Role of Insurance in Economic Development

For economic development, investments are necessary. Investments are made out of savings. A life insurance company is a major instrument for the mobilization of savings of people, particularly from the middle and lower income groups. These savings are channeled into investments for economic growth.

An insurance company’s strength lies in the fact that huge amounts come by way of premiums. Every premium represents a risk that is covered by that premium. In effect, therefore, these vast amounts represent pooling of risks. The funds are collected and held in trust for the benefit of the policyholders. The management of insurance companies is required to keep this aspect in mind and make all its decisions in ways that benefit the community. This applies also to its investments. This is why successful insurance companies would not be found investing in speculative ventures. Their investments benefit the society the society at large.

The system of insurance provides numerous direct and indirect benefits to the individual and his family as well as to industry and commerce and to the community and the nation as a whole. Those who insure, both individuals and corporate, are directly benefited because they are protected from the consequences of the loss that may be caused by the accident or fortuitous event. Insurance, thus, in a sense protects the capital in industry and releases the capital for further expansion and development of business and industry.

The very existence of risk that is, uncertainty concerning the future, is a severe handicap in economic activities. Insurance removes the fear, worry and anxiety associated with this future uncertainty and thus encourages free investment of capital in business enterprises and promotes efficient use of existing resources. Thus insurance encourages commercial and industrial development and there by contributes to a vigorous economy and increased national productivity.

Present day organization of industry, commerce and trade depend entirely on insurance for their operation, banks and financial institutions lend money to industrial and commercial undertakings only on the basis of the collateral security of insurance. No bank or financial institution would advance loans on property unless it is insured against loss or damage by insurable perils.

Insurers are closely associated with several agencies and institutions engaged in fire loss prevention, cargo loss prevention, industrial safety and road safety.

Before acceptance of a risk, insurers arrange survey and inspection of the property to be insured, by qualified engineers and other experts. The object of these surveys is not only to assess the risk for rating purposes but also to suggest and recommend to the insured, various improvements in the risk, which will attract lower rates of premium and what is more important , reduce the loss potential. For example, burglary surveyors make recommendation in regard to security measures such as better locking system, appointment of Watchman, etc. Engineering surveys play a most useful part in accident prevention as valuable technical advice is provided in respect of plant and machinery.
Insurance ranks with export trade, shipping and banking services as earner of foreign exchange to the country. It helps to earn foreign exchange and represent invisible exports.