6 Interesting Facts About Insurance
Oct 26, 2022
After almost a year at FRISS, I have had the chance to work with a new technology platform, and a completely new industry, in which I had never seen myself working before. The insurance industry is usually perceived as very uncool, and I too am guilty of this misconception. However, I can say that this has been one of the best jobs I have had, and insurance is probably one of the coolest industries (and I say this without a hint of sarcasm). To celebrate my first 6 months at FRISS – which I hope is the start of a long and awesome journey (like those hobbits and all their Middle Earth mates – except without the demons, goblins and cave trolls) – let’s demystify the idea that insurance is boring with 6 fun facts about Insurance!
Insurance is 4000 years old
The concept of insurance is much older than you might have thought, about 4000 years to be precise. The first insurance-style practices were adopted by Babylonian, Chinese and Indian traders. For example, Chinese merchants would spread their goods across multiple ships so that if one capsizes they would not lose the lot. The Code of Hammurabi even had a clause that a merchant could pay the lender a small fee as “insurance” to cancel the loan should the goods be stolen or lost at sea. If you are familiar with logistics, you might have heard of a term called The Law of General Averages. This law stipulates that in the event of a disaster where cargo needs to be tossed overboard, all merchants whose items weren’t tossed were required to compensate those who’s items were thrown. This principle has been around for a while but it was officially codified in The York Antwerp Rules of 1890.
The fire of London brought insurance as we know
Modern Insurance can be traced back to the Fire of London in 1666. The fires were so bad that insurance went from nice-to-have to must-have! A few decades later, Edward Lloyd opened the Lloyd’s Coffee Shop, where people who worked in shipping and cargo could get their ventures underwritten by the first “insurers”.
The Fire Service in Australia is partially funded by Insurance Companies
The Fires of London had a two-pronged effect: it led to modern insurance, and also led to the first Fire Brigades. English Insurers worried about another repeat of the devastating fires realised it was more cost effective to prevent a fire than pay out a customer. Whilst this is no longer the case in the UK, insurers are the single biggest contributor to Fire and Rescue in New South Wales, Australia (FRNSW). The industry funds 73.7% of the budget to FRNSW, whilst the State and Local Governments contribute the rest.
The Global Insurance Market is valued at over $5 trillion
Insurance touches every aspect of our lives, so it is not surprising that it is a massive global industry. The global insurance market grew from 4.5 trillion in 2020 to 5.1 trillion in 2021 according to Statista. However, the growth varies by country and the type of insurance and it is affected by many things like pandemics, the environment, geopolitics and even government policy.
Insurers would rather pay than reject a claim
The percentages vary according to insurer, line of business, and country, however, there is a pattern within the industry: when a claim is submitted, it is very likely that it will be paid for.
In Australia, 92% of life insurance claims submitted were paid
In the UK, 98% of private car insurance claims were paid
In NSW, 98% of CTP claims were paid
Insurance fraud affects everyone
Working at FRISS, I had to mention fraud. It is common knowledge that fraud exits, however, a common misconception is that it only affects insurers. This is not the case, as fraud is a problem that impacts every honest customer. Insurers set their premiums to ensure a) they remain competitive and b) they can adequately pay out legitimate claims. When fraudulent claims slip between the cracks, it means premiums increase in price for all customers. In 2017, Australian insurers detected $280m worth of insurance fraud. In the US that figure is around $80bn. My guess is that many – if not all – of these facts are new to you, considering they were really an eye-opener for me. Whilst the industry has a long way to go to improve the public perception, and the detection and prevention of fraud, insurance is still one of the best ways there is to protect us from financial, physical and mental wear.