The insurance industry and rent seeking

Certain insurance products and practices have been described as rent seeking by critics. That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events. Under United States tax law, for example, most owners of variable annuities and variable life insurance can invest their premium payments in the stock market and defer or eliminate paying any taxes on their investments until withdrawals are made.

Sometimes this tax deferral is the only reason people use these products. 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 themselves are immune from the estate tax.

Glossary

* 'Combined ratio' = loss ratio + expense ratio + commission ratio. Loss ratio is calculated by dividing the amount of losses (sometimes including loss adjustment expenses) by the amount of earned premium. Expense ratio is calculated by dividing the amount of operational expenses by the amount of written premium. A lower number indicates a better return on the amount of capital placed at risk by an insurer.
* 'SSA' = subscriber savings account.
* 'AIF' = attorney in fact.
* 'Premium" = payment to an insurance company for a service. This word is a marketing term to replace "price".