Sunday, June 12, 2011

Car and auto insurance

Economic essence of car and auto insurance is to provide insurance protection. Insurance coverage can be explained as a two-sided reaction of mankind to the possible hazards of natural, technological, economic, social, ecological and other descent. On the one hand, the insurance coverage is called the objective need of individuals and corporate clients in preserving their property interests associated with different aspects of life. On the other hand, this need is accompanied by a corresponding ability of people to ensure these interests.

If the need for protection is generated by fear, and the ability to protect the knowledge because of this fear, the need for appropriate natural or monetary funds with which to ensure the safety of property, personal and other interests of the people, then we can say that will take effect the system of insurance protection.
Thus, insurance coverage can be defined as the perceived needs of individuals and entities in the creation of special insurance fund for the restoration of property, health, disability and personal income as the participants in the creation of these funds and third parties.
Social practices over a long period of time has developed three basic forms of car and auto insurance fund:
  1. Centralized insurance (reserve) funds created by budgetary and other public funds. The formation of these funds is carried out as in-kind and in cash. Public insurance (reserve) funds at the disposal of the government.
  2. Self as a system of creation and use of insurance funds, economic entities and individuals. These decentralized insurance funds are in-kind and cash. These funds are intended to overcome the temporary difficulties of a particular commodity or a human. The main source of decentralized insurance funds are proceeds of the enterprise or individual.
  3. Proper insurance as a system for creating and using the funds of insurance companies from premiums interested in insuring the parties. The use of these funds is carried out for compensation for consequential damages in accordance with the terms and conditions of insurance.
At present, substantially changes the relationship between the centralized and decentralized funds and specialized funds of car and auto insurance companies. Shift occurs in the direction of strengthening the role of insurance.
Thus, the economic essence of insurance is to create a cash fund by contributions from interested parties in the insurance, intended to redress the persons involved in the formation of these funds. Because the potential damage (or the insurance risk) is probabilistic in nature, there is a redistribution of the insurance fund in space and in time. We can say that reparations for victims is due to contributions from all those who participated in the formation of these insurance funds.

Friday, April 22, 2011

Car and Auto Insurance: AIG Insurance review

American International Group, Inc. (“AIG”) founded in 1919, is a holding company for numerous financial services business operating in over 130 countries. AIG owned and operated the largest collection of United States and foreign-based property-casualty insurance companies – offering coverage for both businesses and individuals. It also owned one of the largest US and foreign-based group of life insurance companies, and many retirement services and other financial services and asset management companies.

Until recently AIG was one of the largest, and was regarded as one of the strongest, insurance and financial services companies in the world. As it said with pride at page 13 of its 2005 Annual Report, “Because of our diverse business mix and substantial capital base, we are not overly dependent on or vulnerable to conditions in any single region or on a particular string of events.” It turns out that AIG was both arrogant and wrong.

As result of a series of incredibly bad bets – including its guaranteeing credit of hundreds of billions of dollars worth of mortgage bond-like securities -- AIG would have gone insolvent during the week of September 15, 2008. It was temporarily saved by an unprecedented Federal Government promise to infuse up to $85 Billion into AIG to give new management at AIG time to try to straighten out the situation.

Although each of the separate insurance companies that AIG controlled is separately regulated, and each is legally required to adhere to financial standards and solvency requirements of various insurance regulators on its own, the perceived strength of AIG itself bolstered the standing of each of the separate insurance companies.

The US-based AIG insurance companies were evaluated by the insurance rating agencies as a whole and the same rating was generally assigned to all companies in the AIG group, based on the implicit assumption that AIG would stand behind and support each of them should it need capital. Since AIG itself barely averted bankruptcy – and its future remains uncertain -- that assumption was unfounded.

The management of has no special insight into the financial condition of any of the AIG companies. However, given the numerous interrelationships between AIG and its subsidiaries, and the various arrangements amongst the subsidiaries, the possibility exists that AIG may have inappropriately allocated liabilities and/or certain assets amongst its insurance companies and this may create some risks to policyholders.