BEA's measure of property and casualty insurance services that is included in GDP is an estimate of the value of the services provided by the insurance company to its policyholders. Insurance companies provide financial protection to policyholders through the pooling of risk, and they provide financial intermediation services through the investment of reserves that are held to help cover extraordinary losses. After accounting for investment income, insurance companies set premiums to cover the expected costs of providing the services, of settling claims, of maintaining reserves against future claims, and of purchasing reinsurance.
Therefore, services of the property-casualty insurance industry are measured as direct premiums earned plus "premium supplements" -- that is, the expected investment income earned from the investment of reserves that are directly attributable to policyholders because of prepayment of premiums or accrual of benefits -- minus normal losses incurred and dividends paid to policyholders. The normal losses are calculated on the basis of historical experience. Because the measurement of insurance services uses normal losses rather than actual losses, the measure does not exhibits large swings when disasters take place.
The value of disaster-related insurance payouts are recorded as capital transfer payments, which are presented in NIPA table 5.11.
- “Preview of the 2003 Comprehensive Revision of the National Income and Product Accounts: Changes in Definitions and Classifications”
by Brent R. Moulton and Eugene P. Seskin, Survey of Current Business 83 (June 2003): 17-34.
- “Measuring the Services of Property-Casualty Insurance in the NIPAs: Changes in Concepts and Methods”
by Baoline Chen and Dennis J. Fixler, Survey of Current Business 83 (October 2003): 10-26.
- “Annual Revision of the U.S. International Accounts”
by Christopher L. Bach, Survey of Current Business 84 (July 2004): 60-62.