Air quotes (also called airsotts) refers to using one's fingers to make virtual quotation marks in the air when speaking. This is typically done with both hands held shoulder-width apart and at the eye level of the speaker, with the index and middle fingers on each hand forming a V sign and then flexing at the beginning and end of the phrase being "quoted." The air-quoted phrase is generally very short — a few words at most — in common usage, though sometimes much longer phrases may be used for comic effect.
Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. Insurer is the company that sells the insurance. Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. A large number of homogeneous exposure units. The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004.[2] The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. There are exceptions to this criterion. Lloyd's of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable. Definite Loss. The event that gives rise to the loss that is subject to insurance should, at least in principle, take place at a known time, in a known place, and from a known cause. The classic example is death of an insured on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements. Accidental Loss. The event that constitutes the trigger of a claim should be fortuitous, 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. Events that contain speculative elements, such as ordinary business risks, are generally not considered insurable. Large Loss. The size of the loss must be meaningful 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. For small losses these latter costs may be several times the size of the expected cost of losses. There is little point in paying such costs unless the protection offered has real value to a buyer. Affordable 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 anyone will buy insurance, 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. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance. (See the U.S. Financial Accounting Standards Board standard number 113) Calculable 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. Limited risk of catastrophically large losses. The essential risk is often aggregation. If the same event can cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their exposure to a loss from a single event to some small portion of their capital base, on the order of 5 percent. Where the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital constraint will restrict an insurers appetite for additional policyholders. The classic example is earthquake insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the policies that it has already underwritten. Wind insurance in hurricane zones, particularly along coast lines, is another example of this phenomenon. In extreme cases, the aggregation can affect the entire industry, since the combined capital of insurers and reinsurers can be small compared to the needs of potential policyholders in areas exposed to aggregation risk. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer’s capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market. An "indemnity" policy will never pay claims until the insured has paid out of pocket to some third party; i.e. a visitor to your home slips on a floor that you left wet and sues you for $10,000 and wins. Under an "indemnity" policy the homeowner would have to come up with the $10,000 to pay for the visitors fall and then would be "indemnified" by the insurance carrier for the out of pocket costs (the $10,000)[4]. An entity seeking to transfer risk (an individual, corporation, or association of any type, etc.) becomes the 'insured' party once risk is assumed by an 'insurer', the insuring party, by means of a contract, called an insurance 'policy'. Generally, an insurance contract includes, at a minimum, the following elements: the parties (the insurer, the insured, the beneficiaries), the premium, the period of coverage, the particular loss event covered, the amount of coverage (i.e., the amount to be paid to the insured or beneficiary in the event of a loss), and exclusions (events not covered). An insured is thus said to be "indemnified" against the loss events covered in the policy. When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a 'claim' against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the 'premium'. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims—in theory for a relatively few claimants—and for overhead costs. So long as an insurer maintains adequate funds set aside for anticipated losses (i.e., reserves), the remaining margin is an insurer's profit. Insurers make money in two ways: (1) through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks and (2) by investing the premiums they collect from insureds. The most difficult aspect of the insurance business is the underwriting of policies. Using a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. To this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge to assume them. Data is analyzed to fairly accurately project the rate of future claims based on a given risk. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurer's overall exposure. Upon termination of a given policy, the amount of premium collected and the investment gains thereon minus the amount paid out in claims is the insurer's underwriting profit on that policy. Of course, from the insurer's perspective, some policies are winners (i.e., the insurer pays out less in claims and expenses than it receives in premiums and investment income) and some are losers (i.e., the insurer pays out more in claims and expenses than it receives in premiums and investment income). An insurer's underwriting performance is measured in its combined ratio. The loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium) is added to the expense ratio (underwriting expenses divided by net premium written) to determine the company's combined ratio. The combined ratio is a reflection of the company's overall underwriting profitability. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss. Insurance companies also earn investment profits on “float”. “Float” or available reserve is the amount of money, at hand at any given moment, that an insurer has collected in insurance premiums but has not been paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest on them until claims are paid out. In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held. Naturally, the “float” method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards. So a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the "underwriting" or insurance cycle. [6] Property and casualty insurers currently make the most money from their auto insurance line of business. Generally better statistics are available on auto losses and underwriting on this line of business has benefited greatly from advances in computing. Additionally, property losses in the US, due to natural catastrophes, have exacerbated this trend. Finally, claims and loss handling is the materialized utility of insurance. In managing the claims-handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages. As part of this balancing act, fraudulent insurance practices are a major business risk that must be managed and overcome. Gambling or (euphemistically) "gaming" is designed at the outset so that the odds are not affected by the players' conduct or behavior, and the players not required to conduct risk mitigation practices. But players can prepare and increase their odds of winning in certain games such as poker or blackjack. In contrast to gambling, to obtain certain types of insurance, such as fire insurance, policyholders can be required to conduct risk mitigation practices, such as installing sprinklers and using fireproof building materials to reduce the odds of loss to fire. In addition, after a proven loss, insurers specialize in providing rehabilitation to minimize the total loss. In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread (for example countries in the territory of the former Soviet Union). Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen. Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices. A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage. The Greeks and Romans introduced the origins of health and life insurance c. 600 AD when they organized guilds called "benevolent societies" which cared for the families and paid funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies. Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post-Renaissance Europe, and specialized varieties developed. Toward the end of the seventeenth century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance. Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon opened an office to insure buildings. In 1680, he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes. Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses. In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization. In recent years, some have called for a dual state and federal regulatory system for insurance similar to that which oversees state banks and national banks. In the state of New York, which has unique laws in keeping with its stature as a global business centre, former New York Attorney General Eliot Spitzer was in a unique position to grapple with major national insurance brokerages. Spitzer alleged that Marsh & McLennan steered business to insurance carriers based on the amount of contingent commissions that could be extracted from carriers, rather than basing decisions on whether carriers had the best deals for clients. Several of the largest commercial insurance brokerages have since stopped accepting contingent commissions and have adopted new business models. Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as "perils". An insurance policy will set out in detail which perils are covered by the policy and which are not. Below are (non-exhaustive) lists of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set forth below. For example, auto insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from causing an accident). A homeowner's insurance policy in the U.S. typically includes property insurance covering damage to the home and the owner's belongings, liability insurance covering certain legal claims against the owner, and even a small amount of health insurance for medical expenses of guests who are injured on the owner's property. Business insurance can be any kind of insurance that protects businesses against risks. Some principal subtypes of business insurance are (a) the various kinds of professional liability insurance, also called professional indemnity insurance, which are discussed below under that name; and (b) the business owners policy (BOP), which bundles into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners insurance bundles the coverages that a homeowner needs.[7] Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance. Health insurance policies will often cover the cost of private medical treatments if the National Health Service in the UK (NHS) or other publicly-funded health programs do not pay for them. It will often result in quicker health care where better facilities are available. Driving School Insurance insurance provides cover for any authorized driver whilst under going tuition, cover also unlike other motor policies provides cover for instructor liability where both the pupil and driving instructor are both equally liable in the event of a claim. Driving School Insurance insurance provides cover for any authorized driver whilst under going tuition, cover also unlike other motor policies provides cover for instructor liability where both the pupil and driving instructor are both equally liable in the event of a claim. Builder's risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage due to any cause (including the negligence of the insured) not otherwise expressly excluded. Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary homeowners insurance policies do not cover earthquake damage. Most earthquake insurance policies feature a high deductible. Rates depend on location and the probability of an earthquake, as well as the construction of the home. A fidelity bond is a form of casualty insurance that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees. Flood insurance protects against property loss due to flooding. Many insurers in the US do not provide flood insurance in some portions of the country. In response to this, the federal government created the National Flood Insurance Program which serves as the insurer of last resort. Marine insurance and marine cargo insurance cover the loss or damage of ships at sea or on inland waterways, and of the cargo that may be on them. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss. Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property. The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the negligence of the insured, and will not apply to results of willful or intentional acts by the insured. Professional liability insurance, also called professional indemnity insurance, protects professional practitioners such as architects, lawyers, doctors, and accountants against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called malpractice insurance. Notaries public may take out errors and omissions insurance (E&O). Other potential E&O policyholders include, for example, real estate brokers, home inspectors, appraisers, and website developers. Credit insurance repays some or all of a loan back when certain things happen to the borrower such as unemployment, disability, or death. Mortgage insurance is a form of credit insurance, although the name credit insurance more often is used to refer to policies that cover other kinds of debt. Defense Base Act Workers' compensation or DBA Insurance insurance provides coverage for civilian workers hired by the government to perform contracts outside the US and Canada. DBA is required for all US citizens, US residents, US Green Card holders, and all employees or subcontractors hired on overseas government contracts. Depending on the country, Foreign Nationals must also be covered under DBA. This coverage typically includes expenses related to medical treatment and loss of wages, as well as disability and death benefits. Financial loss insurance protects individuals and companies against various financial risks. For example, a business might purchase cover to protect it from loss of sales if a fire in a factory prevented it from carrying out its business for a time. Insurance might also cover the failure of a creditor to pay money it owes to the insured. This type of insurance is frequently referred to as "business interruption insurance." Fidelity bonds and surety bonds are included in this category, although these products provide a benefit to a third party (the "obligee") in the event the insured party (usually referred to as the "obligor") fails to perform its obligations under a contract with the obligee. Purchase insurance is aimed at providing protection on the products people purchase. Purchase insurance can cover individual purchase protection, warranties, guarantees, care plans and even mobile phone insurance. Such insurance is normally very limited in the scope of problems that are covered by the policy. Title insurance provides a guarantee that title to real property is vested in the purchaser and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a real estate transaction. Protected Self-Insurance is an alternative risk financing mechanism in which an organization retains the mathematically calculated cost of risk within the organization and transfers the catastrophic risk with specific and aggregate limits to an Insurer so the maximum total cost of the program is known. A properly designed and underwritten Protected Self-Insurance Program reduces and stabilizes the cost of insurance and provides valuable risk management information. Retrospectively Rated Insurance is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based partially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract. Formula: retrospective premium = converted loss + basic premium × tax multiplier. Numerous variations of this formula have been developed and are in use. Formal self insurance is the deliberate decision to pay for otherwise insurable losses out of one's own money. This can be done on a formal basis by establishing a separate fund into which funds are deposited on a periodic basis, or by simply forgoing the purchase of available insurance and paying out-of-pocket. Self insurance is usually used to pay for high-frequency, low-severity losses. Such losses, if covered by conventional insurance, mean having to pay a premium that includes loadings for the company's general expenses, cost of putting the policy on the books, acquisition expenses, premium taxes, and contingencies. While this is true for all insurance, for small, frequent losses the transaction costs may exceed the benefit of volatility reduction that insurance otherwise affords. In most countries, life and non-life insurers are subject to different regulatory regimes and different tax and accounting rules. The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature — coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year. In the United States, standard line insurance companies are your "main stream" insurers. These are the companies that typically insure your auto, home or business. They use pattern or "cookie-cutter" policies without variation from one person to the next. They usually have lower premiums than excess lines and can sell directly to individuals. They are regulated by state laws that can restrict the amount they can charge for insurance policies. Excess line insurance companies (aka Excess and Surplus) typically insure risks not covered by the standard lines market. They are broadly referred as being all insurance placed with non-admitted insurers. Non-admitted insurers are not licensed in the states where the risks are located. These companies have more flexibility and can react faster than standard insurance companies because they are not required to file rates and forms as do the "admitted" carriers do. However, they still have substantial regulatory requirements placed upon them. State laws generally require insurance placed with surplus line agents and brokers to not be available through standard licensed insurers. Insurance companies are generally classified as either mutual or stock companies. This is more of a traditional distinction as true mutual companies are becoming rare. Mutual companies are owned by the policyholders, while stockholders (who may or may not own policies) own stock insurance companies. Other possible forms for an insurance company include reciprocals, in which policyholders 'reciprocate' in sharing risks, and Lloyds organizations. Reinsurance companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well. Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100 percent subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices. The types of risk that a captive can underwrite for their parents include property damage, public and products liability, professional indemnity, employee benefits, employers liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client. Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed. Financial stability and strength of an insurance company should be a major consideration when purchasing an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies, such as Best's, Fitch, Standard & Poor's, and Moody's Investors Service, provide information and rate the financial viability of insurance companies. In recent years this kind of operational definition proved inadequate as a result of contracts that had the form but not the substance of insurance. The essence of insurance is the transfer of risk from the insured to one or more insurers. How much risk a contract actually transfers proved to be at the heart of the controversy. This issue arose most clearly in reinsurance, where the use of Financial Reinsurance to reengineer insurer balance sheets under US GAAP became fashionable during the 1980s. The accounting profession raised serious concerns about the use of reinsurance in which little if any actual risk was transferred, and went on to address the issue in FAS 113, cited above. While on its face, FAS 113 is limited to accounting for reinsurance transactions, the guidance it contains is generally conceded to be equally applicable to US GAAP accounting for insurance transactions executed by commercial enterprises. Paragraph 10 of FAS 113 makes clear that the 9a and 9b tests are based on comparing the present value of all costs to the PV of all income streams. FAS gives no guidance on the choice of a discount rate on which to base such a calculation, other than to say that all outcomes tested should use the same rate. Statement of Statutory Accounting Principles ("SSAP") 62, issued by the National Association of Insurance Commissioners, applies to so-called 'statutory accounting' - the accounting for insurance enterprises to conform with regulation. Paragraph 12 of SSAP 62 is nearly identical to the FAS 113 test, while paragraph 14, which is otherwise very similar to paragraph 10 of FAS 113, additionally contains a justification for the use of a single fixed rate for discounting purposes. The choice of an "reasonable and appropriate" discount rate is left as a matter of judgment. Neither FAS 113 nor SAP 62 defines the terms reasonable or significant. Ideally, one would like to be able to substitute values for both terms. It would be much simpler if one could apply a test of an X percent chance of a loss of Y percent or greater. Such tests have been proposed, including one famously attributed to an SEC official who is said to have opined in an after lunch talk that a 10 percent chance of a 10 percent loss was sufficient to establish both reasonableness and significance. Indeed, many insurers and reinsurers still apply this 10/10" test as a benchmark for risk transfer testing. It should be obvious that an attempt to use any numerical rule such as the 10/10 test will quickly run into problems. Implicit in the test is keeping the 10/10 that either are upper bonds for the comment made by the SEC official therefore, the rest of this paragraph doesn't apply. Suppose a contract has a 1 percent chance of a 10,000 percent loss? It should be reasonably self-evident that such a contract is insurance, but it fails one half of the 10/10 test. Excess of loss contracts, like those commonly used for umbrella and general liability insurance, or to insure against property losses, will typically have a low ratio of premium paid to maximum loss recoverable. This ratio (expressed as a percentage), commonly called the rate on line for historical reasons related to underwriting practices at Lloyd's of London, will typically be low for contracts that contain reasonably self-evident risk transfer. As the ratio increases to approximate the present value of the limit of coverage, self-evidence decreases and disappears. The analysis of reasonableness and significance is an estimate of the probability of different gain or loss outcomes under different loss scenarios. It takes time and resources to perform the analysis, which constitutes a burden without value where risk transfer is reasonably self-evident. An insurance policy should not contain provisions that allow one side or the other to unilaterally void the contract in exchange for benefit. Provisions that void the contract for failure to perform or for fraud or material misrepresentation are ordinary and acceptable. The policy should have a term of not more than about three years. This is not a hard and fast rule. Contracts of over five years duration are classified as ‘long-term,’ which can impact the accounting treatment, and can obviously introduce the possibility that over the entire term of the contract, no actual risk will transfer. The coverage provided by the contract need not cease at the end of the term (e.g., the contract can cover occurrences as opposed to claims made or claims paid). The contract should be considered to include any other agreements, written or oral, that confer rights, create obligations, or create benefits on the part of either or both parties. Ideally, the contract should contain an ‘Entire Agreement’ clause that assures there are no undisclosed written or oral side agreements that confer rights, create obligations, or create benefits on the part of either or both parties. If such rights, obligations or benefits exist, they must be factored into the tests of reasonableness and significance. Provisions for additional or return premium do not, in and of themselves, render a contract something other than insurance. However, it should be unlikely that either a return or additional premium provision be triggered, and neither party should have discretion regarding the timing of such triggering. All of the events that would give rise to claims under the contract cannot have materialized prior to the inception of the contract. If this "all events" test is not met, then the contract is considered to be a retroactive contract, for which the accounting treatment becomes complex. By creating a "security blanket" for its insureds, an insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer). This problem is known to the insurance industry as moral hazard. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability. For example, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports. Liability insurance providers do not provide coverage for liability arising from intentional torts committed by the insured. Even if a provider were so irrational as to desire to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal. Some communities prefer to create virtual insurance amongst themselves by other means than contractual risk transfer, which assigns explicit numerical values to risk. A number of religious groups, including the Amish and some Muslim groups, depend on support provided by their communities when disasters strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard of explicit insurance contracts. In the United Kingdom The Crown (which, for practical purposes, meant the Civil service) did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether. Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold. Many institutional insurance purchasers buy insurance through an insurance broker. Brokers represent the buyer (not the insurance company), and typically counsel the buyer on appropriate coverages, policy limitations. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible. Redlining is the practice of denying insurance coverage in specific geographic areas, purportedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Racial profiling or redlining has a long history in the property insurance industry in the United States. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.[10] In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used. An insurance underwriter's job is to evaluate a given risk as to the likelihood that a loss will occur. Any factor that causes a greater likelihood of loss should theoretically be charged a higher rate. This basic principle of insurance must be followed if insurance companies are to remain solvent. Thus, "discrimination" against (i.e., differential treatment of) potential insureds in the risk evaluation and premium-setting process is a necessary by-product of the fundamentals of insurance underwriting. For instance, insurers charge older people significantly higher premiums than they charge younger people for term life insurance. Older people are thus treated differently than younger people (i.e., a distinction is made, discrimination occurs). The rationale for the differential treatment goes to the heart of the risk a life insurer takes: Old people are likely to die sooner than young people, so the risk of loss (the insured's death) is greater in any given period of time and therefore the risk premium must be higher to cover the greater risk. However, treating insureds differently when there is no actuarially sound reason for doing so is unlawful discrimination. What is often missing from the debate is that prohibiting the use of legitimate, actuarially sound factors means that an insufficient amount is being charged for a given risk, and there is thus a deficit in the system. The failure to address the deficit may mean insolvency and hardship for all of a company's insureds. The options for addressing the deficit seem to be the following: Charge the deficit to the other policyholders or charge it to the government (i.e., externalize outside of the company to society at large). Health insurance, which is coverage for individuals to protect them against medical costs, is a highly charged and political issue in the United States, which does not have socialized health coverage. In theory, the market for health insurance should function in a manner similar to other insurance coverages, but the skyrocketing cost of health coverage has disrupted markets around the globe, but perhaps most glaringly in the U.S. See health insurance & Health insurance in the United States. Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp. 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. 'Combined ratio' = loss ratio + expense 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 earned premium. A lower number indicates a better return on the amount of capital placed at risk by an insurer.
The Government Employees Insurance Company, usually known by the acronym GEICO, is an American auto insurance company. GEICO is a wholly owned subsidiary of Berkshire Hathaway and, as of 2007, provided coverage for more than 10 million motor cars, trucks and other motor vehicles owned by more than 8 million policy holders. GEICO writes private passenger automobile insurance in the District of Columbia and in all U.S. states except Massachusetts. GEICO was founded by Leo Goodwin and his wife Lillian Goodwin in 1936 to market auto insurance directly to federal government employees and their families.[2] Goodwin was inducted into the Insurance Hall of Fame due to the success of the company. GEICO's business model was based on the assumption that such persons would constitute a more financially stable and less risky pool of potential insureds than the general public. After real-time access to computerized driving records became available in the 1970s throughout the United States, GEICO began to insure the general public in addition to its target demographics. GEICO generally deals directly with consumers via the telephone and the Internet, freeing up capital that would otherwise be spent on employing insurance agents in the field and making the company the nation's largest direct writer of private auto insurance.[3] GEICO does market their products through a small number of field agents, most of whom are based near military bases[4]; more recently, GEICO has begun opening offices in locations other than near military bases. These agents are known as GFRs (GEICO Field Representatives). GEICO's advertising strategy incorporates a saturation-level amount of print (primarily mail circulars) and television parody advertisements, as well as radio advertisements. A common tagline used by GEICO is "fifteen minutes could save you fifteen percent or more on car insurance." Another common theme is misdirection, in which the commercial appears to be about an unrelated product (or, in fact, may not even be a commercial) and suddenly changes to become a plug for GEICO. The commercials use a variety of fictional characters such as Speed Racer and Bill Dutchess as well as real people such as Tony Little and Don LaFontaine spoofing themselves. Other commercials relate to a hair loss doctor who has saved by switching to GEICO, a nature show about a fish, and a soap opera of a couple who are breaking up. Another set of GEICO ads involved a fictional reality show called "Tiny House" in which contestants were forced to live in a half-scale house. An additional commercial theme is the promotion of fictional products. In 2006 parody ads featured such products as long distance phone service, tomato soda, fast-food, a reality TV show, dolls, and even poking fun at the Old Navy commercials - in all cases, the parody portion of the ad ends with "but it won't save you any money on car insurance." After the GEICO slogan is heard, the commercials end with "Why haven't you called GEICO?" This use of fictional products in commercials is reminiscent of the Energizer Bunny campaign for batteries from the late '80s. In another ad campaign, a character would be breaking bad news to another (such as a baseball manager lifting a struggling pitcher for a reliever), but then offer helpfully, "I've got good news," and explain, "I just saved a bunch of money on my car insurance by switching to GEICO!" That news, of course, is of no immediate use at all to the other character. Some of the ads were parodies and/or featured celebrities, including, for example, Esteban. The exchange became parodied for a time while the ads were popular. One of the most watched "I've got good news" spots was a Soap Opera parody featuring television actor Sebastian Siegel. A popular series of well-received advertisements uses cavemen as pitchmen. Also developed by the Martin Agency, the ads center on Neanderthal-like cavemen, no different from modern-day individuals (outside of the somewhat pre-historic facial features), encountering either an ad or commercial with the tagline "GEICO: so easy a caveman could do it," followed by their disgust with the supposed stereotype of caveman stupidity. The ads posit a world where cavemen are still alive and active members of society in the present day, behaving and living nothing at all like the stereotypical caveman. The main characters presented in the ads are affluent, educated, and cultured, eating at fancy restaurants, going to exclusive parties, and seeing their therapists. The humor revolves around the relative normality of the cavemen's presence and their reactions to the stereotype represented in the ads, and their attempts at defending themselves from the stereotype. In 2007, GEICO also launched a social networking site, My Great Rides, for motorcycle owners. My Great Rides is a place for cycle owners to share stories about trips they have taken on their bikes, as well as post pictures of their motorcycles, and comment on other members stories and pictures. The number 7 car of the NASCAR Nationwide Series is driven by Mike Wallace and is sponsored by GEICO. Commercials involving the race team are of a young boy claiming to be a relative of Mike Wallace and being a better driver. The boy says, "When people see Mike Wallace and the Geico number 7 doing well, they'll think of saving a bunch of money on car insurance. But when they see me, they'll say, 'There goes Lauren Wallace;[10] the greatest thing to ever climb into a racecar.'" The commercials are sometimes presented in an interview fashion, where an unseen narrator speaks to the ambitious go-kart driver. "What do you think of Mike Wallace?" the child is asked, to which he responds, "Whatever, he's out there selling car insurance, I'm out there to win." When questioned on his relation to the NASCAR driver, Lauren shakes his head and concludes, "I didn't say I wouldn't go fishing with the man, all I'm saying is if he comes near me, I'll put him in the wall." To which the narrator questions him, "You don't race in the Busch Series." Lauren replies "Listen, go-kart track, grocery store, those remote controlled boats; when it comes to Mike Wallace the story ends with me putting him in the wall." Another series of advertisement features separate YouTube videos of seemingly nonsensical actions, such as a hallway mattress fight, or a highly unusual collection of expressions uttered by a webcam user (YouTube's Brandon Hardesty). As the videos continue, an announcer states, "There may be better ways to spend 15 minutes online." Similar to the 'Stupid Things' ads, these commercials are also often aired back-to-back. Introduced in September, 2007, this series of ads features an E! True Hollywood Story-type show about famed fictional characters such as Fred Flintstone, Jed Clampett, and even a Cabbage Patch Kid named Ben Winkler claiming to have their cars (the Flintmobile, Jed's 1923 Oldsmobile truck, and a Plymouth Reliant, respectively) insured by GEICO, featuring interviews with made-up investigators (however, the Ben Winkler spot does not have an interview). GEICO's major competitors include State Farm, Allstate, Progressive, Nationwide and USAA. Progressive is particularly countered in their commercials, with many GEICO commercials countering Progressive's claims of being able to quote their rates and those of several of their competitors' rates by stating that GEICO quotes are only available at GEICO.com.
Free software is software that can be used, studied, and modified without restriction, and which can be copied and redistributed in modified or unmodified form either without restriction, or with restrictions only to ensure that further recipients can also do these things. To make these acts possible, the human readable form of the program (called the source code) must be made available. The source code may be either accompanied by a software license saying that the copyright holder permits these acts (a free software licence), or be released into public domain, so that these rights automatically hold. Since free software may be freely redistributed, it generally is available at little or no cost. Free software business models are usually based on adding value such as support, training, customization, integration, or certification. At the same time, some business models which work with proprietary software are not compatible with free software, such as those that depend on a user having no choice but to pay for a licence in order to lawfully use a software product. In the 50s, 60s, and 70s, it was normal for computer users to have the freedoms provided by free software. Software was commonly shared by individuals who used computers and by hardware manufacturers who were glad that people were making software that made their hardware useful. In the 70s and early 80s, the software industry began to apply copyright law, and began using technical measures such as only distributing binary copies, to prevent computer users from being able to study and modify the software.[2] In 1983, Richard Stallman launched the GNU project after becoming frustrated with the effects of the change in culture of the computer industry and users. Software development for the GNU operating system began in January 1984, and the Free Software Foundation (FSF) was founded in October 1985. He introduced a free software definition and "copyleft", designed to ensure software freedom for all. Free software is a huge international effort, producing software used by individuals, large organizations, and governmental administrations. Free software has a very high market penetration in server-side Internet applications such as the Apache web server, MySQL database, and PHP scripting language. Completely free computing environments are available as large packages of basic system software such as the many Linux distributions and FreeBSD. Free software developers have also created free versions of almost all commonly used desktop applications such as web browsers, office productivity suites, and multimedia players. It is important to note, however, that in many categories, free software for individual workstation or home users has only a fraction of the market share of their proprietary competitors. Most free software is distributed online without charge, or off-line at the marginal cost of distribution, but this is not required, and people may sell copies for any price. The economic viability of free software has been recognised by large corporations such as IBM, Red Hat, and Sun Microsystems. Many companies whose core business is not in the IT sector choose free software for their Internet information and sales sites, due to the lower initial capital investment and ability to freely customize the application packages. Also, some non-software industries are beginning to use techniques similar to those used in free software development for their research and development: scientists, for example, are looking towards more open development processes, and hardware such as microchips are beginning to be developed with specifications released under copyleft licenses (see the OpenCores project, for instance). Creative Commons and the free culture movement have also been largely influenced by the free software movement. The first formal definition of free software was published by FSF in February 1986.[4] That definition, written by Richard Stallman, is still maintained today and states that software is free software if people who receive a copy of the software have the following four freedoms: Thus, free software means that computer users have the freedom to cooperate with whom they choose, and to control the software they use. To summarize this into a remark distinguishing libre (freedom) software from gratis (zero price) software, Richard Stallman has long said: "Free software is a matter of liberty, not price. To understand the concept, you should think of 'free' as in 'free speech', not as in 'free beer'".[5] The BSD-based operating systems, such as FreeBSD, OpenBSD, and NetBSD, do not have their own formal definitions of free software but users of these systems generally find the same set of software to be acceptable. However, rather than advocate the use of copyleft free software licenses, they see copyleft as being merely tolerable. Instead, they advocate permissive free software licenses which allow others to make software based on their source code and then not, in turn, also distribute the source. Their view is that this permissive approach is more free. The Kerberos, X.org, and Apache software licenses are substantially similar in intent and implementation. All of these software packages originated in academic institutions interested in the widest possible technology transfer (University of California, MIT, and UIUC). All free software licenses must grant people all the freedoms discussed above. However, unless the applications' licenses are compatible, combining programs by mixing source code or directly linking binaries is problematic, because of license technicalities. Programs indirectly connected together may avoid this problem. Apart from these two organizations, the Debian project is seen by some to provide useful advice on whether particular licenses comply with their Debian Free Software Guidelines. Debian doesn't publish a list of approved licenses, so its judgments have to be tracked by checking what software they have allowed into their software archives. That is summarized at the Debian web site.[7] However, it is rare that a license is announced as being in-compliance by FSF or OSI and not the other (the Netscape Public License used for early versions of Mozilla being an exception), so exact definitions of the terms have not become hot issues. BSD-style licenses, so called because they are applied to much of the software distributed with the BSD operating systems. The author retains copyright protection solely to disclaim warranty and require proper attribution of modified works, but permits redistribution and modification in any work, even proprietary ones, again, for as long as the author wishes. There is debate over the security of free software in comparison to proprietary software, with a major issue being security through obscurity. A popular quantitative test in computer security is using relative counting of known unpatched security flaws. Generally, users of this method advise avoiding products which lack fixes for known security flaws, at least until a fix is available. Some claim that method counts more vulnerabilities for the free software, since their source code is accessible and their community is more forthcoming about what problems exist.[8] Free software advocates rebut that proprietary software do not have published flaws, but flaws could exist and are possibly already known to malicious users. The ability to view and modify the software provides many more people who can analyse the code, and possibly have a higher rate of finding bugs and flaws than an average corporation. Having access to the source code also makes creating spyware far more difficult.[9] Under the free software business model, free software vendors may charge a fee for distribution and offer pay support and software customization services. Proprietary software uses a different business model, where a customer of the proprietary software pays a fee for a license to use the software. This license may grant the customer the ability to configure some or no parts of the software themselves. Often some level of support is included in the purchase of proprietary software, but additional support services (especially for enterprise applications) are usually available for an additional fee. Some proprietary software vendors will also customize software for a fee. Free software is generally available at little to no cost and can result in permanently lower costs compared to proprietary software. With free software, businesses can fit software to their specific needs by changing the software themselves or by hiring programmers to modify it for them. Free software often has no warranty, and more importantly, generally does not assign legal liability to anyone. However, warranties are permitted between any two parties upon the condition of the software and its usage. Such an agreement is made separately from the free software license. In 2006, OpenBSD started the first campaign against the use of binary blobs, in kernels. Blobs are usually freely distributable device drivers for hardware from vendors that do not reveal driver source code to users or developers. This restricts the users' freedom to effectively modify the software and distribute modified versions. Also, since the blobs are undocumented and may have bugs, they pose a security risk to any operating system whose kernel includes them. The proclaimed aim of the campaign against blobs is to collect hardware documentation that allows developers to write free software drivers for that hardware, ultimately enabling all free operating systems to become or remain blob-free. Larry McVoy invited high-profile free software projects to use his proprietary versioning system, BitKeeper, free of charge, in order to attract paying users. In 2002, Linux coordinator Linus Torvalds decided to use BitKeeper to develop the Linux kernel, a free software project, claiming no free software alternative met his needs. This controversial decision drew criticism from several sources, including the Free Software Foundation's founder Richard Stallman.[14] ^ Why “Open Source” misses the point of Free Software.�“The philosophy of open source, with its purely practical values, impedes understanding of the deeper ideas of free software; it brings many people into our community, but does not teach them to defend it.”
An automobile (via French from Greek auto, self and Latin mobilis moving, a vehicle that moves itself rather than being moved by another vehicle or animal) or motor car (usually shortened to just car) is a wheeled passenger vehicle that carries its own motor. Most definitions of the term specify that automobiles are designed to run primarily on roads, to have seating for one to eight people, to typically have four wheels, and to be constructed principally for the transport of people rather than goods.[1] However, the term is far from precise because there are many types of vehicles that do similar tasks. An automobile powered by an Otto gasoline engine was built in Mannheim, Germany by Karl Benz in 1885 and granted a patent in January of the following year under the auspices of his major company, Benz & Cie. which was founded in 1883. Although several other German engineers (including Gottlieb Daimler, Wilhelm Maybach, and Siegfried Marcus) were working on the problem at about the same time, Karl Benz is generally acknowledged as the inventor of the modern automobile.[5] In 1879 Benz was granted a patent for his first engine, designed in 1878. Many of his other inventions made the use of the internal combustion engine feasible for powering a vehicle and in 1896, Benz designed and patented the first internal combustion flat engine. Approximately 25 Benz vehicles were built and sold before 1893, when his first four-wheeler was introduced. They were powered with four-stroke engines of his own design. Emile Roger of France, already producing Benz engines under license, now added the Benz automobile to his line of products. Because France was more open to the early automobiles, more were built and sold in France through Roger than Benz sold in Germany. Daimler and Maybach founded Daimler Motoren Gesellschaft (Daimler Motor Company, DMG) in Cannstatt in 1890 and under the brand name, Daimler, sold their first automobile in 1892. By 1895 about 30 vehicles had been built by Daimler and Maybach, either at the Daimler works or in the Hotel Hermann, where they set up shop after falling out with their backers. Benz and Daimler seem to have been unaware of each other's early work and worked independently. Karl Benz proposed co-operation between DMG and Benz & Cie. when economic conditions began to deteriorate in Germany following the First World War, but the directors of DMG refused to consider it initially. Negotiations between the two companies resumed several years later and in 1924 they signed an Agreement of Mutual Interest valid until the year 2000. Both enterprises standardized design, production, purchasing, sales, and advertising—marketing their automobile models jointly—although keeping their respective brands. On June 28, 1926, Benz & Cie. and DMG finally merged as the Daimler-Benz company, baptizing all of its automobiles Mercedes Benz honoring the most important model of the DMG automobiles, the Maybach design later referred to as the 1902 Mercedes-35hp, along with the Benz name. Karl Benz remained a member of the board of directors of Daimler-Benz until his death in 1929. Ford's complex safety procedures—especially assigning each worker to a specific location instead of allowing them to roam about—dramatically reduced the rate of injury. The combination of high wages and high efficiency is called "Fordism," and was copied by most major industries. The efficiency gains from the assembly line also coincided with the take off of the United States. The assembly line forced workers to work at a certain pace with very repetitive motions which led to more output per worker while other countries were using less productive methods. In the automotive industry, its success was dominating, and quickly spread worldwide. Ford France and Ford Britain in 1911, Ford Denmark 1923, Ford Germany 1925; in 1921, Citroen was the first native European manufactuer to adopt it. Soon, companies had to have assembly lines, or risk going broke; by 1930, 250 companies which did not had disappeared.[12] Since the 1920s, nearly all cars have been mass-produced to meet market needs, so marketing plans have often heavily influenced automobile design. It was Alfred P. Sloan who established the idea of different makes of cars produced by one company, so buyers could "move up" as their fortunes improved. Reflecting the rapid pace of change, makes shared parts with one another so larger production volume resulted in lower costs for each price range. For example, in the 1930s, LaSalles, sold by Cadillac, used cheaper mechanical parts made by Oldsmobile; in the 1950s, Chevrolet shared hood, doors, roof, and windows with Pontiac; by the 1990s, corporate drivetrains and shared platforms (with interchangeable brakes, suspension, and other parts) were common. Even so, only major makers could afford high costs, and even companies with decades of production, such as Apperson, Cole, Dorris, Haynes, or Premier, could not manage: of some two hundred carmakers in existence in 1920, only 43 survived in 1930, and with the Great Depression, by 1940, only 17 of those were left.[13] Most automobiles in use today are propelled by gasoline (also known as petrol) or diesel internal combustion engines, which are known to cause air pollution and are also blamed for contributing to climate change and global warming.[17] Increasing costs of oil-based fuels and tightening environmental law and restrictions on greenhouse gas emissions are propelling work on alternative power systems for automobiles. Efforts to improve or replace these technologies include hybrid vehicles, electric vehicles and hydrogen vehicles. Diesel engined cars have long been popular in Europe with the first models being introduced in the 1930s by Mercedes Benz and Citroen. The main benefit of Diesels are a 50% fuel burn efficiency compared with 27%[18] in the best gasoline engines. A down side of the diesel is the presence in the exhaust gases of fine soot particulates and manufacturers are now starting to fit filters to remove these. Many diesel powered cars can also run with little or no modifications on 100% biodiesel. Gasoline engines have the advantage over diesel in being lighter and able to work at higher rotational speeds and they are the usual choice for fitting in high performance sports cars. Continuous development of gasoline engines for over a hundred years has produced improvements in efficiency and reduced pollution. The carburetor was used on nearly all road car engines until the 1980s but it was long realised better control of the fuel/air mixture could be achieved with fuel injection. Indirect fuel injection was first used in aircraft engines from 1909, in racing car engines from the 1930s, and road cars from the late 1950s.[18] Gasoline Direct Injection (GDI) is now starting to appear in production vehicles such as the 2007 BMW MINI. Exhaust gases are also cleaned up by fitting a catalytic converter into the exhaust system. Clean air legislation in many of the car industries most important markets has made both catalysts and fuel injection virtually universal fittings. Most modern gasoline engines are also capable of running with up to 15% ethanol mixed into the gasoline - older vehicles may have seals and hoses that can be harmed by ethanol. With a small amount of redesign, gasoline-powered vehicles can run on ethanol concentrations as high as 85%. 100% ethanol is used in some parts of the world (such as Brazil), but vehicles must be started on pure gasoline and switched over to ethanol once the engine is running. Most gasoline engined cars can also run on LPG with the addition of an LPG tank for fuel storage and carburetion modifications to add an LPG mixer. LPG produces fewer toxic emissions and is a popular fuel for fork lift trucks that have to operate inside buildings. Ethanol, other alcohol fuels (biobutanol) and biogasoline have widespread use an automotive fuel. Most alcohols have less energy per liter than gasoline and are usually blended with gasoline. Alcohols are used for a variety of reasons - to increase octane, to improve emissions and as an alternative to petroleum based fuel, since they can be made from agricultural crops. Brazil's ethanol program provides about 20% of the nations automotive fuel needs, including several million cars that operate on pure ethanol. Steam power, usually using an oil or gas heated boiler, was also in use until the 1930s but had the major disadvantage of being unable to power the car until boiler pressure was available. It has the advantage of being able to produce very low emissions as the combustion process can be carefully controlled. Its disadvantages include poor heat efficiency and extensive requirements for electric auxiliaries.[21] In the 1950s there was a brief interest in using gas turbine (jet) engines and several makers including Rover and Chrysler produced prototypes. In spite of the power units being very compact, high fuel consumption, severe delay in throttle response, and lack of engine braking meant no cars reached production. Rotary Wankel engines were introduced into road cars by NSU with the Ro 80 and later were seen in the Citroën GS Birotor and several Mazda models. In spite of their impressive smoothness, poor reliability and fuel economy led to them largely disappearing. Mazda, beginning with the R100 then RX-2, has continued research on these engines, overcoming most of the earlier problems with the RX-7 and RX-8. A rocket car holds the record in drag racing. However, the fastest of those cars are used to set the Land Speed Record, and are propelled by propulsive jets emitted from rocket, turbojet, or more recently and most successfully turbofan engines. The ThrustSSC car using two Rolls-Royce Spey turbofans with reheat was able to exceed the speed of sound at ground level. Cars have many basic safety problems - for example, they have human drivers who can make mistakes, wheels that can lose traction when braking, turning or acceleration forces are too high, and mechanical systems subject to failure. Collisions can have very serious or fatal consequences. Some vehicles have a high center of gravity and therefore an increased tendency to roll over. Significant reductions in death and injury have come from the addition of Safety belts and laws in many countries to require vehicle occupants to wear them. Airbags and specialised child restraint systems have improved on that. Structural changes such as side-impact protection bars in the doors and side panels of the car mitigate the effect of impacts to the side of the vehicle. Many cars now include radar or sonar detectors mounted to the rear of the car to warn the driver if he or she is about to reverse into an obstacle or a pedestrian. Some vehicle manufacturers are producing cars with devices that also measure the proximity to obstacles and other vehicles in front of the car and are using these to apply the brakes when a collision is inevitable. There have also been limited efforts to use heads up displays and thermal imaging technologies similar to those used in military aircraft to provide the driver with a better view of the road at night. Despite technological advances, there is still significant loss of life from car accidents: About 40,000 people die every year in the United States, with similar figures in European nations. This figure increases annually in step with rising population and increasing travel if no measures are taken, but the rate per capita and per mile traveled decreases steadily. The death toll is expected to nearly double worldwide by 2020. A much higher number of accidents result in injury or permanent disability. The highest accident figures are reported in China and India. The European Union has a rigid program to cut the death toll in half by 2010, and member states have started implementing measures. Similarly the costs to society of encompassing automobile use, which may include those of: maintaining roads, pollution, public health, health care, and of disposing of the vehicle at the end of its life, can be balanced against the value of the benefits to society that automobile use generates. The societal benefits may include: economy benefits, such as job and wealth creation, of automobile production and maintenance, transportation provision, society wellbeing derived from leisure and travel opportunities, and revenue generation from the tax opportunities. The ability for humans to move rapidly from place to place has far reaching implications for the nature of our society. People can now live far from their workplaces, the design of cities can be determined as much by the need to get vehicles into and out of the city as the nature of the buildings and public spaces within the city.[29]
