Financial Markets and Institutions (2-downloads)

insurance protects businesses and owners from the impact of risk associated with

owning property. This includes replacement and loss of earnings from income-

producing property as well as financial losses to owners of residential property.

Casualty insurance (or liability insurance) protects against liability for harm

the insured may cause to others as a result of product failure or accidents. For exam-

ple, part of your car insurance is property insurance (which pays if your car is dam-

aged) and part is casualty insurance (which pays if you cause an accident).

Property and casualty insurance is different from life insurance. First, policies tend

to be short-term, usually for one year or less. Second, whereas life insurance is lim-

ited to insuring against one event, property and casualty companies insure against many

different events. Finally, the amount of the potential loss is much more difficult to

predict than for life insurance. These characteristics cause property and casualty com-

panies to hold more liquid assets than those of life insurance companies. The wide range

of losses means that property and casualty firms must maintain substantial liquidity.

Property insurance can be provided in either named-peril policies or open-