Transcript On the history and importance of life and health insurance

On the history and importance of
life and health insurance
Richard MacMinn
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7/17/2015
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Objectives
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View some of the historical antecedents of life and
health insurance
Consider how an individual benefits from life and
health insurance
Note how the economy may benefit from insurance
markets
Consider the benefits of life and health insurance
from an international perspective
Note how economic, demographic, social and
political changes affect the operation of insurance
markets
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A brief history of insurance
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Code of Hammurabi,
circa 1780 B.C.
Greek societies, circa
500-200 B.C.
Roman collegia, during
Roman Republic, 51023 B.C.
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A brief history
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Medieval Guilds, circa 5-14 A.D.
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This is the period from the fall of the Roman
Empire to the Renaissance
In England guilds covered perils such as death,
illness, capture, shipwreck, fire, etc.
English Friendly Societies
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A brief history
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Early European Insurers
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The first mutual was the Life Assurance
and Annuity Association, 1699
The Society for Equitable Assurances on
Lives and Survivorships was formed in
1765
The Globe was organized as a stock
insurance company in 1803
The Compagnie d’Assurance Generales
sur la Vie was the second insurance
company founded in France, 1819
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The Deutsche Lebenversicherungs
Gesellschaft, 1828,was the first stock life
insurer in Germany
Tontines, circa 1689
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It was a stock company as were those that
followed.
Last survivor scheme for life insurance
Loreno Tonti
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A brief history
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Early North American Life Insurers
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The Corporation for the Relief of the Poor and Distressed Presbyterian
Ministers and for the Poor and Distressed Widows and Children of
Presbyterian Ministers, 1759, Philadelphia
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The Mutual Life Insurance Company of New York was founded in 1842
The Girard Life Insurance, Annuity and Trust Company of Philadelphia was
established as a stock insurance company in 1836
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Girard used a new principle of granting policy owners participation in its profits.
Early Asian Insurers
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This became Provident Mutual Life Insurance Company
Meiji Life Assurance Company, 1888, was the first life insurance company
to open in Japan.
Cho-Sun Life Insurance Company, 1921, was the first company capitalized
and owned by Koreans
The Great Eastern Life Assurance Company Limited was founded in
Singapore in 1908.
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How do individuals benefit from life
and health insurance?
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Life and health insurance assist saving
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Insurance provides an immediate benefit if necessary that could not be
achieved with saving
Insurance provides a hedge for saving by protecting it from adverse events
Life and annuity products provide investment
opportunities
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Some life and annuity products can be reasonable long-term saving
instruments
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These instruments safeguard death proceeds and values
Some may protect against claims of creditors
These instruments can provide tax deferral
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How do individuals benefit?
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Annuity products provide assured income
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A total saving of $100,000 at retirement could be invested at
retirement and at 5% yield $5,000 per year.
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A life annuity will utilize the principal and protect against the
longevity risk
Life insurance can preserve an estate
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This of course is subject to being able to continue to invest at the
same rate.
This method would eliminate the longevity risk if the principal is
otherwise protected.
Life insurance is a natural means to provide funds to pay estate
taxes
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How does the economy benefit from
life and health insurance?
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Life and health instruments serve as a substitute for
government social security programs
As financial intermediaries, insurers mobilize saving
and so aide an efficient allocations of capital
Insurance provides and effective hedge against
adversity for individuals and firms and so promotes
economic stability and growth
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Insurance from an international
perspective
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The importance of life insurance worldwide
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Insurance density is the premium per capita within
a country
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Insurance penetration is premium per currency
unit of gross domestic product, e.g., total premium
dollars divided by the US gross domestic product
(GDP)
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Sigma 4/2007, figure 11
Sigma 4/2007, figure 12
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What factors affect the life and health
insurance market operation?
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Price
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Income
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At least one estimate by Babbel of the price elasticity
puts it in the range of .32 to .92 depending on the
policy type and the price index used.
This is the most important factor for life and health
insurance.
The income elasticity is generally greater than one
Inflation
Interest rates
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What factors affect the life and health
insurance market operation?
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Demographics
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Populations
Aging populations:
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United States
United Kingdom
Japan
Education
Household structure
Urbanization and industrialization
Social environment
Political environment
Internationalization
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Age pyramid for the United States in
2000
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Age pyramid for the United States in
2025
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Age pyramid for the United States in
2050
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Age pyramid for the United Kingdom in
2000
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Age pyramid for the United Kingdom in
2025
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Age pyramid for the United Kingdom in
2050
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Age pyramid for Japan in 2000
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Age pyramid for Japan in 2025
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Age pyramid for Japan in 2050
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Questions
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The roots of modern life and health insurance are arguably
found in Greek societies, Roman collegia, and the guilds of the
Middle Ages. Compare and contrast the needs served by these
organizations and those served by modern life insurers
One life insurance policy can provide a number of benefits to a
variety of people. Explain how a number of individuals may
benefit from a policy on one individual’s life.
How might one assess the impact of the life insurance industry
on the general economy?
Choose two cities in the world and speculate as to how the
economic, demographic, social, and political environments are
affecting the life insurance markets in those cities.
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