{09.19.08} Friday Melange

When I started this Melange idea, I promised you various topics...true to that, here is a topic many of us don't consider, Insurance and the Economy.


Insurance has taken a prominent place in the American headlines this week with the struggles and eventual bailout of AIG. AIG was one of the world's largest insurers, basically the world's insurer for corporate risk. Many have wondered why allow this company to be bailed out, as opposed to Lehman Brothers, or any of the other investment banks or other major corporations? My belief and important to understand: insurance plays an immensely vital role in our economy.


Over the past few months we have seen a situation that no one in this generation of Americans have seen - a meltdown of Wall Street and the effects on Main Street, USA. You know the names by now: Countrywide, Bear Stearns, IndyMac, Fannie & Freddie, Lehman Brothers, AIG...not to mention Merrill Lynch, WAMU, Citigroup, Goldman Sachs who have all lost billions of dollars and have laid off thousands of employees.


Why did the Federal Government bail out AIG? The common understanding is that this company was a lynchpin for the rest of the world's economy. AIG had themselves spread throughout the world and their complete demise could have been a disaster for the world economy. Here in the US, AIG and the other insurers play a very important role within this economy, that I have just recently learned about.


Insurance does what you think it does - protects and helps manage risk for everyday life situations. However, it also helps this economy move forward (information from the Insurance Information Institute):


Property/casualty (auto, home and commercial) insurance allows those who are the victims of accidental loss to recover financially through the payment of claims for property damage and injury. When property/casualty insurance claims are paid, funds are transferred to local businesses in the form of payment for goods or services. Among those that receive the most revenue are auto repair shops, building contractors and the health care community.


Life insurance helps households manage their finances in the face of death and disability by minimizing disruption to a wage earner’s dependents. Annuities reduce the likelihood that a retiree will run out of money. By providing a measure of financial security to individuals, life insurance products help stabilize the economy.


Insurance companies also contribute to the economy through their investments. As part of the financial services industry, insurers act as financial intermediaries, investing the funds they collect for providing insurance protection. Total assets of property/casualty insurers totaled $1.483 trillion in 2006. Cash and invested assets were $1.229 trillion, or 83 percent. Life/health insurer total assets totaled $4.723 trillion in 2006. Cash and invested assets of these insurers amounted to $2.874 trillion, or 61 percent.


Insurers contribute more than $250 billion to the nation’s gross domestic product. Their taxes include special levies on insurance premiums, which amounted to almost $15 billion in 2005, or 2.3 percent of all taxes collected by the states. They are also very large employers, providing some 2.3 million jobs, or 2.1 percent of U.S. employment.


According to the US Deptartment of Commerce, of the major industries in this country, "Insurance Carriers" (as a subset of Finance and Insurance) ranks 5th in terms of Revenues generated ~ $1.4 trillion ~ (behind industries such as wholesale trade, manufacturing, retail trade & ahead of health care, construction, information and many others).


If you've read through all of this, congratulations! You now know much more about insurance than you ever hoped to know.


If you've read through this and found you've learned something, please leave a comment!