Insurance product innovation often involves new types of insurance benefits or new approaches to defining insurance benefits. The nature of innovation is that it looks outside or way beyond "the box". The following addresses a question on this from one of our readers.

Question: Do the states or federal government define what constitutes "benefits" in insurance policies?

Answer: Generally, an insurance benefit is a financial benefit paid to reimburse a policyholder for the financial consequences associated with a "contingent event". A contingent event is an event that is uncertain with respect to its occurrence, timing, or severity. The insurance benefit removes, to some extent, the financial uncertainty.

We've interpreted the question in the context of whether or not law and regulation can provide any guidance to inventors of new types of benefits. While insurance is regulated (principally by the states), insurance companies are generally free to determine what types of contingent events they will insure. State regulation is built around the types of insurance benefits currently being provided and is, generally, reactive to change rather than proactive.

Certainly the need for insurance develops and changes over time. Specific types of insurable contingent events appear and disappear as economic and social structures change and develop. It is the demand and opportunity created by these changes that stimulates innovation and invention in the insurance industry.

Governmental influence on what constitutes a legal definition for an insurance benefit (or the provision of an insurance benefit) include: public policy; non-discrimination statutes (since insurance almost always includes some kind of classification system); and fairness.