Insurance: A Part Of The American Business Fabric

By Cyril Tuohy

InsuranceNewsNet

Summertime with its distinctly American traditions offers a reminder that no industry is identified more with this country’s business identity than insurance.

Take a simple term life policy, for example, or a personal lines umbrella homeowners policy on the property-casualty side.

The contract to repay — which is what all insurance comes down to — has been priced by underwriters working somewhere in the U.S., vetted by U.S. lawyers, approved by state regulators, sold by a financial advisor or Main Street agent, and bought by individuals or families living and working in the U.S.

Insurance, said Darwin Bayston, chief executive officer of the Life Insurance Settlement Association, is “an American product sold to American citizens by American companies.”

Even guaranteed issue life policies, where data run through computer algorithms without any kind of health check, are developed stateside.

Some call center customer service and back-office claims functions have been outsourced overseas, but these initiatives have had mixed results.

It’s a good bet that carriers have no intention of outsourcing big group life and benefits contracts or large commercial property accounts, preferring instead to service those clients “in-house,” in other words right here in the U.S.

On the outside chance that data servers might be located offshore, backup files and databases are usually located on U.S. soil.

The lifeblood of all insurers is the data they keep and insurers have decades’ worth of data stored in their systems. Insurers’ competitive advantage comes down to data, remember, so there’s very little chance that insurers will outsource their databases for safekeeping abroad.

John Nichols, president of the National Association of Insurance and Financial Advisors, which represents thousands of commission-based and fee-only advisors, said insurance helps families fulfill the American dream.

Insurance provides financial security, helps families to pay off the mortgage, send children to college, retire comfortably and keep family-run businesses going.

“There’s nothing more American than being self-sufficient,” Nichols said in an email to InsuranceNewsNet. “Insurance allows people to plan for the future, offset life’s inevitable risks and attain true financial independence.”

Many appliance manufacturers have outsourced operations to China and Taiwan. The garment industry also figured out long ago it could cut costs by making clothes in Bangladesh, Mexico or the Dominican Republic.

Not insurance. Underwriting, distributing and servicing a life, property-casualty, health policy or an annuity, remains a quintessentially homegrown enterprise, and one with big contributions to the American economy.

In 2012, life, health and property-casualty insurers employed 2.3 million people, according to the Bureau of Labor Statistics. The industry paid more than $16 billion in premium taxes or $53 for every person living in the U.S., according to the U.S. Department of Commerce.

Chris Hackett, director of personal lines for the Property Casualty Insurers Association of America, calls insurance a “foundation industry.”

“Without it buildings don't get built, jobs aren't created, stores can't open, cars are not repaired and homes are not rebuilt after a loss,” he said. “As a result, insurance is essential to the American dream and the stability of the American economy.”

Hackett also said insurers invest tens of billions of dollars more in municipal bonds to build or maintain public infrastructure.

In the past decade property-casualty carriers have paid out more than $23 billion a year in catastrophe losses to help rebuild lives and property damaged by natural disasters.

Even more has been paid out in life insurance and annuity benefits, industry statistics show.

In 2012, life insurers paid out $63 billion to beneficiaries of policyholders who died, according to the American Council of Life Insurers. In addition, life insurers paid out another $74 billion in annuity benefit payments and $124 in health insurance benefits.

“Providing the financial peace of mind that supports business owners and homeowners live the American dream is what insurance is all about,” Hackett said.

U.S. consumers are the first to admit they could do with more life insurance, according to numerous studies by LIMRA.

In 2013, the amount of life insurance coverage families said they needed was $540,000, but the median amount of life insurance coverage in place only came to $222,000, a gap of $320,000, according to the Life Insurance Gap survey commissioned by New York Life.

The gap has grown to $320,000 in 2013 from $298,378 in 2008, an increase of 11 percent, the survey also found. The wider the gap, the thinner the insurance protection and the more difficult it becomes for families to surmount financial hardships.

Leaving families, dependents and personal property uninsured or underinsured doesn’t benefit anyone so consumers ought to review their policies and discuss coverage limits with their agents and financial advisors.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].