Companies and individuals purchase insurance in order to protect remedy from risk. Insurance does not prevent accidents or restore the status quo, but it does provide the resources with which companies can recover losses suffered when damage occurs. Insurance policies are now routinely taken out to protect companies against property loss, suits by disgruntled employees and suits from customers. In all cases, the higher the perceived risk, the more the insurance underwriter charges in premiums. This research examines the specific market for property and casualty insurance and whether this insurance market should be regulated. To consider this issue, the nature of insurance in general, and of the property and casualty market in particular, will be examined. In addition, this research also considers regulations which already exist and their effectiveness in achieving their goals.
Insurance is a successful business because it allows insured parties to pool the risk that any one of them faces and thus pay a smaller amount to cover that risk (Shuker 7A). Insurance providers estimate the potential risk of a proposed policy and spread that risk among all of the insured parties. The lower the risk and amount insured, the lower the premium. Similarly, the greater the number of insured parties, the lower the premiums that each pays. In this way, automobile insurance is less for an older mid-priced car than for a new expensive car. Business insurance works in the same manner, with expensive products or those with high risks associated with them have higher premiums than lower cost or lower risk products.
Consumers are interested in obtaining insurance protection at the lowest possible price; they are also concerned that the company they choose to provide coverage has a reputation for paying out in a reasonable timeframe when claims are made, and that they have a reputation for being fair in their claim settlements. Insurance comp...