The insurance industry accounts for 7.7% of world GDP, but how insurers govern the £3,500 bn business varies from country to country.

American author Gore Vidal sees the insurance industry as one of the strongest (and most negative) forces in US politics. In the UK it’s clear that national infrastructure is so dependent on private insurance (as the social security system is increasingly pegged back by governments looking for savings) that it is, effectively, partly above the law. When millions of people were mis-sold pension plans by insurance companies in the late 1980s, the regulators did not encourage criminal proceedings.

But by its very nature, insurance goes through good and bad years. In 2005, the industry paid out £83bn in property and business claims for hurricanes in the US and Caribbean, and other natural catastrophes. In recent years, the sector has become more aware of the risks of such calamities, and front-line insurers have re-insured themselves in order to protect themselves from financial disaster should they have to pay out giant claims. Still, the increasing risk of extreme weather conditions is likely to result in more exclusions by insurers – a normal response from the sector when claims repeat themselves too often.

The market looks set to grow further, as developing countries (which may have relatively little to insure right now) become more sophisticated. In industrialised countries, which account for four-fifths of the world’s premiums, premium income rose 2% in 2005. The emerging markets saw a 7% rise, and growth in Asia was more than 9%.

Insurance activities are divided into two areas – underwriting motor, medical and other risks (what the ordinary person thinks of as insurance, in other words) and life insurance (which, in practice, means both life insurance policies and pension plans). This second type of insurance grew by 4% in 2005, while risk underwriting grew just 0.6%.

As more and more governments shift away from providing generous state pensions and social security benefits, individuals will be encouraged to build up their own pension funds either via their employers or in these insurer-run schemes. Also, as the phenomenon of rising house prices spreads around the world, more people are investing in life insurance so that their widows and orphans will have a roof over their heads if the breadwinner dies before the mortgage is fully paid off.

Insurers who might dispute Gore Vidal’s assessment of them can fairly easily find evidence of good actions they have taken. In the UK, for instance, insurers hold 17% of the London stock market (more than the 16% held by company pension funds). Its sheer financial power gives it extraordinary backroom power. Here, insurance law is so archaic and outdated that insurers have agreed industry codes which give a far better deal to customers making claims on their policies than the law itself would allow.