In this booklet, one of a series intended to apply economic principles to major social and political issues of the day, the workings of the American insurance industry, a central part of the American economy, are described. Insurance provides a means to transfer or spread risk, thus helping to assure economic survival despite chance, accident, or natural disaster. The discussion begins by considering the history of insurance from the time of Hammurabi to the present, with particular attention paid to the history of the insurance industry in the United States and the role of state regulation on the industry. Then insurance is defined and the differences between government and private insurance are discussed. Under private insurance, the difference between proprietary and cooperative insurers is explained. Also covered are the principle of risk, insurance contracts, underwriting and rating, and insurance losses. Life insurance, health insurance, automobile insurance, property insurance, and retirement and insurance are covered in separate sections. Among the areas discussed in these sections are types of coverage, rates, group and individual policies, Social Security, and Medicare. (IS)