What is Property / Casualty Insurance?

Property-casualty insurance traces its modern history back to marine insurance in the late Middle Ages. With an increase in maritime trading, merchants and bankers became concerned about the safety of shipments due to piracy, storms, and other perils. The bankers provided guarantees against loss; in return, merchants paid the bankers a fee for this protection.

Fire insurance, and what became the modern insurance industry, developed primarily in England after the Great London Fire in 1666. The U.S. property-casualty insurance market evolved from British practices, with the first U.S. fire insurer started by Benjamin Franklin in 1752. By the early 1900s, many major types (or “lines”) of insurance we know today had developed.

Today, this segment of the insurance industry provides protection from risk in two basic areas: protection for physical items, such as houses, personal possessions, cars, commercial buildings, and inventory (property), and protection against legal liability (casualty).

Property insurance is a “first-party” coverage. It provides for losses related to a policyholder’s own person / property. Casualty/Liability insurance is a “third-party” coverage. It provides protection for a policyholder against the claims of others.

These two basic types of coverage are written for both individuals or families (“personal lines” policies) and businesses (“commercial lines” policies). Personal lines policies include homeowners insurance, renters insurance, and vehicle coverage. For example, homeowners policies cover both fire Origins and Types damage to a house and/or contents, plus legal defense costs and liabilities should a person be injured on the policyholder’s property.

Commercial lines products are written for businesses and other organizations (churches, schools, cities, non-profits), and include packages such as “Business Owners Policies” as well as commercial general liability, workers’ compensation, commercial property, and product liability insurance.
Commercial property policies cover buildings and the organization’s property. It may include coverage known as “business interruption,” designed to help a company with business losses that result from a covered risk to property.

Commercial liability policies protect policyholders against financial responsibility for injury or property damage resulting from a policyholder’s premises, products, services, or other operations. One example of commercial casualty coverage is workers’ compensation, which deals with lost earnings and medical expenses of employees injured on the job.

The specific scope and limits of coverage in all of these examples is spelled out by an individual insurance policy. Interestingly, today’s insurance policy-related transactions still look much like those of prior centuries – the insurance underwriter reviews a particular risk and determines whether, and on what terms, to provide insurance coverage.

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Property-casualty insurance is heavily regulated at the state level. Generally speaking, state regulators have oversight of market conduct; insurance company and agent licensing; insurance rates; policy language; financial condition (solvency) of insurance companies; and, consumer protection in insurance transactions.

Ideally, regulators focus their resources on making sure that insurance rates are adequate to cover losses, so that insurance companies are in sound financial condition and able to pay covered claims in full. Another key regulatory duty is to make sure that insurers remain solvent, i.e., that they maintain enough capital to pay policyholder losses as they come due.

States also have laws in place to protect insurance consumers, such as Unfair Trade Practices Acts (which prohibit coercion of consumers during the sales process) and Unfair Claims Practices Acts (which provides additional protection to claimants). Regulators (whose titles range from commissioner to superintendent to director) in every state and in the District of Columbia administer insurance laws for their jurisdictions. The vast majority of insurance regulators are appointed; in about a dozen states, insurance regulators are elected to office. All states provide a mechanism, or “residual market,” for relatively high-risk individuals or businesses who seek insurance from the private market, but are unable to find it. For example, high-risk drivers who are required to carry liability insurance by state law, but cannot obtain auto insurance in the regular or “voluntary,” market can go to their state’s residual market for coverage. All insurers licensed in the state must participate in the residual markets for their particular lines of coverage, whether that is auto insurance, property insurance, or workers’ compensation.

A few federal insurance programs either directly provide or enable private sector provision of property-casualty coverage. These include the National Flood Insurance Program (private insurers sell coverage and adjust claims; but coverage is underwritten and claims are paid wholly by the government); the Overseas Private Investment Corporation (provides political risk coverage for U.S. businesses with operations overseas); the Terrorism Risk Insurance Act program (a public-private risk-sharing mechanism for catastrophic terrorist attacks); and the Federal Crop Insurance
Corporation (federally reinsured coverage against adverse weather, plant diseases, and insect infestations).weather, plant diseases, and insect infestations).

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