SIC 6311 Life Insurance

SIC 6311

This classification provides coverage of establishments primarily engaged in underwriting life insurance. These establishments are operated by enterprises that may be owned by stockholders, policyholders, or other carriers.

NAICS CODE(S)

524113

Direct Life Insurance Carriers

524130

Reinsurance Carriers

INDUSTRY SNAPSHOT

The insurance industry in America, particularly the life insurance industry, is considered a pillar of the economy, with assets of $4.16 trillion in 2004. Tied as it is to the public interest, the life insurance industry has been subject to governmental scrutiny and legislation almost since its inception more than two centuries ago. Over 1,400 companies underwrote life insurance and annuities in the mid-2000s, with gross premiums for all insurance types totaling more than $1 trillion in the mid-2000s. Of that total, life and health insurance accounted for roughly 47 percent, with the remainder primarily dedicated to property/casualty and managed health care.

ORGANIZATION AND STRUCTURE

Although insurance companies may operate according to similar principles, the life insurance industry is hardly homogeneous. Companies do not charge the same amount for premiums, do not charge for expenses the same way, do not pay the same amount of commission to sales agents, do not provide the same kind or amount of training, do not sell the same products, and are not equally solvent. The one commonality throughout the industry is that licensed life insurance salespeople act as agents for their companies. These agents write several different kinds of life products, or policies, that the company offers.

Companies usually have a number of field offices, or branches. Large insurance organizations strategically place these around the country so that agents may market to as many potential clients as possible. Agents order or issue policies, collect premiums, renew and change existing coverage, and help clients with questions or problems related to coverage. Many agents who begin by working for large life insurance organizations, branch out on their own and become independent agents. They will often continue to retain the company for which they worked, to underwrite the policies they sell.

Nearly all life insurance is issued by either mutual or stock life insurance companies. Mutuals have no stockholders, only policyholders, and the policyholders elect the board of directors who run the company. In this way, mutual policyholders participate in the fiscal management of the company and share in decisions regarding mortality expense, overhead costs, and investment rate of return. In the mid-2000s over 60 percent of life insurance assets, equaling $2.2 trillion, was held in long-term bonds, mortgages, real estate, and other long-term investments.

There are four major categories of life insurance: ordinary, group, industrial, and credit. By the mid-2000s, many different variations of ordinary life insurance were on the market; however, ordinary life can be broadly divided into two types: term and whole life. Term life is purchased for a specific "term" and pays if the investors dies during that term. Term life, which is commonly purchased as a death benefit, is usually one of the least costly life insurance options. Whole life insurance, on the other hand, provides ongoing savings and accrues value as long as the investor continues to pay the premium.

Group life insurance is term life insurance that covers a particular group of people (e.g., employee group, union or association members). Normally, physical exam or individual proof of insurability is not required. Instead, the underwriter bases the policy price on factors such as group size, financial strength of the organization, and turnover. Industrial insurance is low-value life insurance, usually under $1,000, with more frequent premium payments, usually weekly or biweekly collected by an agent at the home of the insured. Industrial insurance is also referred to as debit insurance or burial insurance as it is designed to cover burial costs. Credit life insurance is commonly purchased by mortgage providers to cover the amount of the loan to ensure its payment in full in the event that the borrower dies.

Half of all full-time workers in commerce and industry in the United States are enrolled in retirement plans other than Social Security. Private pension plans are established by private agencies such as commercial, industrial, labor and service organizations, and nonprofit organizations. Individual Retirement Accounts (IRAs) are set up by individuals. Pension plans can be administered by the holder of the plan, placed with banks or trust companies, or insured with life insurance companies.

BACKGROUND AND DEVELOPMENT

Life insurance companies in the United States can be traced back to 1759, when "The Corporation for Relief of Poor and Distressed Presbyterian Ministers and of the Poor and Distressed Widows and Children of Presbyterian Ministers" was founded by the Synod of the Presbyterian Church. The oldest insurance company in the world, the firm is still fully operational as the Presbyterian Ministers' Fund. The industry began to take on a more formal, mathematics-based foundation when, in 1789, Professor Edward Wigglesworth at Harvard prepared a modified table of mortality. This was the first crude attempt to predict scientifically the probability of risk, or to compute premiums and reserves on a scientific basis. Comparing the probability of risk to revenues generated from policy sales and the size of claim settlements has been the formula the industry has relied on to establish itself as a viable business.

In 1794, the Insurance Company of North America became the first general insurance company to sell life insurance in the nation, but the company sold only six policies and discontinued its operations in 1804...