Insurance
In the simplest terms, insurance is the transfer of risk, from the insured
to the insurer, in exchange for a premium. In other words, insurance equals
peace of mind. In exchange for a payment or payments to the insurer, the
insured knows that, should some unpredictable ill befall him or his
property, the insurer will be responsible for resolving some or all of the
problem (depending on the terms of the insurance agreement). For example,
the purchaser of health insurance knows that her health insurance plan will
be there to pay for her treatment should she get sick; that her property
and auto insurance carriers will be there to pay for repairs should her
house be damaged by fire or replacement should her car be stolen; and that
her life insurance carrier will provide her family with the money it needs
to live on should she die unexpectedly.
While what happens to the individual insurance customer or to his property
is unpredictable—you never know when someone’s going to get sick, or get
into a car accident, after all—the insurer stakes its viability on its
ability to predict losses that will be incurred on a macro level. Typically
an insurer covers many policyholders for a given kind of loss, and so is
able to predict what its costs to cover those policyholders' losses
will be over time. Insurance companies make a profit by charging more in
premiums than they predict they will have to pay out over time for losses.
Insurance is big, big business. Some 1,800 U.S. insurance companies offer
personal and commercial product lines including basic health/life and
property/casualty protection as well as a long list of other coverage
ranging from automobiles to mortgages to insurance for insurance companies
(known as reinsurance). These products protect customers from losses
resulting from illegal actions, medical needs, theft, earthquakes and
hurricanes, and a variety of other causes.
Covering policyholders' losses is only the beginning of what goes on at
insurance companies. For example, they mount huge marketing campaigns to
convince customers that they need protection in general and the
company's products in particular.
They also function as financiers, deriving a large part of their revenues
from investments. Insurance companies must maintain enormous reserves of
capital to back up potential claims obligations. They invest those reserves
in stocks, bonds, and real estate, within the United States and overseas,
providing an enormous amount of liquidity to financial markets and giving
the industry an influence on the national economy far out of proportion to
its size. That can be a risk, as when industry-wide overinvestment in Latin
America during the 1970s led to huge losses for the entire industry and
repercussions far beyond the insurance industry itself.
Consolidation
Continuing a long-term trend, insurance companies are responding to global
competition and the need for cost efficiency by forming strategic
alliances, merging into conglomerates, and buying smaller companies. (In
2005 alone, the following deals were announced: MetLife's acquisition
of Travelers; UnitedHealth Group’s acquisition of PacifiCare Health System;
Lincoln National's acquisition of Jefferson-Pilot; Swiss Re's
acquisition of the property and casualty business of GE Insurance
Solutions; and WellPoint's acquisition of WellChoice.) This trend is
doing away with the independent agencies that used to define the industry.
Consolidation also enables insurers to offer a fuller range of insurance
products instead of specializing in certain realms such as property or
casualty. The downside is that it usually leads to a net loss in jobs.
Hurricane Katrina
In 2005, Hurricane Katrina hit the Gulf Coast in what was the nation's
biggest, costliest natural disaster. Estimates as to how much it's
going to cost to rebuild the affected area typically exceed $100
billion—and an estimated $60 billion of that is being paid out by insurers.
One result of Katrina’s costs has been an increase in property insurance
rates. Another result: An estimated 200,000 people in Louisiana alone have
or will lose their employer-sponsored health insurance as companies in the
region cut spending, lay off employees, and go out of business. (Katrina
also had a devastating effect in Mississippi.) All this, just a year after
Charley, Francis, and Ivan caused some $22 billion in insured damage in
2004.
Health Care Crisis
With the baby boomers entering retirement age, the U.S. health care system
is in deep, deep trouble. People are living longer these days—resulting in
an increased demand for health care services. In order to maintain profit
levels, health insurers have taken to charging more and more in return for
less and less. For instance, many diseases that used to be covered by
health plans aren't anymore, and health care premiums and deductibles
for services that are still offered are skyrocketing. This is bad news for
everyone except insurers. It's also not tenable over the long haul; as
health care gets worse and worse for Americans, there's sure to be
greater demand for health care reform, and possibly even—egads!—the
institution of a national health care system of some sort (beyond Medicare
and Medicaid, which serve the elderly and the indigent). Health insurers
are among those spending millions on lobbying and PR efforts to sway public
opinion and government policy to allow them to continue to rake in profits,
but at some point, many experts suggest, the fecal matter is going to hit
the fan.
Legal Woes
Among the biggest news in the insurance industry in recent times was the
civil lawsuit filed by New York Attorney General Eliot Spitzer against
Marsh & McLennan, accusing that firm of rigging bids and preferentially
treating companies that paid it special fees; in 2005, Marsh settled the
suit for $850 million. Then, in 2006, AIG settled charges that it had
engaged in price fixing and accounting chicanery—to the tune of $1.64
billion. And you thought the corporate ethics scandals of the early 2000s
were over!
Life and Health Insurance
The policies in this sector provide benefits packages that policyholders
pay a premium to enjoy. Health insurance has gone through some major
overhauls, including the replacement of fixed-fee Blue Cross Blue
Shield-inspired policies with managed care networks. The life insurance
business is experiencing slow growth, and life insurance companies are
likely to be merging with banks and securities firms. Hartford, Prudential,
and MetLife are U.S. leaders in the life insurance game, while Aetna and
CIGNA rule the HMO realm.
Property and Casualty Insurance
The focus in this sector is on protection for owners of cars, homes, and
businesses from loss, damage, and injury. Competition is fierce in this
sector, and profits are falling. Only the strong will survive as weaker
companies continue to tank and even more secure ones sell off this line.
Insurance Brokers
Brokers act as go-betweens, uniting buyers and sellers of insurance and
creating the contracts that bind them. Furthermore, they play the role of
risk consultants for large clients, researching industry information to
advise companies on managing risk exposure. Major players include Aon and
Marsh & McLennan Companies.
Reinsurance
In the simplest terms, reinsurance is the insurance of insurance companies.
Insurance companies pay reinsurers to assume some or all of the risk the
insurers have taken on in writing policies for their clients. Insurers use
reinsurance to protect against the risk of unusual losses. Reinsurers write
reinsurance because their business allows them to pool enormous numbers of
individual insurance risks, making their risks even more predictable than
the risks faced by primary insurers.
The insurance industry enjoys more demand for its products today than ever
before. As the U.S. population grows and the Baby Boomers reach old age,
demand in areas like health insurance, auto insurance, and homeowners
insurance will be especially strong.
However, ongoing consolidation and technology advances make it unlikely
that job opportunities in many functional areas will grow at a strong rate
in the insurance industry. The Bureau of Labor Statistics projects 8
percent growth between 2002 and 2012, half of the 16 percent growth average
for all industries combined.
When companies combine, redundant positions tend to be eliminated. And as
interactions with insurance clients, as well as internal business
processes, become increasingly automated, there will be less demand for
employees in the roles the new technologies have replaced; insurance agents
and underwriters are expected to be most negatively impacted by the
increasing role of technology in the industry.
Job opportunities in some functional roles in the industry are expected to
grow, though. For instance, adjusters will not be replaced by technology;
face-to-face interaction with the customer is key to this job function—so
this area should see solid employment growth. And agents who can sell a
variety of types of insurance or financial services will face much better
prospects than traditional insurance agents.
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Get Met, Get a Life
Insurance people work hard for their money, but no one expects them to work
the hours investment bankers endure. If you have a family or simply other
interests you like to pursue, most jobs in this industry allow you a fair
amount of flexibility and your weekends off.
Tech Mecca
Information systems specialists will find plenty of work—supporting LANs,
AIs, CASEs (computer-aided software engineering tools), client/server
systems, image processing, pen-based computers (for all those on-site
sales), and a host of other needs. Got an innovative idea? Many of the big
firms would love to give you some bucks to develop it for them.
Not Just Actuarial Tables
Interested in direct marketing? Want to learn more about derivatives and
financial planning? These are hot and getting hotter right now; and even at
a fairly junior level, you probably won't have to work under a lot of
layers of bureaucracy. Environmental claims are another important growth
option for those of you with a science/social policy bent. Interested in
training? Insurance needs you. In fact, just about anything you can think
of that isn't actuarial is a possible option in this industry.
The Incredible Shrinking Insurance Business
Computerization, consolidation, and competition. Watch your back. No job is
safe right now. If you're not replaced by a "systems
environment," you'll be replaced by the takeover company's
bigger, better department. Or your whole division will be outsourced to
some outfit in South Carolina. Layoffs are common these days.
How Do You Feel About Org Charts?
Okay, so the industry's somewhat in disarray at the moment. This does
not mean chaos reigns anywhere inside these august firms. There's a
right way and a wrong way to do things. The times may be
a-changin' but most insurance companies make banks look loose. If you
have a problem with bureaucracy, this is going to be a tough fit.
Is It Cold in Here?
One downside of working in insurance is that the industry has a reputation
for being callous and inhumane in its practices. Many health insurers
won't insure AIDS patients, and won't pay for prescription drugs
for patients with certain chronic diseases, such as depression. Apparently
patients with conditions like these come with too much pain (and tests and
long-term hospitalizations) and not enough gain to make it worth
anyone's loss ratio. Grapple with your conscience now. Your
interviewers aren't interested in debating this one with you.
They've got a business to run.
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|
Top 20 Insurance Companies, by 2005 Revenues
|
|
Rank
|
Company
|
Revenue ($M)
|
1-Year Change (%)
|
Employees
|
|
1
|
Blue Cross and Blue Shield Assn.
|
238,900*
|
10.2*
|
150,000*
|
|
2
|
American International Group, Inc.
|
108,905
|
11.1
|
92,000
|
|
3
|
Berkshire Hathaway Inc.
|
82,186
|
10.1
|
147,000
|
|
4
|
State Farm Mutual Automobile Insurance Co.
|
58,800*
|
4.8*
|
79,200*
|
|
5
|
UnitedHealth Group Inc.
|
45,365
|
21.9
|
55,000
|
|
6
|
WellPoint, Inc.
|
45,136
|
116.8
|
42,000
|
|
7
|
MetLife, Inc.
|
44,776
|
14.8
|
65,500
|
|
8
|
Allstate Corp.
|
35,383
|
4.3
|
39,400
|
|
9
|
Prudential Financial, Inc.
|
31,708
|
11.9
|
38,853
|
|
10
|
Hartford Financial Services Group, Inc.
|
27,083
|
19.3
|
30,000
|
|
11
|
St. Paul Travelers Companies, Inc.
|
24,365
|
6.2
|
31,900
|
|
12
|
Aetna Inc.
|
22,491
|
13.0
|
26,700
|
|
13
|
Nationwide Mutual Insurance Co.
|
20,558*
|
22.3*
|
32,933*
|
|
14
|
Liberty Mutual Holding Co. Inc.
|
19,641*
|
18.2*
|
38,000*
|
|
15
|
MassMutual Financial Group
|
18,705*
|
4.2*
|
10,000*
|
|
16
|
New York Life Insurance Co.
|
17,330*
|
15.5*
|
12,650*
|
|
17
|
Northwestern Mutual Life Insurance Co.
|
17,310*
|
4.6*
|
4,700*
|
|
18
|
Cigna Corp.
|
16,684
|
–8.2
|
28,600
|
|
19
|
Progressive Corp.
|
14,303
|
3.8
|
28,336
|
|
20
|
Chubb Corp.
|
14,082
|
6.9
|
11,800
|
*2004 numbers.
Sources: Hoover's; Fortune 500; WetFeet analysis
|
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Actuary
Do you like to play the odds or do you prefer to set them? As an actuary,
your job will be to predict the risk to insure people, property, and
businesses. Mathematics and statistics will help you make these decisions.
You'll also need to know general social trends and laws that affect
risk. Most actuaries have college degrees. Many have advanced degrees.
Salary range: $40,000 to $125,000 or more.
Agent or Broker
Think of being an agent or broker as giving advice for a living. You'll
tell others how they can best protect their valuables. Then you'll sell
them a policy. Knowledge of insurance contracts is essential. A college
degree is not a requirement to be an agent, but many agents are college
grads. Salary range: $30,000 to $50,000 or more.
Claims Adjuster
These folks negotiate claims when people lose something by theft, fire,
flood, whatever. You'll need to be good with people, because your job
is to be fair to those the company insures, while being fair to the
company, too. A college degree is not a requirement to be an adjuster, but
many agents are college grads. Salary range: $35,000 to $65,000.
Service Representative
The service rep is the liaison between the agent who sells the policy and
the company that writes the policy. You'll need to know your
company's products and work well with others. A college degree is also
usually required. Salary range: $25,000 to $40,000.
Loss-Control Specialist
Loss-control specialists try to prevent accidents and losses from happening
by scouting out, say, the shop floor. Knowledge of safety management or
engineering and a college degree are generally prerequisites for this sort
of job. Salary range: $35,000 to $50,000 to start.
Risk Manager
Large corporations like Intel and Procter & Gamble hire risk managers
to help them figure out how to save money. Risk managers advise upper
management on the best type of insurance to buy or on how the workplace can
be made safer. They also help manage employee benefit plans. Most risk
managers have advanced degrees or several years of work experience. Salary
range: $70,000 to $105,000 to start.
Underwriter
The underwriter's central question is a variation of Hamlet's: To
insure or not to insure this applicant? The applicant's exposure to
risk generally determines the type of policy offered, and the price. A
college degree is a must in this field. Salary range: $30,000 to $75,000.
Information Technology
This isn't the sort of job you think of when you think insurance, but
every big insurer needs IT experts to manage its information. If you like
computers and figuring out the best ways to work with the huge networks and
vast databases that insurance companies invariably develop, here's a
job for you. A technical degree is a plus, but not essential. Salary range:
$35,000 to $100,000 or more.
-
Know why you want to work in insurance. And when you interview, show that
you're personable. Agents, claims adjusters, service reps, and risk
managers all deal with a wide array of people, and they must be able to
get along well with all of them. Tact is an important quality, and
it's important to be assertive, too. If you get a tough question,
don't back down.
-
It's no accident that ads for insurance companies feature families
prominently, and objects, such as rocks, that represent strength and
permanence. Insurance is all about security—and more than securing
investments, valuables, and lives against the unexpected catastrophe.
It's about making people feel secure—giving them peace of mind. If
you are good at putting people at ease, you're well suited to
represent an insurance agency.
-
Insurance is also about your company's security. Aetna, Prudential,
State Farm, and other well-known insurers didn't get big by insuring
everybody; they got big by carefully calculating risks and making
sensible bets. Caution is an inherent part of this business. Risk
managers get paid to figure out how to prevent accidents and save money
on claims; in actuary, you need to slice numbers thin to spot good and
bad bets. Underwriters match policies to people, based on these bets. But
never think you're playing against the odds to win: Insurance
companies sell peace of mind and they profit when more people buy into it
than collect.