industry dates back in the ancient times, although it was notprofitable initially. The socio-economic challenges and risks madehumans create a system that could indemnify against unavoidableeventualities. Since the prehistoric times, insurance has been usedto cover businesses against risks. Some of the commodities coveredinclude cargo, property, medical treatment, and automobile accidents,among others. The commerce has helped in mitigating against adverseeffects arising from trade risks and uncertainties. It has evolved tobecome a profitable sector, employing white-collar workers.
Thesector has grown to become a multi-trillion industry, attractingmillions of employees and clients. It is noteworthy that thecustomers include both individuals and corporate entities. In therecent past, the enterprise has increased responsibilities in theprovision of coverage services. This study will inform the insuranceproviders on the approaches to take to improve their businessprocesses in line with the contemporary environment. It will alsoadvise the firms on the appropriate practices that will reducecriticism and controversies that surround the insurance service,therefore, the essay seeks to examine the evolution of sector. Assuch, we shall consider issues such as the history of insurance,stakeholders, ethics, and its significance to the contemporarybusiness environment. Moreover, the study will help to address theissues emerging, as well as, aid in the formulation of betterpolicies and regulations in the industry. Moreover, as a student, onewill have a better understanding of the insurance firms.
Accordingto Masci (2011), the primary purpose of insurance is pooling andtransferring risks. Consequently, entrepreneurship is the foundationof insurance growth. The industry development can be classified intoseven major stages. The first phase extends between the primevaltimes and the Fourteenth Century. The second stage lasted from themid – fourteenth to the seventeenth century. The main achievementin the period was the introduction of insurance policies. Thedevelopment of the industry from the eighteenth to mid-nineteenthcentury marks the third growth chapter. The key accomplishmentsincluded the introduction of new insurance policies, as well as,development of fresh insurance companies to support the economicventure. The fourth stage is marked by the foundation of the initialinsurance groups, expert financial organization and governmentregulation of the industry, especially, through the provision ofsocial insurance. The interlude between 1919 and 1945 marked thefifth growth period. The sixth development episode occurred from 1945to the year 2000. Lastly, the modern insurance industry marks theseventh expansion chapter, which began in the 21st Century (Masci,2011).
Beforethe Common Era (EC), the Chinese entrepreneurs protected theirbusinesses against risks such as pirates and storms. For instance,they split their merchandise into either three or more cargoes, andthen transported it using different vessels. The ideology was thatthe hazard that would face one carrier, such as sinking, would nothit the other, at least on the same day.
Masci(2011) also notes that the Babylonians, an ancient civilization, hadalso developed a form of insurance known as “Bottomry.” Hammurabi, the King of Babylonians, developed the risk insurancestrategy in a law referred to as the “Code of Hammurabi” that wasestablished in 2250 B.C (Franklin, 2001). In essence, Bottomry dealtwith situations in that it was hard to determine the occurrence of agiven peril. B (a ship owner) would provide an advance to A (amerchant), which would be repayable upon B’s successful delivery ofthe cargo to A. Nonetheless, A could forfeit the advance and thepremium charged by B, in a case where the goods are undelivered dueto unforeseen risks. On the contrary, A would pay B’s advance whenthe voyage was successful in accordance with the terms stipulated inthe contract. In most cases, the loan given to the merchants camefrom an equity contributed by several wealthy traders.
Inthe Old Greece, slaveholders insured the death of the captives bymaking intervallic payments to certain affluent people, who in turnpaid a pre-agreed lump sum once the incident occurred. Buckham, Wahl,and Rose (2011) record that Romans had burial societies that providedmembers with decent burials. Each person paid a given membership feeplus monthly contributions.
CorporateStakeholders and Response to their Issues
Theprimary stakeholders in the insurance industry are corporate andindividuals. Any person or business qualifies for insurance coverage,although personal experiences and circumstances play a great role inthe determination of the right policy. Companies take policy plansfor their assets that include machinery and employees. Some of thecontracts include property and asset protection. At the individuallevel, one can take cover for their possessions such as houses andcars. One can also apply a policy for medical care or health. Theinsurers have the guidelines and requirements for coverage in any oftheir schemes. The government is also a major partner in the industrysince it formulates the regulations and legislations for guiding theindustry players (Tuan, 1972).
Corporateinsurance aims at securing businesses against natural calamities suchas earthquakes and hurricanes. Besides, it also offers protectionagainst other unanticipated dangers such as terrorism and fires. Thecoverage providers use the risk-modelling techniques, EfficientMarket Hypothesis (EMH), in determining the probability of a givenclient to experience the defined danger (Masci, 2011). If theinsured risk has a high likelihood of occurring, the clients payhigher premiums compared to other customers with lower vulnerabilityto the hazard.
TheRole of the Industry in Its Social, Economic, and Political Setting
Thesocial role of the insurance industry. Accordingto Murphy (2011), insurance companies facilitate risk sharing amongits clients. The premium that members pay is a small percentage whencompared with the amount paid upon the occurrence of the insuredeventuality. In an ordinary situation, if a neighbor’s houseaccidentally catches fire, the community, friends and families wouldshoulder the responsibility of helping the victim to rebuild.Nevertheless, when the casualty is covered, the compensation offeredsaves the community the hassle of helping him or her in thereconstruction process (Murphy, 2011).
Onthe same note, insurance companies benefit from the premiumscollected from the clients. The industry operates under theassumption that not all the insured victims will require compensationat a given time. As such, the task of protecting the public againstpotential risks is a crucial social responsibility (Murphy, 2011).
Anothersocial duty of the insurance companies is providing adequateprotection to the public using innovative management strategies.Everybody has a chance of suffering from long-term injuries that mayrender him or her unable to work. In case the person wasself-employed, or relied on casual labor to earn his or her dailybread, the victim would be a burden to the society. Nonetheless,insurance takes away the trouble of taking care of the individualfrom the government and the loved ones of the victim through payingthe medical care cost. Besides, the organizations do have creativeinvestment plans that provide reliable income to policyholders whomay become disabled. On the same note, insurance companies alsooffer entrepreneurs secure plans for investing lump sum cash. Eitherthe clients can choose to take back the principal and the interestgenerated after a number of years, or the insured can request to bereceiving a pre-agreed income every month (Social Value of ,2015).
is also beneficial to the society because it continues to pay thenational insurance contributions and income tax for policyholders whocan no longer work due to either sickness or disability. As such, thevictims have a lower probability of claiming state welfare than theunprotected parties. Furthermore, the employers can save the medicalcosts and income loss that could result when an employee cannot workdue to bad health. Income protection pays a big portion of thevictims’ salary, therefore, offering a safety net that helps thepatients to recover quickly (Social Value of , 2015).
Theeconomic role of the insurance industry.Marquit (n.d) provides that the insurance industry receives a bad rapfrom many people, but it is a crucial sector in the economy. First,it enhances the safety of businesses through making entrepreneursaware of prospective risks. In case employees sustain injuries atthe workplace, the insurance compensates them. The monthly premiumsthat enterprises contribute are often lower than the amount anorganization would pay an accident victim (Marquit, n.d).
Secondly,the industry boosts the economy growth. For example, the U.S economyhas over $300 billion invested in policy claims and benefits everyyear. The capital is distributed to all the economy sectors, whichensures constant economy expansion. The organizations also invest inbonds, stocks, and companies, therefore, they help in expanding thefinancial markets (Marquit, n.d).
Thirdly,it makes business deals easy to execute. It is noteworthy thatenterprises face many risks when recruiting employees, signing newcontracts, and executing its objectives. The implementation of a newtechnology could make an organization to incur massive losses.Fortunately, an insurance cover takes away the risks involved in newdeals by agreeing to compensate the client upon the occurrence ofspecific hazards, which means customers can recover their property(Marquit, n.d).
Politicalsettings.Politicalsetting of a particular country affects the insurance industrysignificantly. The government is responsible for establishing lawsthat define the operation boundaries of a given organization. Forexample, the government controls licensing of companies to preventexcess competition. Similarly, the political setting is essential asit establishes consumer protection. In some cases, the insurers maywant to underpay the policyholders. Subsequently, the policymakersneed to create laws that would prevent unscrupulous companies frombreaching the agreement (Klein, 2015).
Similarly,the political setting determines the risks an organization is likelyto face. A company that operates in a place without rules andregulations is in danger of incurring investment risks. For instance,political violence may lead to the death of insured clients or damageto their property. The insurance company is often compelled to paythe damages incurred, which, in turn, leads to escalated expenditure(Klein, 2015).
Domesticand International Ethics
Accordingto the International Risk Management Institute (2006), the insuranceindustry applies similar local and international principles. First,the organizations emphasize on honesty. It depends on telling thetruth to its clients, and in return, earning their trust. providers give customers the rules and regulations they use in thestipulation of compensation. The customers need to understand thelaws to avoid misunderstanding (International Risk ManagementInstitute, 2006).
Secondly,the industry is guided by integrity, which implies that it takes theright action, irrespective of the consequences. For example, if aclient purchases a term insurance policy for twenty years, but he orshe passes away after one month, the company compensates such acustomer in full. The client could have just paid $200, but theorganization pays $1 million in honor of the agreement of alleviatingthe risk of death. Nevertheless, the agency may default compensatingthe customer, in case, he or she has engaged in any form ofdishonesty. Say, for instance, if the client pretends dead(International Risk Management Institute, 2006).
Thirdly,insurance industry thrives through accomplishing commitments andpromises as defined in the agreement with the clients. Similarly,customers are required to keep their end of the bargain, such aspaying their set premiums on time (International Risk ManagementInstitute, 2006).
Fourthly,the industry practices maximum respect for others. It implementsdecisions and policies that treat the clients, workers, and otherstakeholders in an equal manner. Moreover, it ensures to pay theamount it had agreed with its clients. The objective of the insurersis treating everyone in a fair and equal manner (International RiskManagement Institute, 2006).
Finally,the enterprises observe deontological ethics, which demands ultimatecourage to execute the appropriate decision even if it is unpopular(International Risk Management Institute, 2006). For example, if areliable and long time client of the organization breaches files aclaim, but he had failed to pay his or her premiums for the lastthree months, the company can default to compensate the client fordishonoring the contract.
Ecologicaland Natural Resources
Thecritical role of insurance is to preserve and enhance the quality ofthe environment. In doing so, it also manages human activities toprevent, mitigate, or reduce the harmful effects of the environment. Besides, it ensures that manmade interactions with the environment donot result in harmful consequences to humans (McCormick, 2001).
Ecologicalresources encompass common resources such as air, land, water andanimals. Shared resources are prone to exploitation since their useis not related to ownership. The lack of ownership consequentlyimplies that there is no particular owner to care and carry the costsand consequences of pollution. Such costs are therefore borne by thesociety. Environmental policies address the market-based mechanismsfailure to provide common goods. Such systems include the use ofregulations, quotas, fees, and permits (Swiss, 2011).
Environmentalinsurance policies are created from a compromise between the aims ofthe policy and the social related interests. tends to crosscut across trade, industry, safety and health, innovation, transport,and energy sectors. Specifically, insurance policies are designed tobalance societal interests in enhancing industrial developments ordeveloping land resources. Specifically, from the insuranceindustry’s perspective, environmental policies provides theframework for determining monetary and judicial liabilities as wellas responsibilities. It establishes the particular type, how and whenthe public covers ecological risks. For example, flood risks arepartly covered by public funds. determines the specificrisks to be covered as well as those that should be assumed byindividuals and companies. It is the duty of insurance to determinethe process of evaluating, assessing risks and determining who has topay (Association of British Insurers, 2005).
Theinterrelationship between the environmental policies and insurance ismarked by two common denominators whose aim is to minimize risks.First, insurance targets at the risk of damage caused by theenvironment. Such risks emanate from the occurrence of naturalphenomena’s such as earthquakes, tsunamis, storms, floods as wellas volcanic emissions. Second, aims at risks that damagethe environment. Human interaction with the environment results in agradual loss. The damage emanates from the combined effects ofvarious factors such as gas emissions and discharges, noise pollutionin cities, the overuse of ecosystems such as that caused byoverfishing. Such damages are hard to quantify in monetary terms aswell as relate them to their particular actors (Swiss, 2011).
Therefore,insurance considers the stipulations of the laws single long-termpoint pollution caused by industrial players. The law providesenvironmental permits and sets discharge limits. The single pointsystem makes it easier to identify and quantify non-continuous andunexpected events. Specifically, it is possible to evaluate theunwanted effects caused by human activity on air, soil, water as wellas the individual ecosystems. Consequently, can apportionliabilities and responsibilities for the damage (Baldwin et al.,2010).
Environmentalpolicies address both types of risks and stipulate the rules and theconditions for various actions and operations. For example, the landinsurance policy determines the best property conditions favouringthe construction of a building. Specifically, it lays out thespecifics such as the distance from a river. Building policiesstipulate how the building should be built by specifying the overalloutlay of the sewage, roof design and carrying capacity as well asthe design of the drainage. Flood policies provide the specificrequirements for energy suppliers or municipalities to ensure themanagement of water and electricity during a storm. A plantenvironmental policy sets the conditions outlining the storage ofhazardous materials and operations. For example, the policy canstipulate how to manage dangerous operations as well as the mostappropriate type of technology to use (Bosse & Liedtke, 2009).
is a fundamental part of a society and social behavior. Specifically,insurance solves two basic interconnected human emotions, which arehope and fear. Risk can permeate human lives either consciously orunconsciously since possible occurrences threaten people in theireveryday life that have the capacity to affect the social orfinancial status. Such events include natural disasters, sicknesses,disability, death, and accidents. The best way to deal with suchfears is by reducing their consequences and consequently the concernsabout their occurrence. Therefore, insurance involves the managementand mitigation of adversity based on the principle of sharedresponsibility between the insurer and the insured (McCormick, 2001).
reduces the financial burden on society caused by misfortunes, lossof loved ones or possessions in monetary terms that can lead toeconomic insecurity. For example, insurance can provide to a familyafter the death of a breadwinner. It enables an individual to seekmedical help without the fear of the cost. Besides, it can assist anindividual to rebuild their businesses after the occurrences of firesor floods (Liedtke, 2007).
Thevalue of insurance is widespread in the society. The basics ofinsurance entail a mechanism that involves policyholders who pay afixed amount of money referred to as the premium. The premium is paidto a common sum known as the insurance scheme. The money is drawn outof the fund to pay a claim after one of the policyholders is affectedby a predefined event. In alleviating people’s fear of sudden loss,insurance provides services or financial compensation. It providessocial protection to individuals by improving their financialsecurity and a peace of mind (McCormick, 2001).
Thereare two types of insurance. First, is health and life insurance andthe second is general or property insurance. Health insurance coversmisfortunes related to body illness or injury by providingreimbursements for the purchase of medicine or the cost ofconsultation with a physician. It also includes the costs ofadmission to hospitals and other medical related expenses. Lifeinsurance provides financial compensation to the stipulatedbeneficiaries after the death of the insured policyholder. Lifeinsurance may also constitute a retirement fund inform of longevityinsurance. In that case, the policyholder receives a regular paymentfrom the insurer inform of annuities. The payments are set to beginafter the insured attains a particular age, and the process continuesfor an unspecified period (Association of British Insurers, 2005)
Non-lifeinsurance provides financial compensation for all types of damages ona property. It also provides compensation for harm to the body orfrom incidents that may affect the performance of the business. Thepolicy also covers loss due to external factors or the erraticbehavior of the insured such as fire, accident, water, naturaldisasters and legal action (Diacon, O’Brien & Blake, 2005).
Thesocial protection mechanism of insurance entails enabling businessesand family to remain financially stable in the event of hardships. can help in maintaining a decent standard of living and thequality of life. It also can prevent business interruptions that canlead to bankruptcy and eventual job loss causing economic hardshipsfor the employees. also recognizes the possibility ofmisfortunes to occur to third parties. For example, the injury to athird party due to accidents. In such a case, liability insurance iscreated to shield innocent victims through the tort system. Thecompensation of negligence in the tort system is no longer solelyrelated to the offender but is commensurate with the nature ofinjuries suffered as provided by third party liability in carinsurance (Baldwin et al., 2010).
Theinsurance industry has developed innovative products in a bid toenhance social protection and to promote the welfare of the society.The new trends in the insurance industry depict the continuingchanges in the societal consumption patterns. For example, the needto provide care for an aging population is one of the most recentlyidentified societal need. Other innovations include insurance forcancer patients to cover medical and non-medical care. Besides, thereare insurance products to cater for HIV affected and infectedindividuals (Bosse & Liedtke, 2009).
RatingOf the Industry Social Responsiveness
Overall,the insurance industry has demonstrated expertise developed in riskmanagement and investment, pricing experience and underwriting. It isworth noting that the insurance services sector is uniquely suited tomeet the needs of the society as well as offer comprehensivesolutions to meet the emerging threats. It is worth noting the needfor cooperation between the public and private sectors as an approachto face global social services such as the current increasing rate ofan aging population, changes in climate as well as other relatedrisks. Besides, there is the need for an efficient regulatory systemfor the insurance industry to avoid the potential harm to consumers.Specifically, there is the need to increase the provision ofinformation on the benefit of the insurance industry to the society(Baldwin et al., 2010).
Thekey issues that require the focus of the insurance industry entailthe climate, cyberspace, and weather associated risks. For example,the floods that hit Queens land in the year 2011 could have been lesssevere had there been sufficient risk insurance management tools.Such tools include consistent national flood mapping for the countryto enable setting up of preventive schemes. Besides, most homeslacked property insurance, and the loss of property was nevercompensated. Besides, the ubiquitous development of the internet inthe past 30 years has led to digital risk with associated loss offinancial and intellectual property. There is consequently the needfor the insurance companies to develop products against digital risk(Liedtke, 2007).
RatingOf the Industry In Relation To the School Values
Excellence.The increasing insurance industry association with large numberscalls the need for operational excellence. Besides, insurance is ahighly regulated environment that requires the provision of servicesin a compliant manner and at the lowest cost. companiesshould acquire operational effectiveness by using program independentworkflow management to enable the seamless flow of informationbetween the insured and the insuring companies (Harrington, 2014).
Community. The insurance industry should aim at giving back to the communitythrough the provision of first class disaster recovery. Besides, theyshould participate in local charities and provide financialassistance to minorities and the less privileged (Liedtke, 2007).
Respect. companies should enhance the customer experience byrecognizing the diverse needs of the community. Respect should bedemonstrated by listening carefully and the provision of servicesthat are sensitive to customer’s geographical and culturalbackgrounds (Association of British Insurers, 2005).
Personaldevelopment.The insurance industry should provide consistent information on themanagement of risks. Specifically, there should be business-trainingprograms to provide information on risk identification and mitigation(Diacon, O’Brien, & Blake, 2005).
Integrity. companies should promote professionalism, honesty, ethicsand good faith while conducting business. Besides, the industryrequires customers to practice integrity in the disclosure ofunderlying risks to help insurers in calculating the premiums(Liedtke, 2007).
Arena,M. (2006). Does insurance market activity promote economic growth? Across-country study for industrialized and developing countries,WorkingPaper,World Bank.
Associationof British Insurers, (2005). The social value of general insurance.Web. Retrieved fromhttps://www.abi.org.uk/~/media/Files/Documents/Publications/Public/Migrated/The%20Social%20Value%20of%20General%20.pdf
Baldwin,A., Shiu, S., Sadler, M., Horne, B. & Dalton, C. (2010). Managingdigital risk trends, issues and implications for business. Lloyd’s360° risk insight.London: Lloyd’s.
Bosse,S. & Liedtke, P. (2009).The relevance of insurance toclimate-sensitive economic development. Theinsurance industry and climate change contribution to the globaldebate.
Buckham,D., Wahl, J., & Rose, S. (2011). Executive`sguide to solvency II.Hoboken, NJ: Wiley.
Diacon,S., O’Brien, C. Blake, A. (2005). Theeconomic value of general insurance.The Centre for Risk & Studies, London: University ofNottingham. Retrieved fromhttps://www.nottingham.ac.uk/business/businesscentres/crbfs/documents/cris-reports/cris-paper-2005-5.pdf
Franklin,J. (2001). Thescience of conjecture: Evidence and probability before Pascal,Baltimore: Johns Hopkins University Press.
Harrington,J. (2014, December 1). Operational excellence in insurance servicedelivery. Retrieved fromhttp://www.hcltech.com/blogs/operational-excellence-insurance-service-delivery
InternationalRisk Management Institute, Inc.® (2006). Ethics considerations forproperty & casualty insurance professionals. Resourcefor Risk and Wisdom.Web. Retrieved fromhttps://www.cpcusociety.org/sites/dev.aicpcu.org/files/imported/EthicsConsiderationsforP$26CProfessionals.pdf
Klein,R.W. (2015). TheRole of Government in Risk Management and .Georgia State University. Web. Retrieved fromhttp://opim.wharton.upenn.edu/risk/conference/pprs/Klein_The-Role-of-Government-in-Risk-Management-and-.pdf
Liedtke,P. (2007). What’s insurance to a modern economy?” TheGeneva papers on risk and Issues and Practices,32(2), 211-221.
Marquit,M. (n.d). Five ways insurance benefits our economy. AllBusiness.Web. Retrieved fromhttps://www.allbusiness.com/five-ways-insurance-benefits-our-economy-15479813-1.html
Masci,P. (2011). The history of insurance: Risk, uncertainty andentrepreneurship. Journalof the Washington Institute of China Studies, 5(3),25-68.
McCormick,J. (2001), Environmental policy in the European union. TheEuropean Series,Pal-grave.
Murphy,R.P. (2011). The social function of insurance. MisesDaily Articles. Retrieved from https://mises.org/library/social-function-insurance
Socialvalue of insurance, (2015). CharteredInstitute of .Web. Retrieved fromhttp://www.cii.co.uk/media/6484628/svi-6_income_protection_29sep2015.pdf
SwissRe (2011), Sigma: State involvement in insurance markets. Retrievedon 19 June, 2016 fromhttp://media.swissre.com/documents/sigma3_2011_en.pdf
Trenerry,C. F. (2009). Theorigin and early history of insurance: Including the contract ofbottomry.Clark, NJ: Lawbook Exchange.
Tuan,K. (1972). Moderninsurance theory and education: A social history of insuranceevolution in the United States during the twentieth century.Orange, N.J: Varsity Press.