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Insurance - The Industry Overview

The United States insurance industry provides protection against financial losses resulting from a variety of perils. By purchasing insurance policies, individuals and businesses can receive reimbursement for losses due to car accidents, theft of property, and fire and storm damage; medical expenses; and loss of income due to disability or death.

The USA insurance industry consists mainly of insurance carriers (or insurers ) and insurance agencies and brokerages. In general, insurance carriers are large companies that provide insurance and assume the risks covered by the policy. Insurance agencies and brokerages sell insurance policies for the carriers. While some of these establishments are directly affiliated with a particular insurer and sell only that carrier's policies, many are independent and are thus free to market the policies of a variety of insurance carriers. In addition to supporting these two primary components, the insurance industry includes establishments that provide other insurance-related services, such as claims adjustment or third-party administration of insurance and pension funds.

Insurance carriers assume the risk associated with annuities and insurance policies and assign premiums to be paid for the policies. In the policy, the carrier states the length and conditions of the agreement, exactly which losses it will provide compensation for, and how much will be awarded. The premium charged for the policy is based primarily on the amount to be awarded in case of loss, as well as the likelihood that the insurance carrier will actually have to pay. In order to be able to compensate policyholders for their losses, insurance companies invest the money they receive in premiums, building up a portfolio of financial assets and income-producing real estate which can then be used to pay off any future claims that may be brought. There are two basic types of insurance carriers: direct and reinsurance. Direct carriers are responsible for the initial underwriting of insurance policies and annuities, while reinsurance carriers assume all or part of the risk associated with the existing insurance policies originally underwritten by other insurance carriers.

Direct insurance carriers offer a variety of insurance policies. Life insurance provides financial protection to beneficiaries-usually spouses and dependent children-upon the death of the insured. Disability insurance supplies a preset income to an insured person who is unable to work due to injury or illness, and health insurance pays the expenses resulting from accidents and illness. An annuity (a contract or a group of contracts that furnishes a periodic income at regular intervals for a specified period) provides a steady income during retirement for the remainder of one's life. Property-casualty insurance protects against loss or damage to property resulting from hazards such as fire, theft, and natural disasters. Liability insurance shields policyholders from financial responsibility for injuries to others or for damage to other people's property. Most policies, such as automobile and homeowner's insurance, combine both property-casualty and liability coverage. Companies that underwrite this kind of insurance are called property-casualty carriers.

Some insurance policies cover groups of people, ranging from a few to thousands of individuals. These policies usually are issued to employers for the benefit of their employees or to unions, professional associations, or other membership organizations for the benefit of their members. Among the most common policies of this nature are group life and health plans. Insurance carriers also underwrite a variety of specialized types of insurance, such as real-estate title insurance, employee surety and fidelity bonding, and medical malpractice insurance.

A relatively recent act of Congress allows insurance carriers and other financial institutions, such as banks and securities firms, to sell one another's products. As a result, more insurance carriers now sell financial products such as securities, mutual funds, and various retirement plans. This approach is most common in life insurance companies that already sell annuities; however, property and casualty companies also are increasingly selling a wider range of financial products. In order to expand into one another's markets, insurance carriers, banks, and securities firms have engaged in numerous mergers, allowing the merging companies access to each other's client base and geographical markets.

Insurance carriers have discovered that the Internet can be a powerful tool for reaching potential and existing customers. Most carriers use the Internet simply to post company information, such as sales brochures and product information, financial statements, and a list of local agents. However, an increasing number of carriers are starting to expand their Web sites to enable customers to access online account and billing information, and a few carriers even allow claims to be submitted online. Some carriers also provide insurance quotes online based on the information submitted by customers on their Internet sites. In the future, carriers will allow customers to purchase policies through the Internet without ever speaking to a live agent.

In addition to individual carrier-sponsored Internet sites, several "lead-generating" sites have emerged. These sites allow potential customers to input information about their insurance policy needs. For a fee, the sites forward customer information to a number of insurance companies, which review the information and, if they decide to take on the policy, contact the customer with an offer. This practice gives consumers the freedom to accept the best rate.

The insurance industry also includes a number of independent organizations that provide a wide array of insurance-related services to carriers and their clients. One such service is the processing of claims forms for medical practitioners. Other services include loss prevention and risk management. Also, insurance companies sometimes hire independent claims adjusters to investigate accidents and claims for property damage and to assign a dollar estimate to the claim.

Other organizations in the industry are formed by groups of insurance companies, to perform functions that would result in a duplication of effort if each company carried them out individually. For example, service organizations are supported by insurance companies to provide loss statistics, which the companies use to set their rates.

Working Conditions

Many workers in the insurance industry-especially those in administrative support positions-work a 5-day, 40-hour week. Those in executive and managerial occupations often put in more than 40 hours. Many insurance sales agents, claims adjusters, and investigators work irregular hours outside of office settings. Often, sales agents and adjusters arrange their own hours, scheduling evening and weekend appointments for the convenience of clients. This accommodation may result in these individuals working 50 to 60 hours per week.

Insurance sales agents often visit prospective and existing customers' homes and places of business to market new products and provide services. Claims adjusters and auto damage appraisers frequently leave the office to inspect damaged property; occasionally, claims adjusters are away from home for days, traveling to the scene of a disaster-such as a tornado, flood, or hurricane-to work with local adjusters and government officials. Insurance investigators often work irregular hours to conduct surveillance or to contact people who are not available during normal working hours.

A small, but increasing, number of insurance employees spend most of their time on the telephone working in call centers, answering questions and providing information to prospective clients or current policyholders. These jobs may include selling insurance, taking claims information, or answering medical questions. Because such centers operate 24 hours a day, 7 days a week, some of their employees must work evening and weekend shifts. The irregular business hours in the insurance industry provide some workers with the opportunity for part-time work. Part-time employees make up 8 percent of the workforce. As would be expected in an industry dominated by office and sales employees, the incidence of occupational injuries and illnesses among insurance workers is low. In 2003, only 1.5 cases per 100 full-time workers were reported among insurance carriers, while just 0.6 cases per 100 full-time workers were reported among agents and brokers. These figures compare with an average of 5.0 for all private industry.

Occupations

About 44 percent of insurance workers are in office and administrative support jobs found in every industry, including secretaries, typists, word processors, bookkeepers, and other clerical workers (table 1). Many office and administrative support positions in the insurance industry, however, require skills and knowledge unique to the industry.

Customer service representatives, for example, process insurance policy applications, changes, and cancellations. They review applications for completeness, compile data on policy changes, and verify the accuracy of insurance company records. They may also process claims and sell new policies to existing clients. Nowadays, these workers are taking on increased responsibilities in insurance offices, such as handling most of the continuing contact with clients. A growing number of customer service representatives work in call centers that are open 24 hours a day, 7 days a week, where they answer clients' questions, update policy information, and provide potential clients with information regarding the types of policies the company issues.

About 28 percent of insurance workers are in management or business and financial operations occupations. Marketing and sales managers constitute the majority of managers in insurance carriers' local sales offices and in the insurance sales agents segment. These employees sell insurance products, work with clients, and supervise staff. Other managers who work in their companies' home offices are in charge of functions such as actuarial calculations, policy issuance, accounting, and investments.

Claims adjusters, examiners, and investigators decide whether claims are covered by the customer's policy, confirm payment, and, when necessary, investigate the circumstances surrounding a claim. Claims adjusters work for property and liability insurance carriers or for independent adjusting firms. They inspect property damage, estimate how much it will cost to repair, and determine the extent of the insurance company's liability; in some cases, they may help the claimant receive assistance quickly in order to prevent further damage and begin repairs. Adjusters plan and schedule the work required to process claims, which may include interviewing the claimant and witnesses and consulting police and hospital records. In some property-casualty companies, claims adjusters are called claims examiners, but in other companies, a claims examiner's primary job is to review claims to ensure that proper guidelines have been followed. Only occasionally-especially when disasters suddenly increase the volume of claims-do these examiners aid adjusters with complicated claims.

In the offices of life and health insurance carriers, claims examiners are the counterparts of the claims adjuster who works in a property and casualty insurance firm. Examiners in the health insurance field review health-related claims to see whether the costs are reasonable based on the diagnosis. Examiners check claim applications for completeness and accuracy, interview medical specialists, and consult policy files to verify information on a claim. Claims examiners in the life insurance field review causes of death and also may review new applications for life insurance to make sure that the applicants have no serious illnesses that would prevent them from qualifying for insurance.

Insurance investigators handle claims in which companies suspect fraudulent or criminal activity, such as suspicious fires, questionable workers' disability claims, difficult-to-explain accidents, and dubious medical treatment. Investigators usually perform database searches on suspects to determine whether they have a history of attempted or successful insurance fraud. Then, the investigators may visit claimants and witnesses to obtain a recorded statement, take photographs, inspect facilities, and conduct surveillance on suspects. Investigators often consult with legal counsel and are sometimes called to testify as expert witnesses in court cases.

Auto damage appraisers usually are hired by insurance companies and independent adjusting firms to inspect the damage to a motor vehicle after an accident and to provide unbiased estimates of repair cost. Claims adjusters and auto damage appraisers can work for insurance companies, or they can be independent or public adjusters. Insurance companies hire independent adjusters to represent their interests while assisting the insured, whereas public adjusters are hired to represent the insured's interests against insurance carriers.

Loss control representatives assess various risks faced by insurance companies. These workers inspect the business operations of insurance applicants, analyze historical data regarding workplace injuries and automobile accidents, and assess the potential for natural hazards, dangerous business practices, and unsafe workplace conditions that may result in injuries or catastrophic physical and financial loss. They might then recommend, for example, that a factory add safety equipment, that a house be reinforced to withstand environmental catastrophes, or that incentives be implemented to encourage automobile owners to install air bags in their cars or take more effective measures to prevent theft. Because the changes they recommend can greatly reduce the probability of loss, loss control representatives are increasingly important to both insurance companies and the insured.

Underwriting is another important management and business and financial occupation in insurance. Underwriters evaluate insurance applications to determine the risk involved in issuing a policy. They decide whether to accept or reject an application, and they determine the appropriate premium for each policy.

About 15 percent of wage and salary employees in the industry are sales workers, selling policies to individuals and businesses. Insurance sales agents, also referred to as producers, may work as exclusive agents, or captive agents, selling for one company, or as independent agents selling for several companies. Through regular contact with clients, agents are able to update coverage, assist with claims, ensure customer satisfaction, and obtain referrals. Insurance sales agents may sell many types of insurance, including life, annuities, property-casualty, health, and disability insurance. Many insurance sales agents are involved in "cross-selling" or "total account development," which means that, besides offering insurance, they have become licensed to sell mutual funds, annuities, and other securities. These agents usually find their own customers and ensure that the policies sold meet the specific needs of their policyholders.

The insurance industry employs relatively few people in professional or related occupations, but those who are so employed are essential to company operations. For example, insurance companies' lawyers defend clients who are sued, especially when large claims may be involved. These lawyers also review regulations and policy contracts. Nurses and other medical professionals advise clients on wellness issues and on medical procedures covered by the company's managed-care plan. Computer systems analysts, computer programmers, and computer support specialists are needed to analyze, design, develop, and program the systems that support the day-to-day operations of the insurance company.

Actuaries represent a relatively small proportion of employment in the insurance industry, but they are vital to the industry's profitability. Actuaries study the probability of an insured loss and determine premium rates. They must set the rates so that there is a high probability that premiums paid by customers will cover claims, but not so high that their company loses business to competitors.

Training and advancement

A few jobs in the insurance industry, especially in office and administrative support occupations, require no more than a high school diploma. However, employers prefer to hire workers with a college education for most jobs, including sales, managerial, and professional jobs. When specialized training is required, it usually is obtained on the job or through independent study during work or after-work hours.

Graduation from high school or a 2-year postsecondary business program is adequate preparation for most beginning office and administrative support jobs. Courses in word processing and business math are assets, and the ability to operate computers is essential. These and other special skills also help beginners advance to higher paying positions. On-the-job training usually is provided for clerical jobs such as customer service representatives. Because representatives in call centers must be knowledgeable about insurance products in order to provide advice to clients, more States are requiring customer service representatives to become licensed.

Management, business, financial, and professional jobs require the same college training as similar jobs in other industries. Managerial positions usually are filled by promoting college-educated employees from within the company. For beginning underwriting jobs, many insurance companies prefer college graduates who have a degree in business administration or a related field. However, some companies prefer to hire liberal arts graduates at a lower cost, and many insurers send them to company schools or enroll them in outside institutes for professional training. As an underwriter's career develops, it becomes beneficial to earn one of the voluntary professional certifications in underwriting. For example, the National Association of Health Underwriters offers two certification programs. Individuals earning the Registered Health Underwriter RHU designation demonstrate a high level of knowledge about the principles and practices governing the disability income and health insurance business. Persons earning the Registered Employee Benefits Consultant REBC designation develop an understanding of the various types of group benefits and retirement plans and the practical knowledge needed for choosing and designing the best benefits package that will meet the client's needs.

The American Institute for Chartered Property-Casualty Underwriter (AICPU) offers the CPCU program, which includes courses covering a broad range of insurance, risk management, and general business topics involving both personal and commercial loss exposures. Earning the CPCU designation requires passing 10 exams, meeting a requirement of at least three years of insurance experience, and abiding by the AICPU's code of professional ethics. In conjunction with the Insurance Institute of America, the AICPCU offers 22 insurance-related educational programs, including claims, underwriting, risk management, and reinsurance.

Most companies prefer to hire college graduates for claims adjuster and examiner positions. No specific college major is required, although most workers in these positions have a business, accounting, engineering, legal, or medical background. Licensing requirements for these workers vary by State and can include pre licensing education or passing a licensing exam. In some cases, professional designations may be substituted for the exam requirement. Separate or additional requirements may apply to public adjusters. For example, some States may require public adjusters to file a surety bond. Often, claims adjusters working for companies can work under the company license and do not need to become licensed themselves. In addition, many adjusters and examiners choose to pursue certain certifications and designations to distinguish themselves. Many State licenses and professional designations require continuing education for renewal. Continuing education is important because adjusters and examiners must be knowledgeable about changes in the laws, recent court decisions, and new medical procedures. Auto damage appraisers typically begin as auto body repairers and then are hired by insurance companies or independent adjusting firms. Most companies prefer auto damage appraisers to have formal training, and many vocational colleges offer 2-year programs on how to estimate and repair damaged vehicles. Some States require them to be licensed, and certification may be required or preferred. Computer skills also are an important qualification for many auto damage appraiser positions. As with adjusters and examiners, continuing education is important for appraisers because many new car models and repair techniques are introduced each year.

Most insurance companies prefer to hire former law enforcement or private investigators as insurance investigators. Many experienced claims adjusters or examiners also can become investigators. Licensing requirements vary among States. Most employers look for individuals with ingenuity and who are persistent and assertive. Investigators must not be afraid of confrontation, should communicate well, and should be able to think on their feet. Good interviewing and interrogation skills also are important and usually are developed in earlier careers in law enforcement.

For actuarial jobs, companies prefer candidates to have degrees in actuarial science, mathematics, or statistics. However, candidates with degrees in business, finance, or economics are becoming more common. Actuaries must pass a series of national examinations to become fully qualified. Completion of all the exams takes from 5 to 10 years. Some of the exams may be taken while an individual is in college, but most require extensive home study. Many companies grant study time to their actuarial students to prepare for the exams.

Although some employers hire high school graduates with potential or proven sales ability for entry-level sales positions, most prefer to hire college graduates.

All insurance sales agents must obtain licenses in the States in which they plan to sell insurance. In most States, licenses are issued only to applicants who complete specified courses and pass written examinations covering insurance fundamentals and State insurance laws. New agents receive training from their employer, either at work or at the insurance company's home office. Sometimes, entry-level employees attend company-sponsored classes to prepare for examinations. The National Alliance For Education and Research offers a wide variety of courses in health, life, and property and casualty insurance for independent insurance agents. Others study on their own and, as on-the-job training, accompany experienced agents when they meet with prospective clients. After obtaining a license, agents must earn continuing education credits throughout their careers in order to remain licensed insurance sales agents.

Insurance sales agents wishing to sell securities and other financial products must meet State licensing requirements in these areas. Specifically, they must pass an additional examination-either the Series 6 or Series 7 licensing exam, both of which are administered by the National Association of Securities Dealers (NASD). The Series 6 exam is for individuals who wish to sell only mutual funds and variable annuities; the Series 7 exam is the main NASD series license and qualifies agents as general securities representatives. To demonstrate further competency in financial planning, many agents also find it worthwhile to obtain a certified financial planner (CFP) or chartered financial consultant (ChFC) designation.

Opportunities for advancement are relatively good in the insurance industry. Office and administrative support workers can advance to higher paying claims adjusting positions and entry-level underwriting jobs. Sales workers may advance by handling greater numbers of accounts and more complex commercial insurance policies. A master's degree, particularly in business administration or a related field, is an asset for advancement into higher levels of management. Many insurance companies expect their employees to take continuing education courses to improve their professionalism and their knowledge of the industry.

Outlook

Wage and salary employment in the insurance industry is projected to grow about 10 percent between 2004 and 2014, compared to the 14 percent growth projected for wage and salary employment in all industries combined. While demand for insurance is expected to rise, corporate downsizing, productivity increases due to new technology, and increasing use of direct mail, telephone, and Internet sales will limit job growth. However, some job growth will result from the industry's expansion into the broader financial services field, and employment in the medical service and health insurance areas is anticipated to grow. Also, thousands of openings are expected to arise in this large industry to replace workers who leave the industry, retire, or stop working for other reasons.

Medical service and health insurance is the fastest growing sector of the insurance industry. In recent years, increasing health insurance premiums and relatively high unemployment have left some unable to afford health insurance, but over the long term, significant growth is expected. As the share of the elderly population rises, more people are expected to buy health insurance and long-term-care insurance, as well as annuities and other types of pension products sold by insurance sales agents. If legislation is passed to make health insurance affordable to more people, demand should increase further for this type of insurance. Population growth will stimulate demand for auto insurance and homeowners insurance. Population growth also will create demand for businesses to service the needs of more people, and these businesses will need insurance as well. Moreover, large liability awards are motivating growing numbers of individuals and businesses to purchase liability policies to protect against lawsuits brought by people claiming injury or damage from a product.

Many successful insurance companies will recognize the Internet's potential as a powerful marketing tool. Not only might this reduce costs for insurance companies, but it also could enable many clients to turn to the Internet first to get information on their policies, obtain quotes, or submit claims. As insurance companies begin to offer more information and services on the Internet, employment in some occupations, such as insurance sales agent, could be adversely affected.

Sales agents working in the property and casualty market, particularly in auto insurance, will be most affected by increasing reliance on the Internet. Auto policies are relatively straightforward and can be issued more easily without the involvement of a live agent. Also, auto premiums tend to cost more per year than do other types of policies, so people are more likely to shop around for the best price. The Internet makes it easier to compare rates among companies.

Insurance companies will continue to face increased competition from banks and securities firms entering the insurance markets. As more of these firms begin to sell insurance policies, increasing numbers of insurance sales agents will be employed in them, rather than in insurance companies. In order to stay competitive, insurance companies have begun to expand their financial service offerings or to establish partnerships with banks or brokerage firms.

Productivity gains caused by the greater use of computer software will continue to limit the growth of certain jobs within the insurance industry. For example, the use of underwriting software that automatically analyzes and rates insurance applications will limit the employment growth of underwriters. Also, computers linked directly to the databases of insurance carriers and other organizations have made communications easier among sales agents, adjusters, and insurance carriers, so that all have become much more productive. Furthermore, efforts to contain costs have led to an increasing reliance on customer service representatives to deal with the day-to-day processing of policies and claims. In addition, the Internet has made insurance investigators more productive by drastically reducing the amount of time it takes to perform background checks and by allowing investigators to handle an increasing number of cases, thus limiting their employment growth.

Sales agents and adjusters still are needed to meet face-to-face with clients, many of whom prefer to talk directly with an agent, especially regarding complicated policies. Opportunities will be best for sales agents who sell more than one type of insurance or financial service. Adjusters will still be needed to inspect damage and interview witnesses, and although the number of available jobs for actuaries will be limited due to the small size of the occupation, employment opportunities should be good as stringent qualifying requirements resulting from the examination system limit the number of new entrants.

Earnings

Most independent sales agents own their own businesses and are paid a commission only. Sales agents who are employees of an agency may be paid a salary only, a salary plus commission, or a salary plus a bonus. An agent's earnings usually increase rapidly with experience. Many agencies also pay an agent's expenses for automobiles and transportation, travel to conventions, and continuing education.

Insurance carriers offer attractive benefits packages, as is frequently the case with large companies. Yearly bonuses, retirement investment plans, insurance, and paid vacation often are standard. Insurance agencies, which generally are smaller, offer less extensive benefits.

Unionization is not widespread in the insurance industry. In 2004, 3 percent of all insurance workers were union members or were covered by union contracts, compared with 14 percent of workers throughout private industry.

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