Insurance companies

Insurance companies

Insurance companies may be classified into two groups:

• Life insurance companies, which sell life insurance, annuities and pensions products.
• Non-life, general, or property/casualty insurance companies, which sell other types of insurance.

General insurance companies can be further divided into these sub categories.

• Standard lines
• Excess lines

In most countries, life and non-life insurers are subject to different regulatory regimes and different and rules. The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature — coverage for life assurance or a pension can cover risks over many . By contrast, non-life insurance cover usually covers a shorter period, such as one year.

In the United States, standard line insurance companies are "mainstream" insurers. These are the companies that typically insure autos, homes or businesses. They use pattern or "cookie-cutter" policies without variation from one person to the next. They usually have lower premiums than excess lines and can sell directly to individuals. They are regulated by state laws that can restrict the amount they can charge for insurance policies.

Excess line insurance companies (also known as Excess and Surplus) typically insure risks not covered by the standard lines market. They are broadly referred as being all insurance placed with non-admitted insurers. Non-admitted insurers are not licensed in the states where the risks are located. These companies have more flexibility and can react faster than standard insurance companies because they are not required to file rates and forms as the "admitted" carriers do. However, they still have substantial regulatory requirements placed upon them. State laws generally require insurance placed with surplus line agents and brokers not to be available through standard licensed insurers.

Insurance companies are generally classified as either or stock companies. Mutual companies are owned by the policyholders, while stockholders (who may or may not own policies) own stock insurance companies. of mutual insurers to form stock companies, as well as the formation of a hybrid known as a mutual holding company, became common in some countries, such as the United States, in the late 20th century.

Other possible forms for an insurance company include , in which policyholders reciprocate in sharing risks, and Lloyd's organizations.

Insurance companies are rated by various agencies such as . The ratings include the company's financial strength, which measures its ability to pay claims. It also rates financial instruments issued by the insurance company, such as bonds, notes, and securitization products.

companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well.

companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices.

The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance.

Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background:

• heavy and increasing premium costs in almost every line of coverage;
• difficulties in insuring certain types of fortuitous risk;
• differential coverage standards in various parts of the world;
• rating structures which reflect market trends rather than individual loss experience;
• insufficient credit for deductibles and/or loss control efforts.

There are also companies known as 'insurance consultants'. Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client.

Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.

The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies provide information and rate the financial viability of insurance companies.

Proposals that keep an entirely government-run system

Proposals that keep an entirely government-run system

Robert L. Clark, an economist at who specializes in aging issues, formerly served as a chairman of a national panel on Social Security's financial status; he has said that future options for Social Security are clear: "You either raise taxes or you cut benefits. There are lots of ways to do both."

David Koitz, a 30-year veteran of the , echoed these remarks in his 2001 book Seeking Middle Ground on Social Security Reform: "The real choices for resolving the system's problems...require current lawmakers to raise revenue or cut spending--to change the law now to explicitly raise future taxes or constrain future benefits." He discusses the 1983 Social Security amendments that followed the Greenspan Commission's recommendations. It was the Commission's recommendations that provided political cover for both political parties to act. The changes approved by President Reagan in 1983 were phased in over time and included raising the retirement age from 65 to 67, taxation of benefits, cost of living adjustment (COLA) delays, and inclusion of new federal hires in the program. There was a key point during the debate when House members were forced to choose between raising the retirement age or raising future taxes; they chose the former. Senator indicated the compromises involved showed that lawmakers could still govern. Koitz cautions against the concept of a ; retirement security cannot be provided without benefit cuts or tax increases

Alternate views

Alternate views

The Trust Fund, under current law (blue) and under privatization (red) as per "Model 2" considered in the 2001 commission report. (Graph from "Social Security Trust Fund"^[38] by zFacts.com)

Accordingly, advocates of major change in the system generally argue that drastic action is necessary because Social Security is facing a crisis. In his 2005 State of the Union speech, President Bush indicated that Social Security was facing "bankruptcy."^[39] In his 2006 State of the Union speech, he described entitlement reform (including Social Security) as a "national challenge" that, if not addressed timely, would "present future Congresses with impossible choices -- staggering tax increases, immense deficits, or deep cuts in every category of spending."

A think tank, The Center for Economic and Policy Research, says that "Social Security is more financially sound today than it has been throughout most of its 69-year history" and that Bush's statement should have no credibility.

economist , deriding what he called "the hype about a Social Security crisis", wrote:^[42]

“

[T]here is a long-run financing problem. But it's a problem of modest size. The [CBO] report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of That's less than 3 percent of federal spending — less than we're currently spending in . And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts — roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year. Given these numbers, it's not at all hard to come up with fiscal packages that would secure the retirement program, with no major changes, for generations to come.

”

The claims of the probability of future difficulty with the current Social Security system are largely based on the annual analysis made of the system and its prospects and reported by the governors of the Social Security system. While such analysis can never be 100% accurate, it can at least be made using different probable future scenarios and be based on rational assumptions and reach rational conclusions, with the conclusions being no better (in terms of predicting the future) than the assumptions on which the predictions are based. With these predictions in hand, it is possible to make at least some prediction of what the future retirement security of Americans who will rely on Social Security might be. It is worth noting that James Roosevelt, former associate commissioner for Retirement Policy for the Social Security Administration, claims that the "crisis" is more a myth than a fact.

Proponents of the current system argue if and when the trust fund runs out, there will still be the choice of raising taxes or cutting benefits, or both. Advocates of the current system say that the projected deficits in Social Security are identical to the "prescription drug benefit" enacted in 2002. They say that demographic and revenue projections might turn out to be too pessimistic — and that the current health of the economy exceeds the assumptions used by the Social Security Administration.

These Social Security proponents argue that the correct plan is to fix , which is the largest underfunded entitlement, repeal the 2001–2004 tax cuts, and balance the budget. They believe a growth trendline will emerge from these steps, and the government can alter the Social Security mix of taxes, benefits, benefit adjustments and retirement age to avoid future deficits. The age at which one begins to receive Social Security benefits has been raised several times since the program's inception.

Anti-privatization arguments

Anti-privatization arguments

The liberal position is typically anti-privatization. Those who have taken an anti-privatization position argue several points (among others), including:

• Privatization does not address Social Security's long-term funding challenges. The program is "pay as you go", meaning current payroll taxes pay for current retirees. Diverting payroll taxes (or other sources of government funds) to fund private accounts would drive enormous deficits and borrowing ("transition costs").
• Privatization converts the program from a "defined benefits" plan to a "defined contribution" plan, subjecting the ultimate payouts to stock or bond market fluctuations;
• Social Security payouts are indexed to wages, which historically have exceeded inflation. As such, Social Security payments are protected from inflation, while private accounts might not be;
• Privatization would represent a windfall for Wall Street financial institutions, who would obtain significant fees for managing private accounts.
• Privatization in the midst of the greatest economic downturn since the Great Depression would have caused households to have lost even more of their assets, had their investments been invested in the U.S. stock market.

Pro-privatization arguments

Pro-privatization arguments

The conservative position is often pro-privatization. There are countries other than the U.S. that have set up individual accounts for individual workers, which allow workers leeway in decisions about the securities in which their accounts are invested, which pay workers after retirement through funded by the individual accounts, and which allow the funds to be inherited by the workers' heirs. Such systems are referred to as 'privatized.' Currently, the United Kingdom, Sweden, and are the most frequently cited examples of privatized systems. The experiences of these countries are being debated as part of the current Social Security controversy.

In the United States in the late 1990s, privatization found advocates who complained that U.S. workers, paying compulsory payroll taxes into Social Security, were missing out on the high rates of return of the U.S. (the averaged 5.3% compounded annually for the 20th century^[36]). They likened their proposed "Private Retirement Accounts" (PRAs) to the popular (IRAs) and savings plans. But in the meantime, several conservative and libertarian organizations that considered it a crucial issue, such as the and , continued to lobby for some form of Social Security privatization.

Framing the debate

Framing the debate

Ideological arguments

Ideology plays a major part of framing the Social Security debate. Key points of philosophical debate include, among others:

• degree of ownership and choice among investment alternatives in determining one's own financial future;
• the right and extent of government taxation and wealth redistribution;
• trade-offs between social insurance and wealth creation;
• whether the program represents (or is perceived) as a charitable safety net (entitlement) or earned benefits; and
• intergenerational equity, meaning the rights of those living today to impose burdens on future generations.
  

Retirees and others who receive Social Security benefits have become an important bloc of voters in the United States. Indeed, Social Security has been called "the of American politics" — meaning that any politician sparking fears about cuts in benefits by touching the program endangers his or her political career. wrote in January 2009 that Social Security and "have proved almost sacrosanct in political terms, even as they threaten to grow so large as to be unsustainable in the long run

Current projections

Current projections

Income and Cost Rates Under Intermediate Assumptions. Source: 2009 OASDI Trustees Report.

Projections were made by the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (OASDI) in their 69th annual report dated May 12, 2009. According to these projections, based on the system's current revenue and benefit structure, expenses will exceed tax receipts beginning in 2016. The trust fund is projected to continue to grow for several years thereafter because the analyses assume interest income from loans made to the is available to cover the difference.

However, the funds from loans made have been spent along with other revenues in the general funds in satisfying annual budgets. At some point, however, absent any change in the law, the Social Security Administration will finance payment of benefits through the net redemption of the assets in the trust fund. Because those assets consist solely of U.S. government securities, their redemption will represent a call on the federal government's general fund, which for decades has been borrowing the Trust Fund's surplus and applying it to its expenses to partially satisfy budget deficits. To finance such a projected call on the general fund, some combination of increasing taxes, cutting other government spending or programs, selling government assets, or borrowing would be required.

The balances in the trust fund are projected to be depleted either by 2037 (OASDI Trustees' 2009 projection), or by 2052 (Congressional Budget Office's projection) assuming proper and continuous repayment of the outstanding treasury notes. At that point, under current law, the system's benefits would have to be paid from the FICA tax alone. Revenues from FICA are projected at that point to be continue to cover about 76% of projected Social Security benefits if no change is made to the current tax and benefit schedules

Background on funding challenges

Background on funding challenges

Medicare & Social Security

is funded through payroll taxes known as FICA levied according to the . Employers and employees are responsible for making equal FICA contributions. During 2009, Social Security taxes were levied on the first $106,800 of income for employment; amounts earned above that are not taxed. Covered workers are eligible for and benefits. If a covered worker dies, his or her spouse and children may receive survivors' benefits. Social Security accounts are not the property of their beneficiary and are used solely to determine benefit levels. Social Security funds are not invested on behalf beneficiaries. Instead, current receipts are used to pay current benefits (the system known as " "), as is typical of some insurance and defined-benefit plans.

In each year since 1983, tax receipts and interest income have exceeded benefit payments and other expenditures, most recently (in 2009) by more than $120 billion. However, this annual "surplus" is expected to change to a deficit around 2015, when payments begin to exceed receipts and interest thereafter. The fiscal pressures are due to trends, where the number of workers paying into the program continues declining relative to those receiving benefits. The number of workers paying into the program was 5.1 per retiree in 1960; this declined to 3.3 in 2007 and is projected to decline to 2.1 by 2035. Further, life expectancy continues to increase, meaning retirees collect benefits longer. Federal Reserve Chairman Bernanke has indicated that the aging of the population is a long-term trend, rather than a proverbial "pig moving through the ."

The accumulated surpluses are invested in special non-marketable (treasuries) issued by the U.S. government, which are deposited in the . At the end of 2009, the Trust Fund stood at $2.5 trillion. The $2.5 trillion amount owed by the federal government to the Social Security Trust Fund is also a component of the , which stood at $13.3 trillion as of August 2009. By 2019, the government is expected to have borrowed nearly $3.8 trillion against the Social Security Trust Fund.^[18]

The CBO projected in 2010 that an increase in payroll taxes ranging from 1.6%-2.1% of the payroll tax base, equivalent to 0.6%-0.8% of GDP, would be necessary to put the Social Security program in fiscal balance for the next 75 years.^[19] In other words, raising the payroll tax rate to about 14.4% during 2009 (from the current 12.4%) or cutting benefits by 13.3% would address the program's budgetary concerns indefinitely; these amounts increase to around 16% and 24% if no changes are made until 2037. The value of unfunded obligations under Social Security during FY 2009 was approximately $5.4 trillion. In other words, this amount would have to be set aside today such that the principal and interest would cover the shortfall over the next 75 years. Projections of Social Security's solvency are sensitive to assumptions about rates of economic growth and demographic changes.

Because Social Security receipts currently exceed payments, the program also reduces the size of the annual federal budget . For example, the budget deficit would have been $182 billion higher in 2007 (i.e., $344 billion rather than $162 billion published) if Social Security were accounted for separately from the overall budget.

Increasing unemployment due to the of 2008-2010 has significantly reduced the amount of payroll tax income that funds Social Security. Further, the crisis also caused more to apply for both retirement and disability benefits than expected. During 2009, payroll taxes and taxation of benefits resulted in cash revenues of $689.2 billion, while payments totaled $685.8 billion, resulting in a cash surplus (excluding interest) of $3.4 billion. Interest of $118.3 billion meant that the Social Security Trust Fund overall increased by $121.7 billion (i.e., the cash surplus plus interest). The 2009 cash surplus of $3.4 billion was a significant reduction from the $63.9 billion cash surplus of 2008.

The wrote in 2010: "The 75-year Social Security shortfall is about the same size as the cost, over that period, of extending the 2001 and 2003 tax cuts for the richest 2 percent of Americans (those with incomes above $250,000 a year). Members of Congress cannot simultaneously claim that the tax cuts for people at the top are affordable while the Social Security shortfall constitutes a dire fiscal threat

Social Security debate (United States)

This article concerns proposals to change the Social Security system in the United States. is a program officially called "Old-Age, Survivors, and Disability Insurance" ( ), in reference to its three components. It is primarily funded through a dedicated . During 2009, total benefits of $686 billion were paid out versus income (taxes and interest) of $807 billion, a $121 billion annual surplus. An estimated 156 million people paid into the program and 53 million received benefits, roughly 2.94 workers per beneficiary.

Reform proposals continue to circulate with some urgency, due to a long-term funding challenge faced by the program. Starting in 2015 and continuing thereafter, program expenses are expected to exceed cash revenues. This is due to the aging of the generation (resulting in a lower ratio of paying workers to retirees), expected continuing low (compared to the baby-boom period), and increasing . Further, the government has borrowed and spent the accumulated surplus funds, called the .

During 2010, the Trust Fund held $2.5 trillion in government account series bonds—essentially "IOUs" or claims on the government's general fund or tax revenues. This amount is part of the total national debt of $13.3 trillion as of August 2010. By 2015, the government is expected to have borrowed nearly $3.25 trillion against the Social Security Trust Fund.

Between 2015 and 2037, Social Security has the legal authority to draw amounts from other government tax sources besides the payroll tax, to fully fund the program. However, this will liquidate the Trust Fund during that period. By 2037, the Trust Fund is expected to be officially exhausted, meaning that only the ongoing payroll tax collections thereafter will be available to fund the program. There are certain key implications to understand under current law, if no reforms are implemented:

• Payroll taxes will only cover 78% of the scheduled payout amounts after 2037. This declines to 75% by 2084. Without changes to the law, Social Security would have no legal authority to draw other government funds to cover the shortfall and payments would decline without a large tax/revenue increase or increase in eligibility age.
• Between 2015 and 2037, redemption of the trust fund balance to pay retirees will draw approximately $4 in government funds from sources other than payroll taxes. This is a funding challenge for the government overall, not just Social Security.
  
• The of unfunded obligations under Social Security as of August 2010 was approximately $5.4 trillion. In other words, this amount would have to be set aside today such that the principal and interest would cover the shortfall over the next 75 years. The estimated annual shortfall averages 1.92% of the payroll tax base or 1.0% of .
  
• The annual cost of Social Security benefits represented 4.8% of (a measure of the size of the economy) in 2009. This is projected to increase gradually to 6.1% of GDP in 2035 and then decline to about 5.9% of GDP by 2050 and remain at about that level.
  

Former President called for a transition to a combination of a government-funded program and personal accounts ("individual accounts" or "private accounts") through partial of the system. President Barack Obama "strongly opposes" privatization or raising the retirement age, but supports raising the cap on the payroll tax ($106,800 in 2009) to help fund the program.

Chairman said on October 4, 2006: "Reform of our unsustainable entitlement programs should be a priority." He added, "the imperative to undertake reform earlier rather than later is great." The tax increases or benefit cuts required to maintain the system as it exists under current law are significantly higher the longer such changes are delayed. For example, raising the payroll tax rate to 14.4% during 2009 (from the current 12.4%) or cutting benefits by 13.3% would address the program's budgetary concerns indefinitely; these amounts increase to around 16% and 24% if no changes are made until 2037

Social protection

Social protection

Social protection refers to a set of benefits available (or not available) from the state, market, civil society and households, or through a combination of these agencies, to the individual/households to reduce multi-dimensional . This multi-dimensional deprivation could be affecting less active poor persons (e.g. the elderly, disabled) and active persons (e.g. unemployed).

This broad framework makes this concept more acceptable in developing countries than the concept of social security. Social security is more applicable in the conditions, where large numbers of citizens depend on the formal economy for their livelihood. Through a defined contribution, this social security may be managed.

But, in the context of wide spread informal economy, formal social security arrangements are almost absent for the vast majority of the working population. Besides, in developing countries, the state's capacity to reach the vast majority of the poor people may be limited because of its limited resources. In such a context, multiple agencies that could provide for social protection is important for policy consideration. The framework of social protection is thus capable of holding the state responsible to provide for the poorest sections by regulating non-state agencies.

Collaborative research from the debating Social Protection from a global perspective, suggests that advocates for social protection fall into two broad categories: 'instrumentalists' and 'activists'. 'Instrumentalists' argue that extreme poverty, inequality and vulnerability, is dysfunctional in the achievement of development targets (e.g. the MDGs). In this view social protection is about putting in place risk management mechanisms that will compensate for incomplete or missing insurance (and other) markets, until a time that private insurance can play a more prominent role in that society. 'Activist' arguments view the persistence of extreme poverty, inequality and vulnerability, as symptoms of social injustice and structural inequality and see social protection as a right of citizenship. Targeted welfare is a necessary step between humanitarianism and the ideal of a 'guaranteed social minimum' where entitlement extends beyond cash or food transfers and is based on citizenship, not philanthropy

Income maintenance

Income maintenance

This policy is usually applied through various programs designed to provide a population with income at times when they are unable to care for themselves. Income maintenance is based in a combination of five main types of program:

• Social insurance, considered above
• Means-tested benefits. This is financial assistance provided for those who are unable to cover basic needs, such as food, clothing and housing, due to or lack of income because of unemployment, sickness, disability, or caring for children. While assistance is often in the form of financial payments, those eligible for social welfare can usually access health and educational services free of charge. The amount of support is enough to cover basic needs and eligibility is often subject to a comprehensive and complex assessment of an applicant's social and financial situation. See also, .
• Non-contributory benefits. Several countries have special schemes, administered with no requirement for contributions and no means test, for people in certain categories of need - for example, veterans of armed forces, people with disabilities and very old people.
• Discretionary benefits. Some schemes are based on the discretion of an official, such as a social worker.
• Universal or categorical benefits, also known as demogrants. These are non-contributory benefits given for whole sections of the population without a test of means or need, such as family allowances or the public pension in New Zealand (known as New Zealand Superannuation). See also, .

Monitoring and evaluation

Monitoring and evaluation

Monitoring and evaluation (M&E) systems are the hallmark of good program management. A new wave of results-oriented programs, such as CCTs in Latin America and public works programs (e.g. Argentine, Ethiopia), have developed and use integrated M&E. These programs demonstrate that strong monitoring systems support credible program evaluation and that both provide feedback for improvements in productivity, effectiveness and impact.^[1]

Program monitoring systems are tools that regularly supply information about how well a program is working, so that program managers can take action to improve implementation. Effective monitoring systems require a strategic focus and political support. They also require adequate skills, management attention, and information technology.

Program evaluation refers to an external assessment of program effectiveness that ascertains whether a program meets some standards, estimates its net results or impacts, and/or identifies whether the benefits the program generates outweigh its costs to society. It generates evidence that programs are well implemented and are achieving their intended results, and provides feedback for improvements.

The most frequently used types of evaluation in safety net programs are:

• Process evaluation, also known as formative evaluation, implementation research, implementation analysis, or descriptive evaluation. Process evaluation documents, assesses, and explains how a program is being implemented.

• Targeting assessment describes how public spending is distributed across population groups, whether defined as deciles or poor versus non poor. A targeting assessment is a descriptive analytic tool. It is not an alternative to a full impact assessment since it does not explain incidence outcomes or generate specific policy implications.

• Impact evaluation measures the programs causal effect on the outcomes it seeks to achieve. The specific technique for estimating impacts varies according to the setting but all methodologies center on ways of constructing a plausible comparison or control group to establish the counterfactual. This helps to approximate the impact of a program on beneficiaries (treatment group).

Aspects of design and implementation

Aspects of design and implementation

Targeting

The main objective of targeting is to deliver more resources to the poorest groups of the population. Targeting is a tool that has costs and benefits. Decisions about whether to target, how precise to be and what method to use will depend on the relative size of these costs and benefits, which will vary by setting.

Good evidence indicates that, for the most part, programs can focus resources on the poor to a moderate or high degree without incurring unacceptably high errors of exclusion (excluding poor groups) and cost.

A few methods of targeting and types of programs go hand-in-hand. However, several different methods can be used for a particular program resulting in better targeting:

• Means tests: A targeting method based on income that seeks to collect comprehensive information on household income and/or wealth and verifies the information collected against independent sources.

• Proxy means tests: A targeting method by which a score for applicant households is generated based on easy-to-observe household characteristics, such as the location and quality of the household's dwelling, ownership of durable goods, demographic structure, education, and so on.

• Community Based Targeting: A targeting method in which a group of community members or leaders (whose principal functions in the community are not related to the transfer program) decide who in the community should benefit.

• Geographic area: A targeting method in which location determines eligibility for benefits or allocates budget to concentrate resources on poorer areas.

• Demographic characteristics: A targeting method in which eligibility is based on age and gender.

• Self-selection: Programs designed so that take-up is expected to be much higher among the poor than the non-poor, or the level of benefits is expected to be higher among the poor e.g. low wage public works programs.

Targeting systems should allow new or newly poor households to access the program and move out the ones that are no longer eligible. The inputs to good targeting outcomes include adequate staffing; well-defined rules of the game; clearly assigned and sensible institutional roles; and adequate information systems, material inputs, monitoring, and evaluation.

Determining benefit levels

Benefits may be differentiated by household characteristics such as poverty level, size and composition, or specific needs or behaviors. Such customization will improve the poverty impact, but will complicate administration. Available budget allocations will greatly determine the efficacy of safety net programs. Programs with benefits that are too small will have little impact on beneficiaries and administrative costs will be high relative to benefits. Programs with high benefits will have a larger impact on recipient households, but will have a higher fiscal burden, require better design and targeting, and may induce disincentives.

Customizing safety nets for different contexts

Customizing safety nets for different contexts

There is a recognized need to adapt social safety nets programs to local contexts. Both the program mix and shape of individual programs should vary from place to place.

Safety nets in low-income countries are increasingly being recognized as effective tools to reach out to the most vulnerable. At their worst, they protect households facing hard times from falling into deeper poverty and help them manage risk by allowing them to maintain assets on which their livelihoods are based. At their best, they can provide households with a cushion to invest resources more efficiently and effectively in human capital. Common interventions vary from public works and food-based interventions to more recently cash and conditional cash transfer programs. Low-income states may face institutional capacity and financial constraints.

Safety nets in middle-income countries may aspire to cover all target groups although they tend to focus on helping the chronically poor. Individual programs may be sophisticated, but sophistication may not have spread to all programs in the country. Evidence suggests that they possess strong track record progress in design and implementation.

Safety nets in crisis contexts attempt to protect incomes and avoid irreversible losses of physical assets and human capital. They also help maintain political consensus around the policies needed to resolve crises (financial, fuel, food). Scaling up programs quickly is difficult, so some compromises with respect to targeting, incentive compatibility, and accountability may be needed.

Safety nets after natural disasters help households avoid irreversible losses that could ensue. Effective safety nets should be seen as a complement to larger efforts to protect livelihoods and undertake reconstruction and recovery. Countries with existing programs that they can modify will be better placed to deliver safety nets after natural disasters. They may need to adjust procedures during the response.

Safety nets to facilitate reforms can help compensate the poor for any losses suffered as a result of reforms such as abolishing subsidies. These may also promote the political tolerance required for reforms to take place. Some programs with a temporary political goal may be at a scale that is too large to sustain. Others with a clearer poverty focus may be meant to be permanent, and so must be designed to be sustainable.

Safety nets in fragile states are increasingly recognized as helping endangered and/or displaced households cope in post conflict or complex settings. Selected safety nets interventions, integrated with other actions, may assist in rebuilding societies and preventing future conflict. A critical issue is how and when to transition from primarily humanitarian relief efforts to more strategic sustained development.

Safety nets in developed countries have resulted in a much lower crime rates and generally lower poverty levels. One example is Canada's universal healthcare, known as , which was first proposed by (called one of the " "); in 2004 Douglas was voted for his achievements and contributions to Canada, including working towards .

Financing of and spending on safety nets

Financing of and spending on safety nets

Figure B: Safety Net Expenditures as a Percentage of GDP, Selected Countries and Years

Most developing countries spend 1 to 2 percent of their GDP on safety nets. If countries wish to increase their spending on safety nets, they can reallocate expenditures, raise taxes, obtain aid grants, or borrow. Reallocation of funds from less important items is preferable. If taxes are to be raised, the government must pay attention to the economic and political costs. If international grants are to be used, the government and donors should ensure that funding flows are stable and that procedures are conducive to building capacity. Debt finance is appropriate when programs benefit future generations by raising their productivity and consequently increasing future tax revenues, or during recessions.

Even where safety nets have a place within budgets, they may face financial constraints so tight that policy makers will have to make difficult decisions about how to allocate money insufficient to meet needs. In response, there are three approaches that may be taken in different combinations:

• Keep the role of safety nets small relative to possible needs. Benefits may be limited to only a portion of the poor by defining specific subcategories of individuals, by using an eligibility threshold well below the poverty line, or by only providing seasonal benefits.

• Ensure complementarities with building physical and human capital. This helps the poor survive today and will reduce the causes of poverty in future years.

• In very low-income countries, international assistance may be used to finance social assistance. In fact there is an increasing willingness on the part of donors and countries to use aid in such ways

Fee waivers, exemptions, and scholarships

Fee waivers, exemptions, and scholarships

The main objective of fee waivers, exemptions, and scholarships is to provide poor people with the financial resources to use public services such as education and health facilities.^[1] These systems are targeted to a pre-determined group of people that would not have access to these services otherwise. These are relatively recent programs that were implemented in Africa in the latter part of the 1990s, counterbalancing the negative effects on the poor of the introduction of fees in the health and education sectors in the 1980s.

Fee waivers and exemptions for health care enable the poor to obtain free health care even when fees are charged. Exemptions are granted to everyone for defined services and allow people to receive free prenatal care, immunizations, and treatment for tuberculosis. By contrast fee waivers are granted to some individuals, usually for specific health care activities which also account for the bulk of charges even though they may only account for a minority of interactions with the health care system.

Fee waivers and scholarships for schooling include stipends, education vouchers, targeted bursaries, and interventions related to tuition and textbooks. Benefits range from covering the direct costs of uniforms, books, or transport, to compensating for the opportunity costs of students’ time. Programs may be complemented by grants to schools to ensure quality of education.

Public works

Public works

The Public Works and Employment Creation Project: Many women working on the construction site of Beyenzi future market in Burundi. The new market is expected to benefit approximately 2000 traders

Public works programs provide unskilled workers with temporary labor-intensive jobs during critical times. Public works can include road construction and maintenance, maintenance of public spaces and buildings, irrigation infrastructure, reforestation and soil conservation. The output of such programs is twofold: jobs of short duration for work to increase income, and creation of public goods in the form of new or improved infrastructure.

The level of the wage rate is a critical design issue. Self-selection can be encouraged if the wage paid is set at slightly below the market wage for unskilled labor. Cross-country evidence suggests that programs are worthwhile if planners give careful attention to the quality of the assets to be created, and to their potential to create second-round (employment) benefits.^[19]

General subsidies

General subsidies

Subsidies guarantee access to essential commodities at prices that consumers can afford.^[1] The rationale for using subsidies is based on the potential to shift consumption as well as on low operating costs as beneficiaries are not administratively targeted. Although subsidies require little administrative capacity, they tend to be expensive and regressive with respect to targeting the poor.

Universal/Indirect price supports for food are open-ended, untargeted subsidies that attempt to lower the price paid for staple foods. Controlling these prices responds to the need to prevent prices from becoming too high. The interventions are implemented via indirect taxes or producer subsidies which are often part of general price stabilization efforts.

Subsidized untargeted sales take place at public distribution centers or designated private outlets on a first-come, first-served basis. Quantities may be rationed by limiting the amount households may purchase.

Subsidies for energy and utilities most often include gasoline and diesel used for transport and for electricity generation; kerosene for lighting and heating; and liquefied petroleum gas for cooking. Their costs can be higher than for food subsidies, while their targeting efficiency tends to be much lower than for food.

Food-based programsa

Food-based programs

Food-based safety net programs support adequate consumption and contribute to improving nutrition and securing livelihoods. They differ from other safety net programs in that they are tied to the provision of food, either directly or through cash-like instruments (food stamps, coupons) that may be used to purchase food.

The debate on the use of cash rather than food has been receiving renewed attention in recent years, in part because of changing donor practices. In parallel there has been growing attention on the appropriateness of food transfers taking into account a number of concerns, e.g. impacts on food markets, transaction costs, type and size of transfers, and preferences of beneficiaries.

School feeding program in Djasseme community, Agbodrafo, Togo

Supplementary feeding programs provide a direct transfer of food to target households or individuals. The food may be prepared and eaten on-site (e.g., in child feeding centers or at schools), or given as a dry ration to take home.^[1] Supplementary feeding is often provided as an incentive for participation in public services such as primary health care (pre- and post-natal and well-baby care) and education. The most common forms are maternal and child feeding, and school feeding.

School feeding programs encourage children’s enrollment and improve their ability to pay attention in class. They vary from the provision of breakfast, lunch or a midmorning snack, to a combination of these. School feeding programs are often integrated with health and nutrition education, parasite treatment, health screening, and provision of water and sanitation.

Food for work (FFW) programs provide food rations in exchange for a given amount of work done. FFW programs have long been used to protect households against the decline in purchasing power that often accompanies seasonal unemployment, drought, and other periodic disruptions.

Emergency food distribution includes direct provision of food, supplementary feeding for vulnerable groups, and therapeutic feeding during crises, emergencies and situations in which people are displaced (see for guidelines on the size and type of on-site and take-home food rations). These last-resort programs save lives by preventing malnutrition and morbidity.

Conditional cash transfers

Conditional cash transfers

Conditional Cash Transfer (CCT) programs provide cash payments to poor households that meet certain behavioral requirements, generally related to improve their children´s human capital, such regular school attendance and basic preventive health care. The purpose of these programs is to address the inter-generational transmission of poverty and to foster social inclusion by explicitly targeting the poor, focusing on children, delivering transfers to women, and changing social accountability relationships between beneficiaries, service providers and governments.^[6]

The first generation of conditional cash transfers (e.g. Mexico’s and Brazil’s ) have been marked by good implementation with respect to targeting, general administration and impact evaluation. These programs have been proven to be very effective in reducing poverty in the short term since they have helped to increase household income and consumption in poor families. These programs have also helped to increase school enrollment and attendance and they also have shown improvements in children’s health conditions. Most of these transfer schemes are now benefiting around 110 million people in the region, and are considered relatively cheap, costing around 0.5% of their GDP.

These outcomes represent an increase in the investment of human capital, thus becoming a very important tool for reducing the inter-generational transmission of inequality. However, studies by the UNDP have shown that conditional cash transfers did not represent a significant increase in the quality of education and in learning, nor in significant increases in salaries, once the recipients entered the labor force.

CCT Programs have been proved to be very well-targeted and effective in reaching the poor and the excluded groups, notably the extreme poor living outside the reach of social protection programs tied with formal sector employment The programs have also promoted equality of gender since they provide larger funds to girls given that it is common that they tend to drop out earlier from school, so this has increased their enrollment and attendance to secondary levels of education.In the long run, these investments may also yield to significant changes in women’s empowerment and insertion in economic networks. However, it has been critiqued that these programs do not serve the needs of other marginalized groups, such as some indigenous people and poor families living in certain rural areas, since they live too far away from schools and health centers to effectively comply with the program conditions

More recent pilot adaptations are testing CCTs in a diverse range of settings including a growing list of low income countries, urban settings, and for more specialized purposes.

CCT Programs are efficient tools for reducing poverty and inequality but only in the short term. Hence, it is important that these programs are coordinated with other social programs in ortder to strengthen synergies in poverty alleviation.The progrmas should be linked with programs that support labor market insertion and employment to provide incentives for graduation and opportunities for moving out of poverty. For example, Chile’s Programa Puente targets the 100,000 poorest and most excluded families in urban areas and provides beneficiaries with the support of a social worker for two years. While the monetary value of the transfer is relatively low (US$ 22 PPP 2003 per family per month), the program aims at inserting families into the wider safety net through a tailored plan of conditionalities. Similarly, Bolsa-Família in Brazil seeks to promote local synergies by linking the beneficiaries to preferential housing, micro-credit and local business development, and Oportunidades in Mexico piloted various expansions to the basic program through the Plataforma Oportunidades – albeit with limited success to date,-- as well as credits for secondary school graduates that can be used for micro-enterprise, further education or housing.

Common interventions

Common interventions

The Primary Education Stipend Program, a cash transfer program in Bangladesh

Cash transfers are defined as the provision of assistance in the form of cash to the poor or to those who face a probable risk of falling into poverty in the absence of the transfer. The main objective of these programs is to increase poor and vulnerable households' real income.^[1] The growing use of cash transfers is driven significantly by improvement in their design and implementation. Some critical issues include targeting methods, payment modalities, and institutional arrangement.

Types of cash transfer include:

• Needs-based assistance programs are mostly benefits which may either be a periodic or an occasional transfer, and may either be flat or can vary depending on the beneficiary’s resources and size. They can be found in areas as different as Eastern Europe, Mozambique and Zambia in Sub-Saharan Africa, and in Pakistan in South Asia.^[5]

• Family allowances may be a categorical or a benefit – regular or occasional – paid to families with children under a certain age. Transfers can be in the form of subsidies on school uniforms or children’s goods.

General overview

General overview

Safety nets are part of a broader poverty reduction strategy interacting with and working alongside of social insurance; health, education, and financial services; the provision of utilities and roads; and other policies aimed at reducing poverty and managing risk.

Safety net programs can play four roles in development policy:-

• Safety nets redistribute income to the poorest and most vulnerable, with an immediate impact on poverty and inequality
• Safety nets enable households to make productive investments in their future that they may otherwise miss, e.g. education, health, income generating opportunities
• Safety nets help households manage risk, at least offsetting harmful coping strategies and at most providing an insurance function which improves livelihood options
• Safety nets allow governments to make choices that support efficiency and growth^[1]

The safety net as a whole should provide coverage to three rather different groups:-

The chronic poor

Even in "good times" these households are poor. They have limited access to income and the instruments to manage risk, and even small reductions in income can have dire consequences for them.

The transient poor

This group lives near the poverty line, and may fall into poverty when an individual household or the economy as a whole faces hard times.

Those with special circumstances

Sub-groups of the population for whom general stability and prosperity alone will not be sufficient. Their vulnerability may stem from disability, discrimination due to ethnicity, displacement due to conflict, "social pathologies" of drug and alcohol abuse, domestic violence, or crime. These groups may need special programs to help them attain a sufficient standard of well-being.

Figure A: Processes and Stakeholders Involved in a Safety Net Program

The effectiveness of a safety net intervention lies in the details of the implementation process and stakeholders’ involvement therein (Figure A). An adequate transfer program incorporates at least a system to target beneficiaries, to register them, to set up program conditionalities, to make payments, and to monitor and evaluate its performance. Moreover, a stakeholders’ strategy that clearly assigns specific tasks and responsibilities for each agent is critical for program success. It is important to acknowledge that every intervention is unique in its complexity, needs to be adapted to local circumstances, and requires a fluent communication mechanism and a solid data process system.

Social safety net

Social Safety Nets, or "socioeconomic safety nets", are non-contributory transfer programs seeking to prevent the poor or those vulnerable to shocks and from falling below a certain level. Safety net programs can be provided by the public sector ( and aid donors) or by the private sector ( , private firms, , and informal household transfers). Safety net transfers include:

• Cash transfers
• Food-based programs such as supplementary feeding programs and food stamps, vouchers, and coupons
• In-kind transfers such as school supplies and uniforms
• Conditional cash transfers
• Price subsidies for food, electricity, or
  
• Public works
• Fee waivers and exemptions for health care, schooling and utilities

On average, spending on safety nets accounts for 1 to 2 percent of GDP across developing and transition countries, though sometimes much less or much more. In the last decade, a visible growing expertise in various areas of safety nets has taken place. However, even though an increasing number of safety net programs are extremely well thought out, correctly implemented, and demonstrably effective, many others face – and create – serious challenges.

National Insurance number

National Insurance number

In order to administer the National Insurance system, a National Insurance number is allocated to every child in the United Kingdom shortly before their 16th birthday. A number is also given to younger children for whom Child Benefit is paid. People coming from overseas have to apply for an NI number before they can work in the UK. The number is in the format: two letters, six digits, and one further letter or a space. The example used is typically AB123456C. It is usual to pair off the digits - such separators are seen on forms used by government departments (both internal and external, notably the and P60)।

National Insurance and PAYE Service

National Insurance contributions for all UK residents and some non-residents are recorded using the NPS computer system (National Insurance and PAYE Service).

The original National Insurance Recording System (NIRS) was a more archaic system first used in 1975 without direct user access to its records. A civil servant working within the Contributions Office (NICO) would have to request paper printouts of an individual's account which could take up to two weeks to arrive. New information to be added to the account would be sent to specialised data entry operatives on paper to be input into NIRS.

NIRS/2, introduced in 1996, was a large and complex computer system which comprised several applications. These included individual applications to access or update an individual National Insurance account, to view employer's National Insurance schemes and a general work management application. There was some controversy regarding the NIRS/2 system from its inception when problems with the new system attracted widespread media coverage. Due to these computer problems, , which had been sent out on an annual basis prior to 1996, stopped being issued. The took several years to clear the backlog.

In June 2009, HM Revenue & Customs created a new National Insurance and PAYE Service (NPS) to replace both NIRS/2 and the legacy PAYE system.

From April 2010 only 30 years' contributions will be required in order to receive the maximum state pension (age retirement) instead of the previously required 44 years for men and 39 years for women. Care should be taken when receiving a deficiency notice if due to reach retirement age after April 2010. However, the previous higher age limit still applies for claiming

NIC credits

NIC credits

People who are unable to work for some reason may be able to claim NIC credits (technically credited earnings, since 1987^[6]). These are equivalent to Class 1 NICs, though are not paid for. They are granted either to maintain a contributions record while not working, or to those applying for benefits whose contribution record is only slightly short of the requirements for those benefits. In the latter case, they are unavailable to fill "gaps" in past years in contribution records for some benefits.

As indicated above, the rates at which an individual and their employer pay contributions depend on a number of factors. Consequently there are many possible sets of employer/employee contribution rates to allow for all combinations of the various factors. HMRC allocate a letter of the alphabet, referred to as an 'NI Table Letter', to each of these sets of contribution rates. The complexity of the system is such that 21 of the 26 letters of the alphabet are currently in use for this purpose. Each tax year, HMRC publish look-up tables for each table letter to assist with manual calculation of contributions, though these days most of the calculations are done by computer systems.

Employers are responsible for allocating the correct table letter (sometimes also referred to as an 'NI category') to each employee depending on their particular circumstances। This then defines the rates of employee and employer contribution which apply.

Contribution classes

Contribution classes

National insurance contributions (NICs) fall into a number of classes. Class 1, 2 and 3 NICs paid are credited to an individual's NI account, which determines eligibility for certain benefits - including the state pension. Class 1A, 1B and 4 NIC do not count towards benefit entitlements but must still be paid if due.

Class 1

Class 1 contributions are paid by employers and their employees. In law, the employee contribution is referred to as the 'primary' contribution and the employer contribution as the 'secondary', but they are usually referred to simply as employee and employer contributions.

The employee contribution is deducted from gross wages by the employer, with no action required by the employee. The employer then adds in their own contribution and remits the total to HMRC along with income tax.

There are three milestone figures which determine the rate of NICs to be paid: Lower Earnings Limit (LEL), Earnings Threshold (ET) and Upper Earnings Limit (UEL). In this context "earnings" refers to an employee's wage or salary. The cash value of each of these limits changes each year, either in line with inflation or by some other amount decided by the Chancellor.

• Below the LEL, no NICs are paid because no benefits can accrue on earnings below this limit.
• On earnings above the LEL and below the ET, contributions are not paid but are credited by the government as if they were. This effectively assists the working poor to get benefits. Additionally, where the employee and employer contribute to certain types of occupational pension scheme, there is a negative contribution rate on earnings in this band - this 'rebate' can be offset against contributions in other earnings bands.
• On salaries between the ET and the UEL, NICs are collected at a rate which is determined by a number of factors:
  • The type of occupational pension scheme (if any) to which the employee and employer make contributions
  • Whether the employee has reached the age at which state retirement pension becomes payable
  • Whether the employee is a married woman paying reduced-rate contributions. This facility was abolished on 11 May 1977 but women who were already paying these contributions at that time were allowed to opt to continue to do so for as long as they remained married.
  • Whether the employee is an ocean-going mariner or deep-sea fisherman
• On the portion above the UEL there are again various rates, depending on similar factors to those relating to the previous earnings band, with the exception that the type of pension scheme no longer has a bearing.

Unlike income tax the limits for class 1 NICs for ordinary employees are calculated on a periodic basis, usually weekly or monthly depending on how the employee is paid. However those for company directors are always calculated on an annual basis, to ensure that the correct level of NICs are collected regardless of how often the director chooses to be paid.

In the March 2011 Budget, the Chancellor announced that in future, employee NI thresholds will be indexed to inflation using the , while employer thresholds remain indexed using the

Initially, the most important contributory

Initially, the most important contributory benefits With the introduction of employer deduction (Pay-As-You-Earn or ), employees' National Insurance contributions were collected along with . This replaced the old system of purchasing a contribution certificate or stamp, but for many years some older Britons continued to describe making NI contributions as paying their stamp.

As the system developed, the link between individual contributions and benefits was weakened. The is still nominally , and national insurance payments cannot be used to fund general government spending, although as much of the fund is invested in government securities it is available for borrowing by the government for spending on capital projects, such as schools and hospitals. National Insurance contributions are paid into the various classes of National Insurance after deduction of monies specifically allocated to the (NHS). However a small percentage is transferred from the fund to the NHS from certain of the smaller sub-classes. Thus the NHS is partially funded from NI contributions but not from the NI Fund.

Recent developments of the system have meant that National Insurance provides a significant part of the government's revenue (£90 billion in 2006-2007, approximately 17% of total government receipts). At the same time it has become more redistributive as its structure has changed to remove the fixed upper contribution limits, albeit with a much lower rate payable by employees on income above a certain level. It has been mooted that the link between individual's contribution record and the remaining contributory benefits will be weakened further.

In the early twenty-first century, governments sometimes announced that income tax rates had not increased, while increasing revenue by increasing the rates and scope of NI. The unfairness of a tax that is levied on the wage income of all workers but not on dividend or interest income has also been criticised: a low-paid worker must pay NI on his income, while a wealthy owner of income-bearing assets does not.

In the March 2011 Budget, the Chancellor announced a consultation on the operational integration of the NI contributions and income tax systems. However, the options to be considered do not include extension of NI contributions to other forms of income such as pensions, dividends and savings.

National Insurance

National Insurance (NI) in the was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits.^[1] It was first introduced by the , and expanded by the government of in 1946.

The contributions component of the system consists of mandatory contributions, National Insurance Contributions (NICs), paid by employees and employers on earnings, and by employers on certain benefits-in-kind provided to employees. The self-employed contribute based upon net earnings. Individuals may also make voluntary contributions, in order to to fill a gap in their contributions record.

The benefit component comprises a number of contributory benefits of availability and amount determined by the claimant's contribution record. Weekly income benefits and some lump-sum benefits to participants upon death, retirement, unemployment, maternity and disability are provided.

Closed community self-insurance

Closed community self-insurance

Some communities prefer to create virtual insurance amongst themselves by other means than contractual risk transfer, which assigns explicit numerical values to risk. A number of groups, including the and some groups, depend on support provided by their when strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the of explicit insurance contracts.

In the , (which, for practical purposes, meant the ) did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether.

Insurance financing vehicles

Insurance financing vehicles

• Fraternal insurance is provided on a cooperative basis by or other social organizations.
  
• is a type of insurance policy (typically automobile insurance) where insureds are indemnified by their own insurer regardless of fault in the incident.
• Protected self-insurance is an alternative risk financing mechanism in which an organization retains the mathematically calculated cost of risk within the organization and transfers the catastrophic risk with specific and aggregate limits to an insurer so the maximum total cost of the program is known. A properly designed and underwritten Protected Self-Insurance Program reduces and stabilizes the cost of insurance and provides valuable risk management information.
• Retrospectively-rated insurance is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based partially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract. Formula: retrospective premium = converted loss + basic premium × tax multiplier. Numerous variations of this formula have been developed and are in use.
• Formal self insurance is the deliberate decision to pay for otherwise insurable losses out of one's own money. This can be done on a formal basis by establishing a separate fund into which funds are deposited on a periodic basis, or by simply forgoing the purchase of available insurance and paying out-of-pocket. Self insurance is usually used to pay for high-frequency, low-severity losses. Such losses, if covered by conventional insurance, mean having to pay a premium that includes loadings for the company's general expenses, cost of putting the policy on the books, acquisition expenses, premium taxes, and contingencies. While this is true for all insurance, for small, frequent losses the transaction costs may exceed the benefit of volatility reduction that insurance otherwise affords.
• is a type of insurance purchased by insurance companies or self-insured employers to protect against unexpected losses. is a form of reinsurance that is primarily used for capital management rather than to transfer insurance risk.
• can be many things to many people in many countries. But a summary of its essence is that it is a collection of insurance coverages (including components of life insurance, disability income insurance, unemployment insurance, health insurance, and others), plus retirement savings, that requires participation by all citizens. By forcing everyone in society to be a policyholder and pay premiums, it ensures that everyone can become a claimant when or if he/she needs to. Along the way this inevitably becomes related to other concepts such as the justice system and the . This is a large, complicated topic that engenders tremendous debate

Other types

• All-risk insurance is an insurance that covers a wide-range of incidents and perils, except those noted in the policy. All-risk insurance is different from peril-specific insurance that cover losses from only those perils listed in the policy. In , all-risk policy includes also the damages caused by the own driver.

High-value horses may be insured under a bloodstock policy

• Bloodstock insurance covers individual horses or a number of horses under common ownership. Coverage is typically for mortality as a result of accident, illness or disease but may extend to include infertility, in-transit loss, veterinary fees, and prospective foal.
• covers the loss of income, and the expenses incurred, after a covered peril interrupts normal business operations.
• (CPI) insures property (primarily vehicles) held as collateral for loans made by lending institutions.
• (DBA) insurance provides coverage for civilian workers hired by the government to perform contracts outside the U.S. and Canada. DBA is required for all U.S. citizens, U.S. residents, U.S. Green Card holders, and all employees or subcontractors hired on overseas government contracts. Depending on the country, foreign nationals must also be covered under DBA. This coverage typically includes expenses related to medical treatment and loss of wages, as well as disability and death benefits.
• provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits.
• is designed to protect individuals and corporations operating in high-risk areas around the world against the perils of kidnap, extortion, wrongful detention and hijacking.
• covers policyholders for the potential costs of legal action against an institution or an individual. When something happens which triggers the need for legal action, it is known as "the event". There are two main types of legal expenses insurance: and insurance.
• is a little-known hybrid insurance policy jointly issued by governments and banks. It is used to protect public funds from tamper by unauthorized parties. In special cases, a government may authorize its use in protecting semi-private funds which are liable to tamper. The terms of this type of insurance are usually very strict. Therefore it is used only in extreme cases where maximum security of funds is required.
• insurance is a specialist policy provided to, for example, commercial or hobby farms, aquariums, fish farms or any other animal holding. Cover is available for mortality or economic slaughter as a result of accident, illness or disease but can extend to include destruction by government order.

• Media liability insurance is designed to cover professionals that engage in film and television production and print, against risks such as .
• Nuclear incident insurance covers damages resulting from an and is generally arranged at the national level. (See the and for the U.S. the .)
• insures pets against accidents and illnesses; some companies cover routine/wellness care and burial, as well.
• Pollution insurance usually takes the form of first-party coverage for contamination of insured property either by external or on-site sources. Coverage is also afforded for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically excluded.
• Purchase insurance is aimed at providing protection on the products people purchase. Purchase insurance can cover individual purchase protection, , , care plans and even mobile . Such insurance is normally very limited in the scope of problems that are covered by the policy.
• provides a guarantee that title to is vested in the purchaser and/or , free and clear of or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a transaction.
• is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, loss of personal belongings, travel delay, and personal liabilities.

Liability insurance

Liability insurance

Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property. The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the negligence of the insured, and will not apply to results of wilful or intentional acts by the insured.

The subprime mortgage crisis was the source of many liability insurance losses

• insurance covers a business or organization against claims should its operations injure a member of the public or damage their property in some way.
• (D&O) protects an organization (usually a corporation) from costs associated with litigation resulting from errors made by directors and officers for which they are liable.
• Environmental liability insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of pollutants.
• is business liability insurance for professionals such as insurance agents, real estate agents and brokers, architects, third-party administrators (TPAs) and other business professionals.
• protects the insured from giving away a large prize at a specific event. Examples would include offering prizes to contestants who can make a half-court shot at a game, or a at a tournament.
• , also called (PI), protects insured professionals such as architectural corporations and medical practictioners against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called medical malpractice insurance.

Property insurance

Property insurance provides protection against risks to property, such as , or damage. This may include specialized forms of insurance such as fire insurance, , , , inland marine insurance or . The term property insurance may, like casualty insurance, be used as a broad category of various subtypes of insurance, some of which are listed below:

was after ditching into the

• protects hulls and spares, and associated liability risks, such as passenger and third-party liability. may also appear under this subcategory, including air traffic control and refuelling operations for international airports through to smaller domestic exposures.

• (also known as boiler and machinery insurance, or equipment breakdown insurance) insures against accidental physical damage to boilers, equipment or machinery.

• insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage arising from any cause (including the negligence of the insured) not otherwise expressly excluded. Builder's risk insurance is coverage that protects a person's or organization's insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from an insured peril.
  

• may be purchased by farmers to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease.
  

• is a form of property insurance that pays the policyholder in the event of an that causes damage to the property. Most ordinary home insurance policies do not cover earthquake damage. Earthquake insurance policies generally feature a high . Rates depend on location and hence the likelihood of an earthquake, as well as the .

• is a form of casualty insurance that covers policyholders for losses incurred as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.

Hurricane Katrina caused over $80bn of storm and flood damage

• protects against property loss due to flooding. Many insurers in the U.S. do not provide flood insurance in some parts of the country. In response to this, the federal government created the which serves as the insurer of last resort.

• , also commonly called hazard insurance, or homeowners insurance (often abbreviated in the real estate industry as HOI), is the type of property insurance that covers private homes, as outlined above.

• covers residential and commercial properties which are rented to others. Most homeowners' insurance covers only owner-occupied homes.

Fire aboard

• Marine insurance and marine cargo insurance cover the loss or damage of vessels at sea or on inland waterways, and of cargo in transit, regardless of the method of transit. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss.

• Supplemental natural disaster insurance covers specified expenses after a natural disaster renders the policyholder's home uninhabitable. Periodic payments are made directly to the insured until the home is rebuilt or a specified time period has elapsed.

• insurance is a three-party insurance guaranteeing the performance of the principal.

The demand for terrorism insurance surged after

• provides protection against any loss or damage caused by activities. In the U.S. in the wake of , the 2002 (TRIA) set up a federal Program providing a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism. The program was extended until the end of 2014 by the Terrorism Risk Insurance Program Reauthorization Act 2007 (TRIPRA).

• Volcano insurance is a specialized insurance protecting against damage arising specifically from .

• Windstorm insurance is an insurance covering the damage that can be caused by wind events such as .