Sunday, February 24, 2019 9:47 PM

Introduction:-
○ Insurance plays a fundamental role. Many activities would not take place if it werent for insurance.
○ Developed economies have more insurance penetration in general. It leads to the insurance companies having huge assets under their control.
○ Insurance outgrows the general economy where wealth of individuals and interest in protecting assets increases.

Complex position of an insurer:-

○ On one hand, he is a custodian or a treasurer of the fund
▫ He has to work for the interest of all the participants
○ On other hand, he's the owner of the fund
○ He also works as a risk expert and risk manager
▫ Unexpected legal changes present a fundamental problem if they affect the payout scheme since they can render previous calculations
inappropriate
○ Insurer is also an entrepreneur
○ He is also a key transmitter of preferences in a society

* Insurance industry is very tightly regulated and supervised

Financial benefits to modern economy:-

○ Insurance industry is a very large employer
○ Insurance industry plays a central part to the capitalisation process of the economy
○ It creates a buffer function in case of sudden surges in financial needs
○ Under stress, Insurance sector stays more stable than other sectors, eg- banking
○ Insurance is a rare mechanism of spreading risk over long periods of time
○ It has a double positive impact on the savings of an economy (decreases precautionary savings and converts dormant capital to working capital)

Other benefits:-
○ Gives independence to people and increases their capacity of self-reliance by removing the worry about possible adversities
○ Provides peace of mind
○ Widens the risk sharing group from local circles to global circles
○ Insurance companies are information providers, knowledge carriers and training centres for economies
▫ bundling of superior knowledge has a positive effect on development of economies
▫ they have interest in the education and formation of experienced workforce so that better understanding of risks are introduced to the society
▫ they create more knowledge about risk management, risk assessment and understanding vulnerabilities
○ There is a high correlation between existence of insurance and profusion of preventive measures
○ Existence of an insurance market fosters several industries around it, eg- offers for preventive measures and services, damage assessments, legal
advice, etc.
○ Prevents civil unrest during times of major economic incidents
○ The awareness of insurance premia going up because of risky behaviour encourages safety

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