coverages, but the skyrocketing cost of health coverage has disrupted markets around the globe, but perhaps most glaringly in the US. Please see health insurance for a discussion of this category.

Dental insurance
Dental insurance, like health insurance, is coverage for individuals to protect them against dental costs. Dental insurance usually goes hand-in-hand with health insurance, with most people in the United States receiving it included in their health insurance plan from their employer. Along with receiving dental insurance from your employer, there are ways to receive dental insurance through resellers and companies for individuals and families; although this way tends to be too expensive for most people.

Insurance Patents
New insurance products can now be protected from copying with a business method patent. This may lead to the more rapid introduction of new insurance products as insurance companies will invest more heavily in new product development if they can be reasonably assured that their patents will keep those products from being copied.
A recent example of a new insurance product that is patented is telematic auto insurance. It was independently invented and patented by a major US auto insurance company, Progressive Auto Insurance (US patent 5,797,134) and a Spanish independent inventor, Salvador Minguijon Perez (European Patent EP0700009B1).
The basic idea of telematic auto insurance is that a driver's behavior is monitored directly while the person drives and this information is transmitted to an insurance company. The insurance company then assesses the risk of that driver having an accident and charges insurance premiums accordingly. A driver that drives a lot of distance at high speed, for example, will be charged a higher rate than a driver that drives small distances at low speed.
A British auto insurance company, Norwich Union, has taken a license to both the Progressive patent and Perez patent. They have made additional investments in infrastructure and developed a commercial offering called "Pay As You Drive" or PAYD.
Many independent inventors are in favor of patenting new insurance products since it gives them protection from big companies when they bring their new insurance products to market. Independent inventors account for 70% of the new US patent applications in this area.
Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, had to recently pay US$80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a new type of corporate owned life insurance product invented and patented by Bancorp.
There are currently about 150 new patent applications on insurance inventions filed per year in the United States. (Source: Insurance IP Bulletin, December 15, 2005). Only about 20 - 30 patents per year, however, are actually issued.

The insurance industry and rent seeking
Certain insurance products and practices have been described as rent seeking by critics. That is, insurance companies have been alleged to have certain products or practices that are only useful due to certain government laws (especially tax laws), and that the insurance industry in these cases generally adds no economic value but instead supports politicians who will continue the legal regime which gives the insurance company these benefits. For example, in the United States the current tax rules generally allow owners of variable annuities (see annuity (US financial products) and variable life insurance (see variable universal life insurance) to invest in the stock market and defer or eliminate paying any taxes until withdrawals are made. Sometimes this tax deferral is the only reason some individuals use these products instead of a mutual fund. Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds itself are immune from the estate tax.

For more information on Insurance, please visit Wikipedia

From Wikipedia, the free encyclopedia
Agency
Agency is an area of Commercial law dealing with a contractual or quasi-contractual tripartite set of relationships when an Agent is authorised to act on behalf of another (called the Principal) to create a legal relationship with a Third Party. This branch of law separates and regulates the relationships between:
Agents and Principals;
Agents and the Third Parties with whom they deal on their Principals' behalf; and
Principals and the Third Parties when the Agents purport to deal on their behalf.
The common law principle in operation is usually represented in the Latin phrase, qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her own interests and it is a parallel concept to vicarious liability and strict liability in which one person is held liable in Criminal Law or Tort for the acts or omissions of another..
Contents
1 The concepts
2 Brief statement of legal principles
2.1 Authority
2.2 Liability of Agent to Third Party
2.3 Liability of Agent to Principal
2.4 Liability of Principal to Agent
2.5 Liability of Third Party to Principal
2.6 Duties
2.7 Termination
3 Agency and partnership
4 Agency relationships

The concepts
The reciprocal rights and liabilities of Principal and Agent reflect commercial needs and legal realities. In any business of size, it is not possible for one person to travel everywhere to negotiate all the transactions necessary to maintain or grow the business. These problems are increased if the business is a corporation, because it is then a fictitious legal person and, as such, it can only act through human agents. Hence, independent people are contracted by businesses to buy and sell goods and services on behalf of those businesses. When agreements are made, the Principal is liable under the contract(s) made by the Agent. So long as the Agent has done what he or she was instructed to do, the result is the same as if the Principal had done it directly.
If the issue is considered from the view of innocent Third Parties, they are approached by a person who is clearly identified as acting for another. They deal with that person in good faith, relying on the representation of authority. Indeed, in a busy commercial world, it would not be cost-effective to check that everyone who is represented as having the authority to act for another actually has that authority. Deals are done at face value in the majority of routine situations. If it should later appear that the alleged agent was acting without the consent of the Principal, the Principal will usually be held liable. Any other decision would be unduly disruptive to the usual flow of trade. This commercial necessity has led to the creation of a body of law that applies in any situation, commercial or otherwise, where one person is seen to be acting for another.

Brief statement of legal principles
There are three broad classes of Agent:
Universal Agents hold broad authority to act on behalf of the Principal, e.g. they may hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship, say, as lawyer and client.
General Agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and
Special Agents are authorised to conduct either only a single transaction or a specified series of transactions over a limited period of time.

Authority
For these purposes, the Principal must give, or be deemed to give, the Agent authority to act.

Actual authority:
This arises where the Principal's words or conduct reasonably cause the Agent to believe that he or she has been authorised to act. This may be express in the form of a contract or implied because what is said or done make it reasonably necessary for the person to assume the powers of an Agent. If it is clear that the Principal gave actual authority to Agent, all the Agent's actions falling within the scope of the authority given will bind the Principal. This will be the result even if, having actual authority, the Agent in fact acts fraudulently for his own benefit unless the Third Party was aware of the Agent's personal agenda. If there is no contract but the Principal's words or conduct reasonably led the Third Party to believe that the Agent was authorised to act, or if what the Agent proposes to do is incidental and reasonably necessary to accomplish an actually authorised transaction or a transaction that usually accompanies it, then the Principal will be bound.
Apparent or ostensible authority:
If the Principal's words or conduct would lead a reasonable person in the Third Party�s position to believe that the Agent was authorized to act, say by appointing the Agent to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. If a Principal creates the impression that an Agent is authorised but there is no actual authority, Third Parties are protected so long as they have acted reasonably. This is sometimes termed "Agency by Estoppel" or the "Doctrine of Holding Out", where the Principal will be estopped from denying the grant of authority if Third Parties have changed their positions to their detriment in reliance on the representations made.
Authority by virtue of a position held:
For example, partners have apparent authority to bind the other partners in the firm, their liability being joint and several (see below), and in a corporation, all executives and senior employees with decision-making authority by virtue of their declared position have apparent authority to bind the corporation.
Even if the Agent does act without authority, the Principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the Principal's behaviour, e.g. if the Agent has purported to act in a number of situations and the Principal has knowingly acquiesced, the failure to notify all concerned of the Agent's lack of authority is an implied ratification to those transactions and an implied grant of authority for future transactions of a similar nature.

Liability of Agent to Third Party
If the Agent has actual or apparent authority, the Agent will not have liability on any transactions agreed within the scope of that authority so long as the Principal was disclosed, i.e. the fact of the agency was revealed and the identity of the Principal revealed. But where the agency is undisclosed or partially disclosed, both the Agent and the Principal are bound. Where the Principal is not bound because the Agent had no actual or apparent authority, the purported Agent is liable to the Third Party for breach of the implied warranty of authority.

Liability of Agent to Principal
If the Agent has acted without actual authority, but the Principal is nevertheless bound because the Agent had apparent authority, the Agent is liable to indemnify the Principal for any resulting loss or damage.

Liability of Principal to Agent
If the Agent has acted within the scope of the actual authority given, the Principal must indemnify the Agent for payments made during the course of the relationship whether the expenditure was expressly authorised or merely necessary in promoting the Principal�s business.

Liability of Third Party to Principal
The Third Person will be liable to the Principal on the terms of the agreement made with the Agent unless the Principal was undisclosed and there is clear evidence that either the Agent or the Principal knew that the Third Party would not have entered into the agreement if he or she had known of the Principal's involvement.

Duties
The Agent's primary fiduciary duty is to be loyal to the Principal. This involves duties:
not to accept any new obligations that are inconsistent with the duties owed to the Principal. Agents can represent the interests of more than one Principal, conflicting or potentially conflicting, only on the basis of full and timely disclosure or where the different agencies are based on a limited form of authority to prevent a situation where the Agent's loyalty to any one of the Principals is compromised. For this purpose, express clauses in the agreement signed by each Principal with the Agent may identify specific types or categories of activities that will not breach the duty of loyalty and so long as these exceptions are not unreasonable, they will bind the Principals.
not to make a private profit or unjustly enrich himself from the agency relationship.
In return, the Principal must make a full disclosure of all information relevant to the transactions that the Agent is authorised to negotiate and pay the Agent either the commission or fee as agreed, or a reasonable fee if none was agreed.

Termination
An Agent's authority can be terminated at any time. If the trust between the Agent and Principal has broken down, it is not reasonable to allow the Principal to remain at risk in any transactions that the Agent might conclude during a period of notice.

Agency and partnership
This has become a more difficult area as states are not consistent on the nature of a partnership. Some states opt for the partnership as no more than an aggregate of the natural persons who have joined the firm. Others treat the partnership as a business entity and, like a corporation, vest the partnership with a separate legal personality. Hence, for example, in English law, a partner is the agent of the other partners whereas, in Scots law where there is a separate personality, a partner is the agent of the partnership. This form of agency is inherent in the status of a partner and does not arise out of a contract of agency with a Principal. In the English Partnership Act 1890 provides that a partner who acts within the scope of his actual authority (express or implied) will bind the partnership when he does anything in the ordinary course of carrying on partnership business. Even if that implied authority has been revoked or limited, the partner will have apparent authority unless the Third Party knows that the authority has been compromised. Hence, if the partnership wishes to limit any partner's authority, it must give express notice of the limitation to the world. However, there would be little substantive difference if English law was amended (see Law Commission Report 283 [1]): partners will bind the partnership rather than their fellow partners individually. For these purposes, the knowledge of the partner acting will be imputed to the other partners or the firm if a separate personality. The other partners or the firm are the Principal and Third Parties are entitled to assume that the Principal has been informed of all relevant information. This causes problems when one partner acts fraudulently or negligently and causes loss to clients of the firm. In most states, a distinction is drawn between knowledge of the firm's general business activities and the confidential affairs as they affect one client. Thus, there is no imputation if the partner is acting against the interests of the firm as a fraud. There is more likely to be liability in tort if the partnership benefitted by receiving fee income for the work negligently performed, even if only as an aspect of the standard provisions of vicarious liability. Whether the injured party wishes to sue the partnership or the individual partners is usually a matter for the Plaintiff since, in most jurisdictions, their liability is joint and several.

Agency relationships
Agency relationships are common in many professional areas.
employment procurement (modelling agency)
real estate transactions (real estate brokerage, mortgage brokerage). In real estate brokerage, the buyers or sellers are the Principals themselves and the broker or his/her salesperson who represents each Principal is his/her Agent.
financial advice (insurance agency, stock brokerage, accountancy)
contract negotiation and promotion (business management) such as for publishing, music, movies, theatre, show business and sport.
The negotiation of entertainment and sports deals and in many day to day transactions where one person (the "agent") is allowed to stand in for another individual to fulfil their wishes. Models, actors, and athletes have Agents who secure opportunities and benefits for them. In publishing an Agent acts for an author to sell their manuscript. Publishers often pay greater attention to manuscripts submitted by an Agent than directly (via the slush pile).

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From Wikipedia, the free encyclopedia
Exercise

U.S. marine emerges from the water upon completing the swimming portion of a triathlon.Physical exercise is the performance of some activity in order to develop or maintain physical fitness and overall health. It is often directed toward also honing athletic ability or skill. Frequent and regular physical exercise is an important component in the prevention of some of the diseases of affluence such as cancer, heart disease, cardiovascular disease, Type 2 diabetes and obesity.
Exercises are generally grouped into three types depending on the overall effect they have on the human body:
Flexibility exercises such as stretching improve the range of motion of muscles and joints.
Aerobic exercises such as walking and running focus on increasing cardiovascular endurance.
Anaerobic exercises such as weight training or sprinting increase short-term muscle strength.
Physical exercise is extremely important for maintaining physical fitness including healthy weight; building and maintaining healthy bones, muscles, and joints; promoting physiological well-being; reducing surgical risks; and strengthening the immune system.
Proper nutrition is as important to health as exercise. When exercising it becomes even more important to have good diet to ensure the body has the correct ratio of macronutrients whilst providing ample micronutrients, this is to aid the body with the recovery process following strenuous exercise.
Proper rest and recovery is also as important to health as exercise, otherwise the body exists in a permanently injured state and will not improve or adapt adequately to the exercise.
The above two factors can be compromised by psychological compulsions (eating disorders such as exercise bulimia, anorexia, and other bulimias), misinformation, a lack of organization, or a lack of motivation. These all lead to a decreased state of health.
It should be noted that Delayed Onset Muscle Soreness can occur after any kind of exercise, particularly if the body is in an unconditioned state relative to that exercise.

1 Exercise benefits
2 Common myths
2.1 Spot reduction
2.2 Physician consultation
2.3 Muscle and fat tissue
2.4 Abdominal muscles
3 Too much exercise
4 Exercise helps brain function
5 Activities used as physical exercises
6 Categories of physical exercise
7 Breathing
8 See also
9 External links
10 References

Exercise benefits
Frequent and regular exercise has been shown to help prevent or to cure major illnesses such as high blood pressure, obesity, heart disease, Type 2 diabetes, insomnia, cancer [1] and depression, and many more diseases. However, the actual risk reduction may not be as large as one expects [2]. Researchers have shown that three 10 minute walks burn as many calories and exercise your heart as well as one 30 minute walk. Exercise can also increase energy and raise your threshold for pain. There is conflicting evidence as to whether vigorous exercise (more than 70% of VO2 max) is more or less beneficial than moderate exercise (40 to 70% of VO2 max). However studies have shown that vigorous exercise executed by healthy individuals can effectively increase opioid peptides (aka endorphins, a naturally occurring opiate that in conjunction with other neurotransmitters is responsible for exercise induced euphoria), positively influence hormone production (i.e., increase testosterone and growth hormone), and help prevent neuromuscular diseases. Some of these benefits can be realized by moderate exercise but to a much lesser degree.

Common myths
Many common myths have arisen surrounding exercise, some of which have a basis in reality, and some which are completely false.

Spot reduction
It is a common belief that training a particular body part will preferentially shed the fat on that part; for example, that doing sit-ups is the most direct way to reduce subcutaneous belly fat. This is false: you cannot reduce fat from one area of the body to the exclusion of others. Most of the energy derived from fat gets to the muscle through the bloodstream and reduces stored fat in the entire body. Sit-ups may improve the size and shape of abdominal muscles but will not specifically target belly fat loss. Instead, such exercise may help reduce overall body fat, affecting all parts of the body as determined by genetics. In fact, belly fat will often be the last fat removed from the body.

Physician consultation
It is recommended that a physician be consulted before beginning an exercise program. Despite a common belief that only overweight people need a physical before beginning an exercise program, apparently healthy people can still have unknown medical conditions, such as a heart murmur, that can cause severe injury or death not only to themselves, but also to others that are dependent upon them, such as someone they are spotting.

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Muscle and fat tissue
Some people incorrectly believe that muscle tissue will turn into fat once a person stops exercising. In reality, fat tissue and muscle tissue are fundamentally different. However, the more common expression of this myth "muscle will turn to fat" has a grain of truth. Although a muscle cell will not become a fat cell, the material that makes up muscle can in fact turn to fat. The catabolism of muscle fibers releases protein, which can be converted to glucose that can be burned as fuel, and excesses of which can be stored as fat. Moreover, the composition of a body part can change toward less muscle and more fat, so that a cross-section of the upper-arm for example, will have a greater area corresponding to fat and a smaller area corresponding to muscle. This is not muscle "turning to fat" however, it is simply a combination of muscle atrophy and increased fat storage in a given body part.

Abdominal muscles
Abdominal muscles are like any other muscle tissue; they don�t necessarily respond to hundreds of repetitions. If an individual can easily do 15 reps of any ab exercise, they should consider switching exercises or adding resistance. Abdominal muscles can be over-trained like any other muscle. It is important that abdominal muscles have enough rest to recover from a bout of exercise. Over-training will result in diminished gains. Futhermore, men and women all have the same anatomy that responds the same way to exercise. Men and women must follow the same rules regarding diet, exercise and life-style to achieve esthetic and health related goals.

Too much exercise
Too much exercise can be harmful. The body needs sufficient rest, which is why most health experts say one should exercise every other day or 3 times a week. Without proper rest, the chance of stroke or other circulation problems increases, and muscle tissue may develop slowly.
Over-exercising does more harm than good. For many activities, especially running, there are also significant injuries that occur with poorly regimented exercise schedules. In extreme instances, over-exercising induces serious performance loss. Unaccustomed overexertion of muscles leads to rhabdomyolysis (damage to muscle) most often seen in new army recruits.
Stopping excessive exercise suddenly can also create a change in mood. Feelings of depression and agitation can occur when withdrawal from the natural endorphins produced by exercise occurs.
Excess is unhealthy. Exercise should be controlled by each body's inherent limitations. While one set of joints and muscles may have the tolerance to withstand multiple marathons, another body may be damaged by 20 minutes of light jogging. This must be determined by each exerciser.

Exercise helps brain function
In the long term, exercise helps the brain by:
increasing the blood and oxygen flow to the brain
increasing growth factors that help create new nerve cells
increasing chemicals in the brain that help cognition

Activities used as physical exercises
Aerobics
Calisthenics
Curling
Cycling
Dancing
Exercise machines
Games
Hacky sack
Housework
Jogging
Martial arts
Massage
Parkour
Pilates
Rowing
Running
Skipping
Sport
Squatting
Stretching
Swimming
Walking
Warming up
Weight training
Yoga

Categories of physical exercise
Abdominal exercises
Aerobic exercise
Anaerobic exercise
Gymnastics
High-density exercise
High-intensity interval training (HIIT)
High Intensity Training
Isometric exercise
Resistance training
Agility training
Swimming

Some activities can fall into more than one category of exercise. For instance: cycling can be used for endurance or high-intensity interval training; weightlifting is resistance training and can be high-density exercise with certain workout designs.
Sometimes the terms 'dynamic' and 'static' are used. 'Dynamic' exercises such as steady running, tend to produce a lowering of the diastolic blood pressure during exercise, due to the improved blood flow. Conversely, static exercise (such as weight-lifting) can cause the systolic pressure to rise significantly.

Breathing
Active exhalation during physical exercise helps the body to increase its maximum lung capacity, and oxygen uptake. This results in greater cardiac efficiency, since the heart has to do less work to oxygenate the muscles, and there is also increased muscular efficiency through greater blood flow. Consciously breathing deeply during aerobic exercise helps this development of the heart lung efficiency.

Cross training
Exercise bulimia
Exercise equipment
Exercise hypertension
Exercise machine
Healthy eating
Heart rate monitor
Metabolic equivalent
Metal Rod Exercises
Training effect

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