Insurance Patents

insurance products can now be protected from copying with a business method patent. This may lead to the more rapid introduction of new insurance products as insurance companies will invest more heavily in new product development if they can be reasonably assured that their patents will keep those products from being copied.
A recent example of a new insurance product that is patented is telematic auto insurance. It is independently invented and patented by a major U.S. auto insurance company, Progressive Auto Insurance (U.S. patent 5,797,134) and a Spanish independent inventor, Salvador Minguijon Perez (European Patent EP0700009B1).
The basic idea of telematic auto insurance is that a driver's behavior is monitored directly while the person drives and this information is transmitted to an insurance company. The insurance company then assesses the risk of that driver having an accident and charges insurance premiums accordingly. A driver that drives a lot of distance at high speed, for example, will be charged a higher rate than a driver that drives small distances at low speed.
A British auto insurance company, Norwich Union, has taken a license to both the Progressive patent and Perez patent. They have made additional investments in infrastructure and developed a commercial offering called "Pay As You Drive" or PAYD.
Many independent inventors are in favor of patenting new insurance products since it gives them protection from big companies when they bring their new insurance products to market. Independent inventors account for 70% of the new U.S. patent applications in this area.
Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, had to recently pay US$80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a new type of corporate owned life insurance product invented and patented by Bancorp.There are currently about 150 new patent applications on insurance inventions filed per year in the United States. (Source: Insurance IP Bulletin, December 15, 2005). Only about 20–30 patents per year, however, are actually issued.

The insurance industry and rent seeking

Certain insurance products and practices have been described as rent seeking by critics. That is, insurance companies have been alleged to have certain products or practices that are only useful due to certain government laws (especially tax laws), and that the insurance industry in these cases generally adds no economic value but instead supports politicians who will continue the legal regime which gives the insurance company these benefits.
For example, in the United States the current tax rules generally allow owners of variable annuities (see annuity (US financial products) and variable life insurance (see variable universal life insurance) to invest in the stock market and defer or eliminate paying any taxes until withdrawals are made. Sometimes this tax deferral is the only reason some individuals use these products instead of a mutual fund. Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds itself are immune from the estate tax.

Insurable Risks

Risks that can be insured by private companies typically share seven common characteristics:

1. Large figure of exposure units:

The majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses. Exceptions include Loyd's of London, which is famous for insuring the life or health of actors, sports figures and other famous individuals.

2. Definite loss:

The defeat takes place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this standard.

3. Accidental loss:

The event which constitute the trigger of a claim should be accidental, or at least outside the control of the beneficiary of the insurance. The loss should be pure, in the sense that it results from an event for which there is only the opportunity for cost.

4. Large loss:

The amount of the loss must be significant from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims.

5. Reasonable premium:

If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that the insurance will be purchased, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer.

6. Assessable loss:

There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.

7. Limited risk of large losses:

Insurable losses are independent and non-catastrophic meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer; insurers may prefer to limit their exposure to a loss from a single event to some small portion of their resources base. Capital constrains insurers' ability to sell earthquake insurance as well as wind insurance in storm zone. 

There are several area of risks that are also may be insurable.