So, what is insurance?
A team of researchers led by Orice Williams, a director at the U.S. Government Accountability Office, has prepared a report to help members of the U.S. House Financial Services Committee wrestle with that question as they draft financial services reform bills.
The researchers spent 12 months analyzing the definition of insurance by poring over documents from academic journals, accounting boards, industry associations, federal securities regulators, state insurance regulations and the National Association of Insurance Commissioners, Kansas City, Mo.
Distinguishing between insurance and noninsurance products – such as genuine finite reinsurance contracts and contracts that simply transfer financial risk – can be important in areas such as tax accounting and preparing corporate financial reports, Williams writes.
“We found there is no single, universal definition of insurance,” Williams writes. “However, we identified certain key elements of risk transfer or risk spreading that were common among the varying definitions.”
Williams says elements commonly included in definitions of insurance include indemnification; the ability to make reasonable estimates of future losses; the ability to expresses losses in definite monetary amounts; and the possibility of adverse, random events occurring outside the control of the insured.