Japan’s Insurance Industry

During the heydays of the 80’s and the first half of 90’s, like rest of its economy, Japan’s insurance industry was growing as a juggernaut. The sheer volume of premium income and asset formation, sometimes comparable with even the mightiest U.S.A. and the limitation of domestic investment opportunity, led Japanese insurance firms to look outwards for investment. The industry’s position as a major international investor beginning in the 1980’s brought it under the scanner of analysts around the world.The global insurance giants tried to set a foothold in the market, eyeing the gargantuan size of the market. But the restrictive nature of Japanese insurance laws led to intense, sometimes acrimonious, negotiations between Washington and Tokyo in the mid-1990s. The bilateral and multilateral agreements that resulted coincided with Japan’s Big Bang financial reforms and deregulation.Building on the outcome of the 1994 US-Japan insurance talks, a series of liberalization and deregulation measures has since been implemented. But the deregulation process was very slow, and more often than not, very selective in protecting the domestic companies interest and market share. Although the Japanese economy was comparable with its counterpart in USA in size, the very basis of efficient financial markets – the sound rules and regulations for a competitive economic environment – were conspicuously absent. And its institutional structure was different, too, from the rest of the developed countries.The kieretsu structure – the corporate group with cross holdings in large number of companies in different industries – was a unique phenomenon in Japan. As a result, the necessary shareholder activism to force the companies to adopt optimal business strategy for the company was absent. Although initially touted as a model one in the days of Japan’s prosperity, the vulnerability of this system became too evident when the bubble of the economic boom went burst in the nineties. Also working against Japan was its inability to keep pace with the software development elsewhere in the world. Software was the engine of growth in the world economy in the last decade, and countries lagging in this field faced the sagging economies of the nineties.Japan, the world leader in the “brick and mortar” industries, surprisingly lagged far behind in the “New World” economy after the Internet revolution. Now Japan is calling the nineties a “lost decade” for its economy, which lost its sheen following 3 recessions in the last decade. Interest rates nose-dived to historic lows, to thwart the falling economy – in vain. For insurers, whose lifeline is the interest spread in their investment, this wreaked havoc. Quite a few large insurance companies went bankrupt in the face of “negative spread” and rising volume of non-performing assets. While Japanese insurers largely have escaped the scandals afflicting their brethren in the banking and securities industries, they are currently enduring unprecedented financial difficulties, including catastrophic bankruptcies.Institutional WeaknessesThe Japanese market is a gigantic one, yet it is comprised of only a few companies. Unlike its USA counterpart, in which around two thousand companies are fiercely competing in the life segment, Japan’s market is comprised of only twenty-nine companies classified as domestic and a handful of foreign entities. The same situation prevailed in the non-life sector with twenty-six domestic companies and thirty-one foreign firms offering their products. So, consumers have far fewer choices than their American counterparts in choosing their carrier. There is less variety also on the product side. Both the life and non-life insurers in Japan are characterized by “plain vanilla” offerings. This is more apparent in automobile insurance, where, until recently premiums were not permitted to reflect differential risk, such as, by gender, driving record etc. Drivers were classified in three age groups only for purposes of premium determination, whereas US rates long have reflected all these factors and others as well.The demand varies for different types of products, too. Japanese insurance products are more savings-oriented. Similarly, although many Japanese life insurance companies offer a few limited kinds of variable life policies (in which benefits reflect the value of the underlying financial assets held by the insurance company, thereby exposing the insured to market risk), there are few takers for such policies. At ¥100=$1.00, Japanese variable life policies in force as of March 31, 1996 had a value of only $7.5 billion, representing a scant 0.08 percent of all life insurance. By contrast, American variable life policies in force as of 1995 were worth $2.7 trillion, roughly 5 percent of the total, with many options, such as variable universal life, available.Japanese insurance companies in both parts of the industry have competed less than their American counterparts. In an environment where a few firms offer a limited number of products to a market in which new entry is closely regulated, implicit price coordination to restrain competition would be expected. However, factors peculiar to Japan further reduce rivalry.A lack of both price competition and product differentiation implies that an insurance company can grab a firm’s business and then keep it almost indefinitely. American analysts sometimes have noted that keiretsu (corporate group) ties are just such an excuse. A member of the Mitsubishi Group of companies, for example, ordinarily might shop around for the best deal on the hundreds or thousands of goods and services it buys. But in the case of non-life insurance, such comparative pricing would be futile, since all companies would offer much the same product at the same price. As a result, a Mitsubishi Group company, more often than not, gives business to Tokio Marine & Fire Insurance Co., Ltd., a member of the Mitsubishi keiretsu for decades.On paper, life insurance premiums have been more flexible. However, the government’s role looms large in this part of the industry as well – and in a way that affects the pricing of insurance products. The nation’s postal system operates, in addition to its enormous savings system, the postal life insurance system popularly known as Kampo. Transactions for Kampo are conducted at the windows of thousands of post offices. As of March 1995, Kampo had 84.1 million policies outstanding, or roughly one per household, and nearly 10 percent of the life insurance market, as measured by policies in force.Funds invested in Kampo mostly go into a huge fund called the Trust Fund, which, in turn, invests in several government financial institutions as well as numerous semipublic units that engage in a variety of activities associated with government, such as ports and highways. Although the Ministry of Posts and Telecommunications (MPT) has direct responsibility for Kampo, the Ministry of Finance runs the Trust Fund. Hence, theoretically MOF can exert influence over the returns Kampo is able to earn and, by extension, the premiums it is likely to charge.Kampo has a number of characteristics that influence its interaction with the private sector. As a government-run institution, it inarguably is less efficient, raising its costs, rendering it noncompetitive, and implying a declining market share over time. However, since Kampo cannot fail, it has a high risk-tolerance that ultimately could be borne by taxpayers. This implies an expanding market share to the extent that this postal life insurance system is able to underprice its products. While the growth scenario presumably is what MPT prefers, MOF seemingly is just as interested in protecting the insurance companies under its wing from “excessive” competition.The net effect of these conflicting incentives is that Kampo appears to restrain the premiums charged by insurers. If their prices go up excessively, then Kampo will capture additional share. In response, insurers may roll back premiums. Conversely, if returns on investments or greater efficiency reduce private-sector premiums relative to the underlying insurance, Kampo will lose market share unless it adjusts.Japan’s life insurance sector also lags behind its American counterpart in formulating inter-company cooperative approaches against the threats of anti-selection and fraudulent activities by individuals. Although the number of companies is far lower in Japan, distrust and disunity among them resulted in isolated approaches in dealing with these threats. In USA, the existence of sector sponsored entities like Medical Information Bureau (MIB) acts as a first line of defense against frauds and in turn saves the industry around $1 Billion a year in terms protective value and sentinel effect. Off late, major Japanese carriers are initiating approaches similar to formation of common data warehousing and data sharing.Analysts often complain against insurance companies for their reluctance to adhere to prudent international norms regarding disclosure of their financial data to the investment community and their policyholders. This is particularly true because of the mutual characteristic of the companies as compared with their “public” counterpart in US. For example, Nissan Mutual Life Insurance Co., failed in 1997, generally reported net assets and profits in recent years, even though the company’s president conceded after its failure that the firm had been insolvent for years.Foreign Participation in Life InsuranceSince February 1973, when the American Life Insurance Company (ALICO) first went to Japan to participate in the market, fifteen foreign life insurance companies (with more than 50% foreign capital) are currently in business. However, companies like American Family Life (AFLAC) were initially permitted to operate only in the third sector, namely the Medical Supplement Area, like critical illness plans and cancer plans, which were not attractive to Japanese insurance companies. The mainstream life insurance business was kept out of reach of foreign carriers. However, the big turmoil in the industry in the late nineties left many of the domestic companies in deep financial trouble. In their scurry for protection, Japan allowed foreign companies to acquire the ailing ones and keep them afloat.Foreign operators continue to enter the Japanese market. As one of the world’s top two life insurance markets, Japan is considered to be as strategically important as North America and the European Union. Consolidation in the Japanese life market, facilitated by the collapse of domestic insurers and by ongoing deregulation, is providing global insurers with prime opportunities to expand their business in Japan. The total market share of foreign players is gradually increasing, with global insurers accounting for over 5% in terms of premium incomes at the end of fiscal 1999 and over 6% of individual business in force. These figures are roughly two times higher than those five years earlier.In 2000, the AXA Group strengthened its base of operations in Japan through the acquisition of Nippon Dantai Life Insurance Co. Ltd, a second-tier domestic insurer with a weak financial profile. To this end, AXA formed the first holding company in the Japanese life sector. Aetna Life Insurance Co. followed suit, acquiring Heiwa Life Insurance Co., while Winterthur Group bought Nicos Life Insurance and Prudential UK bought Orico Life Insurance. Also newly active in the Japanese market are Hartford Life Insurance Co., a U.S.-based insurer well known for its variable insurance business, and France’s Cardiff Vie Assurance.In addition, Manulife Century, subsidiary of Manufacturers Life Insurance Company inherited the operations and assets of Daihyaku Mutual Life Insurance Co., which had failed in May 1999. In April 2001, AIG Life Insurance Co. assumed the operations of Chiyoda Life, and Prudential Life Insurance Co. Ltd. took over Kyoei Life. Both the Japanese companies filed for court protection last October.The foreign entrants bring with them reputations as part of international insurance groups, supported by favorable global track records and strong financial capacity. They are also free of the negative spreads that have plagued Japanese insurers for a decade. Foreign players are better positioned to optimize business opportunities despite turmoil in the market. Although several large Japanese insurers still dominate the market in terms of share, the dynamics are changing as existing business blocks shift from the domestic insurers, including failed companies, to the newcomers in line with policyholders’ flight to quality. The list of companies, with foreign participation, is the following:INA Himawari Life
Prudential Life
Manulife Century LifeSkandia Life
GE Edison Life
Aoba LifeAetna Heiwa Life
Nichidan Life
Zurich LifeALICO Japan
American Family Life
AXA Nichidan LifePrudential Life
ING Life
CARDIFF Assurance VieNICOS LifeForeign insurers are expected to be able to prevail over their domestic rivals to some extent in terms of innovative products and distribution, where they can draw on broader experience in global insurance markets. One immediate challenge for the foreign insurers will be how to establish a large enough franchise in Japan so that they can leverage these competitive advantages.What ails the life insurance industry?Apart from its own operational inefficiency, Japan’s life insurance sector is also a victim of government policies intended in part to rescue banks from financial distress. By keeping short-term interest rates low, the Bank of Japan encouraged in the mid-1990s a relatively wide spread between short-term rates and long-term rates. That benefited banks, which tend to pay short-term rates on their deposits and charge long-term rates on their loans.The same policy, however, was detrimental to life insurance companies. Their customers had locked in relatively high rates on typically long-term investment-type insurance policies. The drop in interest rates generally meant that returns on insurers’ assets fell. By late 1997 insurance company officials were reporting that guaranteed rates of return averaged 4 percent, while returns on a favored asset, long-term Japanese government bonds, hovered below 2 percent.Insurance companies cannot make up for a negative spread even with increased volume. In FY 1996 they tried to get out of their dilemma by cutting yields on pension-type investments, only to witness a massive outflow of money under their management to competitors.To add insult to injury, life insurance companies are shouldering part of the cost of cleaning up banks’ non-performing asset mess. Beginning in 1990, the Finance Ministry permitted the issuance of subordinated debt made to order for banks. They can count any funds raised through such instruments as part of their capital, thereby making it easier than otherwise to meet capital/asset ratio requirements in place. This treatment arguably makes sense, inasmuch as holders of such debt, like equity holders, stand almost last in line in the event of bankruptcy.Subordinated debt carries high rates of interest precisely because the risk of default is higher. In the early 1990s insurers, figuring bank defaults were next to impossible and tempted by the high returns available, lent large amounts to banks and other financial institutions on a subordinated basis. Smaller companies, perhaps out of eagerness to catch up with their larger counterparts, were especially big participants. Tokyo Mutual Life Insurance Co., which ranks 16th in Japan’s life insurance industry on the basis of assets, had roughly 8 percent of its assets as subordinated debt as of March 31, 1997, while industry leader Nippon Life had only 3 percent.The rest, of course, is history. Banks and securities companies, to which insurers also had lent, began to fail in the mid-1990s. The collapse of Sanyo Securities Co., Ltd. last fall was precipitated in part by the refusal of life insurance companies to roll over the brokerage firm’s subordinated loans. Life insurers complained that they sometimes were not paid off even when the conditions of a bank failure implied that they should have been. For example, Meiji Life Insurance Co. reportedly had ¥35 billion ($291.7 million) outstanding in subordinated debt to Hokkaido Takushoku Bank, Ltd. when the bank collapsed in November. Even though the Hokkaido bank did have some good loans that were transferred to North Pacific Bank, Ltd., Meiji Life was not compensated from these assets. It apparently will have to write off the entire loan balance.Subordinated debt is only part of the bad-debt story. Insurance companies had a role in nearly every large-scale, half-baked lending scheme that collapsed along with the bubble economy in the early 1990s. For example, they were lenders to jusen (housing finance companies) and had to share in the costly cleanup of that mess. Moreover, like banks, insurers counted on unrealized profits from their equity holdings to bail them out if they got into trouble. Smaller insurers of the bubble period bought such stock at relatively high prices, with the result that, at 1997’s year-end depressed stock prices, all but two middle-tier (size rank 9 to 16) life insurance companies had unrealized net losses.What Lies AheadAnalysts have identified the following short-term challenges to the sector:New market entrants;
Pressure on earnings;
Poor asset quality; and,
Capitalization.The recent high-profile failures of several life insurance companies have turned up the pressure on life companies to address these challenges urgently and in recognizable ways.The investment market has been even worse than expected. Interest rates have not risen from historically low levels. The Nikkei index has sagged since January 2001, and plummeted to 9 year low following recent terrorist attack on American soil. Unrealized gains used to provide some cushion for most insurers, but, depending on the insurers’ reliance on unrealized gains, the volatility of retained earnings is now affecting capitalization levels and thus financial flexibility.Table 1
Major Risks Facing Japanese Life Insurance CompaniesBusiness risks
Financial risksWeak Japanese economy
Strong earnings pressuresLack of policyholder confidence, flight to quality
Low interest rates, exposure to domestic, overseas investment market fluctuationsDeregulation, mounting competition
Poor asset qualityInadequate policyholders’ safety net
Weakened capitalizationAccelerating consolidation within life sector, with other financial sectors
Limited financial flexibilityMost analysts probably would agree that Japan’s life insurers face problems of both solvency and liquidity. Heavy contractual obligations to policyholders, shrinking returns on assets, and little or no cushion from unrealized gains on stock portfolios combine to make the continued viability of some companies far from certain. Many others, while obviously solvent, face the risk that they will have to pay off uneasy policyholders earlier than they had planned. Either solvency or liquidity concerns raise the question as to how insurers will manage their assets. Another factor that has to be considered is Japan’s aging population. As Mr. Yasuo Satoh, Program Manager of insurance industry, finance sector, IBM Japan, points out, “The industry needs to change the business model. They have to concentrate on life benefits rather than death benefits and they have to emphasize on Medical Supplement and long term care sectors as the overall population is aging.”Japanese life insurers are actively pursuing greater segmentation, while seeking to establish unique strategies both in traditional life and non-life businesses. In late 2000, the sector witnessed the emergence of several business partnerships and cross-border alliances involving large domestic life insurers. Anticipating increased market consolidation, heated competition, and full liberalization of third-sector businesses, the companies are reviewing their involvement through subsidiaries in the non-life side of the business, which was first allowed in 1996.Over the long term, Japanese insurers are likely to forge business alliances based on demutualization. Widespread consolidation in Japan’s financial markets over the near term will bring about an overhaul of the life insurance sector as well. Although domestic life insurers announced various business strategies in the latter half of 2000 to respond to this sea change, the actual benefit of various planned alliances for each insurer remains uncertain. Further market consolidation should add value for policyholders, at least, making available a wider range of products and services. To succeed, life insurers will have to be more sensitive to diverse customers needs, while at the same time establishing new business models to secure their earning base. Long term prospects seem to be good considering the high saving rate of Japanese population. But in the short term, Japan is poised to see a few more insurers succumb before the sector tightens its bottom line with sweeping reforms and prudent investment and disclosure norms.

Insurance For Beginners

INTRODUCTIONWelcome to the global business guide. In this context, we will be taking about the insurance industry, the general definition of insurance, adequate and precise explanation of the definition, brief talk about the history, the insurer, the insured, classes of insurance, the role of the underwriter in the industry and how you as an individual can benefit maximally when you get yourself, your car, your house, even that your business insure. We do hope you will enjoy reading this article and the essence of your quest for the topic above will be met.Insurance is a financial institution classified as a non bank financial institution. They are important financial inter-mi diaries. It is believed to have originated from the ancient practices of inhabitants of the valleys of rivers Tigris and Euphrates in the present day Iraqi in about 4.000BC. History has it that in 1800BC, the Babylonians code of Hammurabi contained provisions which had elements of insurance in the laws that govern their commerce. But today what we have in the industry, both locally and internationally had moved from just an agreement between two persons into a very big industry across the globe.Going by definition, we learn that insurance means a situation whereby someone protects his or herself against risk and reduce effects of uncertainties as well as distribute loss. Other explanation to this owe it to the situation whereby a certain amount of money when collected from someone by an insurance company agrees to pay a compensation or render services to that person if and whenever that person suffers the kind of loss specified in the insurance agreement; and from the explanation, this is where an insurance company comes into play since they are the people that will go into agreement with the person taking any insurance policy against any of his belongings. This industry has widely been believed as a means whereby people reduce the risk of unforeseen circumstances. As financial intermediaries, they act as middlemen between the surplus units and deficit units of the economy thereby sustaining the general growth of the economy.One may ask, how do insurance companies generate the money used in compensating their policy holder when affected by any mishap? The answer to this question, will lead us into talking about the various means via which the insurance companies make their money and how their policy holders are compensated. The truth is that, the money they collect from their policy holder (i.e one that has an agreement with the insurance company) is invested in the form of premiums (an extra sum of money paid in addition to the normal cost of something. by BBC. Eng. dict) and that money is invested in Bonds, in stocks, mortgages (i.e house) and government securities (in our subsequent article, we will explain more of this: Bonds, stocks, mortgages and govt. securities). They generate income for themselves and those who are in their service. They invest their policy holder’s money in better business that has short term maximum returns on investment and from there meet their numerous needs when needed in claims and losses. These funds themselves are invested, that not only do they earn interest to be added to the funds, but they also benefit the government, public authorities, and industries whose securities the investment are spread, because of the investment policy of the insurer (we will explain later), their reserve funds are not left idle butt are used productively.Another way via which the insurance companies compensate those who are in their service is that the contribution of many is used to compensate the few among them who were affected by the misfortune insured against. So the loss of few people is share by many.We hope that to this extend, you must have understood the above explanation about insurance company. Now the next thing we will be considering is the functions of the insurance companies.Amongst other functions, the main function of the insurance company is risk bearing, the financial losses of individuals are judiciously distributed among many people, for example, in the case of fire, the policy holder in fire insurance pays a premium into a common pool, out of which those who suffer loss are compensated.FUNCTIONS INCLUDE1. The insurance industry encourages thrift (i.e money conservation) especially via it’s life policies which provide funds for family, welfare and old age provisions. It provides employment opportunity for those that have the interest of working with the industry.The insurance companies works hand in hand with commerce. It owes it’s existence to commerce (i.e business in general both industrial etc) and commerce in return owes it’s strong stability to insurance, this is because it helped in various ways to enhance the general trend in business.Before we proceed further to other functions, let’s explain this two terms: the insurer; the insured as it will aid us in our understanding.The insured: This is the party affecting the insurance in other words, the individual or individuals which is taking the insurance policy. This can be done either directly or indirectly or via an agent or broker.The insurer: This is the party providing the protection to cover by the policy. The insurer covers every other terms which includes the underwriter who is a senior official of an insurance company whose business lies in undertaking new business for the company.The insurance company has a contract which promises to pay compensation at a future date for a consideration known as premium (i.e. the money paid by the insured to the insurer for the insurance cover provided in the policy). Like the way we have it in other contracts, i.e having it that contracts is based on the principles of offer and acceptance, consideration and capacity to contract. These contract, especially in insurance involves two parties i.e. the insurer and the insured.FUNCTIONS 2Insurer, by reason of their principal function accumulate large funds which they hold as custodians and out of which claims and losses are met. Like in some countries, their insurers operate in many parts of the world and earn vast sums in overseas market in terms of underwriting profit and investment income. This tells us that insurance forms a considerable part of that country’s invisible exports.As we continue in our functions, let’s see the role of the insured and the insurer.ROLES OF THE INSURED:In insurance, when the proposer becomes insured the party effecting an insurance is known as the proposer throughout the negotiations, and until the contract is in full force. The insurer plays a vital role in making this aforementioned contract to come into force, knowing that in insurance contract, just like we said before is base on the principle of offer and acceptance, consideration and capacity to contract, the contracts are always evidenced in writing which is made up of various forms to be filled and signed. If the insured does not accept the insurance offer and giving meticulous consideration to that, there can hardly be capacity to contract i.e the insurance contract can never be. So, from this, we now learn that this two parties (i.e the insurer and the insured) must be involved before an insurance contract can becomes a policy.ROLES OF THE INSURERHere we are considering the roles of the insurer as a subsidiary functions of insurance; this is because in general sense (they have a very wide range of function), the insurer is the one providing the necessary insurance services, benefits to the insured, should any mishap, depending on the insurance policy undertaken. The insurer helps also in loss-prevention in the following ways:We know that the extend to which loss prevention is seen, is mostly on property. An individual or a population can suffer great loss materially, if it were not for the intervention of loss prevention scheme by insurance companies to their policy holders.The insurer also assists in boasting business venture: Many large -scale enterprise today can make their business in good faith, having transferred all their risk to the insurance company, in other words. The insurance companies help to maintain and to stabilize the atmosphere of the present day large-scale business and organizations.Many questions had risen by on onlookers, as on how the policy holder can be compesated, should there be any mishap on the policy covered. It is better for us to note that the insurance company, when a loss is incurred to the policy holder can make for his or her loss, but that can only compensate him and make him return to his normal financial position before the occurrence of the incidence and not to profit him from the misfortune. This is generally because, no amount of financial compensation can pay adequately for the life and health of persons, so life and personal accidents are regarded as benefit policies. So let there be no misconception on this fact when mishap occurs, where the public is looking for the victim to be given everything lost, and having a meager compensation given to him or her. So let’s not distrust insurance companies in this area, knowing that it’s only the restoration to the exact position before the loss that is provided.Now, as we have gone so far in understanding the functions of the insurance companies, the roles of the insured and the insurer, we will be proceeding forward to look at the various ways via which one can benefit from being insured in all spheres of life. For those who against all odds, accept insurance policy adequately, benefits, awaits them in areas like1. pecuniary insurance2. personal insurance3. property insurance4. liability insuranceWe will take our time to give you enough explanation in all the sub-sections of these areas that will be of help to you.1. PECUNIARY INSURANCE: This has to do with money or relating to something of such nature. This insurance policy benefits mostly company owners, directors, managers e.t.c This insurance policy provides cover to the employer against the loss of money unintentionally, or in a situation where an employee defrauds his or her employer on certain amount of money placed under his or her custody or in things relating to other occurrence/loss. Other policies under pecuniary insurance are; fidelity guarantee (known also as surety ship), legal expenses, credit insurance and business interruption insurance. All of these have their various function which in one way or the other relates to pecuniary. Like earlier stated, pecuniary insurance provides cover for C.E.O., M.D’S etc in case of loss of money either by intent or accident placed under the care of their employee or any officer of higher responsibility. These type of insurance cover, which their employee has will help to compensate them (i.e the employer’s) and also ease the employee the fear and tension which the mishap might generate for him or her. It is therefore advisable you consider this policy very well as an MD, C.E.O. etc, especially with the assistance of your insurance broker so as to adequately know, and be directed properly on how to go about it.2. PERSONAL INSURANCEThis involves all classes of life assurance and also accident policies. There are other types of person insurance, and the purpose of each is to meet the different need of individuals in their aim to provide for the future either for themselves or for their dependents. Other sub-divisions of personal insurance are:i. Life assuranceii. Personal accident and sickness insurance,iii. Permanent health insurance,iv. Social securityThese sub-divisions has various similarities which come out at the end to meet the same aim, like in life assurance, personal accident and sickness insurance, this policy ensures that the policy holder when befallen by any misfortune, which resulted into permanent disability or death will still be able to fend for his or herself and also for his or her dependants in the case of death.3. PROPERTY INSURANCEProperty insurance policy involves insurance cover for property should any risk of damage or loss by fire, accident, burglary or other risks that may occur. Under this, there are other sub-divisions which include:i. Motor Insuranceii. Marine Insuranceiii. Fire Insuranceiv. Burglary Insurancev. Special peril Insurancevi. All risk InsuranceIn all these sub-divisions of property insurance, respective insurance cover is given to them all should there be any damage or loss relating to the type of policy the holder has.4. LIABILITY INSURANCEThis provides cover for the insured against his legal liability to others. This can arise via negligence of the insured in failing to act in a reasonable manner. Such manners like crossing the road without properly looking on both side of the road which might result in accident. This may also arise via the insured’s unlawful disturbance of another person in the enjoyment of his or property (i.e constituting a nuisance to them) or via the insured’s trespass which is an unlawful act committed with force or violent on another person’s property. Liability insurance is also sub-divided into employer’s liability to his employee and public liability by the insured. The two sub-divisions of liability insurance owe their explanation to their respective liabilities, and since liability generally arises from lawsuits, liability policy covers only claims which the insured becomes legally obligated to.We should also bear in mind that no insurance policy can prevent theft, fire, or other misfortune or the creation of legal liability, but can provide financial assistance in such situations. It does not also protect for example, the material property which is the subject matter of the insurance, but the financial interest of the insurer. This mean that the insurer can only get a financial compensation when any mishap happens to any thing insured against and not having the property restored back in case of fire or collapse (for building).CONCLUSIONIn all, we do hope that all these explanation will give you a better insight towards getting what you want on the good step to take while taking your insurance policy. But, always make sure that you don’t do anything without first of all consulting your insurance broker ( who will take more time to tell you one-on-one the policy that will be suitable for you) before going to any insurance company knowing already that the cost of insurance is less than what would be the cost of insurance because the cost of insurance to industrialist for e.g is passed on to consumers along with other product cost and the consumers benefits from the existence of insurance via reduced prices. So make sure you get insured today. Till I see you again. Thank you.