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Role of Insurance in Economic Development

The document discusses the role of insurance in economic development. It argues that insurance contributes positively to economic growth and has a strong complementary relationship with banking. It also notes that insurance promotes financial stability by helping individuals and organizations recover from harm, encourages investment, can substitute for and complement government programs, facilitates trade and commerce, helps mobilize savings, enables more efficient risk management, and encourages loss mitigation.

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16K views9 pages

Role of Insurance in Economic Development

The document discusses the role of insurance in economic development. It argues that insurance contributes positively to economic growth and has a strong complementary relationship with banking. It also notes that insurance promotes financial stability by helping individuals and organizations recover from harm, encourages investment, can substitute for and complement government programs, facilitates trade and commerce, helps mobilize savings, enables more efficient risk management, and encourages loss mitigation.

Uploaded by

m_dattaias
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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The Role of Insurance in

Economic Development
Contribution of Insurance to growth
 Positive contribution towards economic growth
 Strong complementary between insurance and
banking
THE CONCEPT OF MICROINSURANCE
Household insurance, Crop insurance, Health
insurance, SME insurance
THE RELATION OF PER CAPITA INCOME
AND INSURANCE

2
Role of Insurance in Economic
Development
 Promote financial stability
 By indemnifying those who suffer or

harm, insurance helps stabilize the


financial situation of individuals,
families and organizations.
 It encourages individuals and firms to

invest and create wealth

3
Role of Insurance in Economic
Development
 Substitutes for and complements
government security programs
 Private insurance can relieve pressure

on social insurance system, preserving


government resources for essential
social security.
 Pension fund and life insurance
 Natural disaster indemnity plan

4
Role of Insurance in Economic
Development
 Facilitates trade and commerce
 Many products and services are produced

and sold only if adequate liability insurance


is available to cover any claims for
negligence.
 Innovation

 Credit enhancement

5
Role of Insurance in Economic
Development
 Helps mobilize savings
 Insurance and financial intermediation
 Insurance enhance financial system

efficiency in three ways


 Reduce transaction costs associated with
bringing together savers and borrowers
 Create liquidity

 Facilitate economies of scale in investment

6
Role of Insurance in Economic
Development
 Financial intermediaries vs. financial
markets
 The more developed a country’s financial
system, the greater the reliance on markets and
the less the reliance on intermediaries.
 Insurers vs. other financial intermediaries
 Commercial banks – short-term deposits
 Contractual saving institutions – long-term view

7
Role of Insurance in Economic
Development
 Enables risk to be managed more efficiently
 Risk pricing – greater the expected loss, higher the
price
 Risk transformation – risk exposures can be
transferred to an insurer for a price
 Risk pooling and reduction
(1) insurers make reasonably accurate estimates as
to the pool’s overall losses.
(2) insurers diversify their portfolios.

8
Role of Insurance in Economic
Development
 Encourages loss mitigation
 If pricing is tied to loss experience, insures have
economic incentives to control losses.
Fosters a more efficient capital allocation
 Insurers will monitor the companies to reduce risk-

increasing behavior and act in the best interests of


their various stakeholders.
 A watch-dog role.

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