Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions

Chapter 9Life and Health Insurance

This chapter outlines the “rules of the game” (or generic strategies) and core competencies for creating value in LH insurance, beginning with a brief history and the economic rationale for the LH insurance industry.

History and Economic Rationale

Life and health insurance helps individuals to meet the challenges of three distinct “life events.”

• By providing protection or indemnification in the event of illness, disability or death (“protection products”).
• By facilitating savings and asset accumulation, predominantly in preparation for retirement but also for major expenses such as children's college education (“savings” or asset accumulation products).
• By providing a steady and predictable income after retirement over the individual's remaining lifetime (“annuities” or decumulation products).

While protection products emerged very early, retirement and savings products represent a relatively more recent development.

History of Protection Business¹

Protection products provide support in the event of death (mortality), illness (health) or disability (morbidity), all of which can generate unexpected expenses or loss in income.

Similar to property and casualty insurance, the roots of protection products can be traced to social arrangements common in early societies prior to 2000 BC. These arrangements took the form of implicit or explicit commitments by a group to support its members or their survivors in the event of death or illness. As a ...