Insurance is about understanding, mitigating, reducing and transferring risk away from a client. There are an enormous number of different kinds of insurance, from simple travel insurance to complex corporate kidnap and ransom protection policies. Providing it is a huge global business.
Caspar Bartington is a relationship manager at the Chartered Insurance Institute (CII), the premier professional organisation in the insurance industry, and we decided to bend his ear to find out more about this sector and its importance in the world's economy.
How does insurance work?
Insurance policies protect those who take them out against the risk of loss. For instance, if your house burns down, you'll receive an insurance payout covering its value, provided the insurance policy taken out covers the causes of the loss. Similarly, if the roof of a concert hall collapses, injuring many people, then the proprietors will hope that their insurance policy covers them against the damages which are likely to be sought by the injured parties, as well as the loss of revenue from future cancelled concerts (this is known as business interruption).
Clients, who can be individuals or organisations, pay premiums to their insurance company, either directly or via a broker, in order to be eligible for any potential payouts. The insurance company pools these payments and invests them to provide the funds they'll need to cover the cost of any claims. In fact, insurance companies are some of the largest investors in the stock markets. They also purchase their own insurance to ensure they can do so, a process known as reinsurance
Why is insurance important?
The world as we know it would struggle to function without insurance. People are mistaken when they think insurance is only about cars, homes and holidays. In fact, it's about everything that surrounds us.
Consider the biggest event of the year: London 2012. If there wasn't any insurance, the Olympic Games simply wouldn't have happened. The athletes couldn't have flown in from all over the world. Nobody would have been able to set up a food stall. Why? Because each of these stakeholders would have been reluctant to get involved without insurance policies covering them against the risk of loss (the food vendors against being sued, the broadcasters against loss of earnings had rain stopped proceedings, and so on). The Olympics was like the world in microcosm: dependent on insurance and insurers.
What kind of careers are available in insurance?
Four of the most important areas of technical insurance work are underwriting, brokering, claims and loss adjusting. But don't overlook the other roles that exist, from IT specialists to catastrophe modellers.
An underwriter is a risk professional who works in an insurance company and decides whether or not to accept a risk, at what price, and on what terms. When presented with a risk, they have three choices: to accept it in its entirety, to reject it outright, or to accept part of the risk - for instance, when a risk runs into hundreds of millions of pounds.
Brokers bring the client's potential business to the underwriter, and they act as the intermediary between client and insurer. Brokers first talk to clients and help them to reduce their risk profile - which may be as simple as recommending that they install smoke alarms, or as complex as studying political risk trends. The higher the risk, the more costly the insurance policy. Once the broker has tried to minimise the client's risk profile, they present it to underwriters and negotiate the best deal possible for their client.
Assessing claims can be a complex area of insurance: it's not always as simple as when someone seeks an insurance payout after denting their car. Claims made by large commercial clients can take years to resolve. For example, some of the post-9/11 health-related claims took nearly ten years.
Why should students join the insurance industry?
Insurance has always been one of the most robust parts of the financial sector. It's stable and scandal-free. Our business is managing risk, and you can see that in how the profession is run. It's a mentality that helps to ensure job security for those working in the sector.
The sheer size and scope of the sector means there's a massive amount of opportunity. We work in all markets, mature and emerging, so a career in insurance can, quite literally, take you places - lots of people in the industry spend time in international offices, even as part of a graduate scheme.
What role does CII play in the insurance industry?
We're the world's biggest professional body for insurance and financial services, with just under 110,000 members across 150 countries. We deliver and design globally-recognised qualifications for those working in the insurance profession. We also provide excellent networking opportunities, wherever you are.
The CII's Discover membership scheme is exclusively for university students and costs just £35 per year. For that, students can plug into a ready-made network of insurance professionals and find out about job opportunities and summer internships. We organise on-campus events every year, at which we get former graduates who are now working in the sector to speak to undergraduates, offering advice and tips on getting a position. It's an incredibly powerful way of getting ahead in one of the UK's biggest and longest running success stories.
Unusual insurance policies
Alien abduction insurance
We've all heard about those pesky aliens dousing their abductees in alcohol to give the false impression they've been drinking heavily, so this one might be a bit hard for claimants to prove. But the 30,000 individuals who have taken out an alien abduction policy with insurance company Goodfellow Rebecca Ingrams Pearson can take comfort in the fact that they're not alone...
Three Lions insurance
Showing canny foresight, football fan Paul Hucker took out a £1 million policy before the 2002 World Cup to insure himself against any psychological trauma that it might trigger. The underwriters must have felt that the risk of him claiming wasn't too great. After all, surely 36 years of hurt is ample time to get used to the feeling?
If beauty is in the eye of the beholder, then who else would be better to behold it than ten independent brickies? When she took out a £1 million policy against becoming ugly, British woman Nicola Jones stipulated that, in the event that she made a claim, her appearance would be judged by a group of independent builders. Twit, and indeed, twoo.
Taste buds insurance
He's Costa Coffee's master taster and his nuanced tongue is so valuable that Gennaro Pelliccia has insured it to the tune of £10 million. Pelliccia samples every batch of raw beans the company produces at its London roastery, prior to roasting. Boffins at Lloyds List have worked out that, with the average tongue containing 10,000 taste buds, each of Pelliccia's are worth £1,000.