Importance of Insurance

The world we live in is full of uncertainties and risks. Individuals, families, businesses, properties and
assets are exposed to different types and levels of risks. These include risk of losses of life, health, assets,
property, etc. While it is not always possible to prevent unwanted events from occurring, financial world
has developed products that protect individuals and businesses against such losses by compensating
them with financial resources. Insurance is a financial product that reduces or eliminates the cost of loss
or effect of loss caused by different types of risks.

Apart from protecting individuals and businesses from many kinds of potential risks, the Insurance sector
contributes significantly to the general economic growth of the nation by providing stability to the
functioning of businesses and generating long-term financial resources for the industrial projects. Among
other things, Insurance sector also encourages the virtue of savings among individuals and generates
employments for millions, especially in a country like India, where savings and employment are
important.

Let’s understand in detail how and why Insurance as a sector is key to development of any economy.

Provides Safety and Security to Individuals and Businesses: Insurance provides financial support and
reduces uncertainties that individuals and businesses face at every step of their lifecycles. It provides an
ideal risk mitigation mechanism against events that can potentially cause financial distress to individuals
and businesses. ). For instance, with medical inflation growing at approximately15% per annum, even
simple medical procedures cost enough to disturb a family’s well-calculated budget, but a Health
Insurance would ensure financial security for the family. In case of business insurance, financial
compensation is provided against financial loss due to fire, theft, mishaps related to marine activities,
other accidents etc.

Generates Long-term Financial Resources: The Insurance sector generates funds by way of premiums
from millions of policyholders. Due to the long-term nature of these funds, these are invested in building
long-term infrastructure assets (such as roads, ports, power plants, dams, etc.) that are significant to
nation-building. Employment opportunities are increased by big investments leading to capital formation
in the economy.

Promotes Economic Growth: The Insurance sector makes a significant impact on the overall economy by
mobilizing domestic savings. Insurance turn accumulated capital into productive investments. Insurance
also enables mitigation of losses, financial stability and promotes trade and commerce activities those
results into sustainable economic growth and development. Thus, insurance plays a crucial role in the
sustainable growth of an economy.
Provides Support to Families during Medical Emergencies: Well-being of family is important for all and
health of family members is the biggest concern for most. From elderly parents to newborn children,
medication and hospitalization play important role while ensuring well-being of families. Rising medical
treatment costs and soaring medicine prices are enough to drain your savings if not well prepared.
Anyone can fall victim to critical illnesses (such as heart attack, stroke, cancer etc.) unexpectedly. And
rising medical expense is of great concern. Medical Insurance is a policy that protects individuals
financially against different type of health risks. With a Health Insurance policy, an insured gets financial
support in case of medical emergency.

Spreads Risk: Insurance facilitates moving of risk of loss from the insured to the insurer. The basic
principle of insurance is to spread risk among a large number of people. A large population gets
insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out of
corpus of funds collected from the millions of policyholders.

Insurance is a big deal not just in the world of business but also contributes to the economy as a whole.
It has a huge impact on how businesses evolve, how people think about economics and how the world
moves forward. Insurance is the bedrock of the economy, and while it may not be something you love, it
is something you need to support your business.

The insurance industry is one of the major players in the economy and contributes to the world's
economy. This is because they help in the smooth running of the world's economy through the payment
of insurance claims and are considered one of the safest investments for people to have.

In a variety of ways, insurance companies contribute to the strength and vitality of our economy.

How? You may ask.

Insurance companies assist businesses in reducing risk and protecting their employees:

As with consumers, assisting businesses in reducing risk can have a long-term positive impact on the
economy. Insurance is like the backbone of the economy. Businesses, like consumers, can endure
financial hardship as a result of unforeseen obstacles.

When an unfortunate event strikes, insurance is one of the strongest financial tools businesses have at
their disposal to help them deal with the situation. Furthermore, when an employee is hurt on the job,
company insurance helps to cover the costs of the person's care as well as any potential salary loss.
Business insurance also aids in the expansion of a company. At its most basic level, insurance provides a
protective safety net that allows organizations to engage in higher-risk, higher-return activities than they
would otherwise. These acts assist firms in operating successfully, resulting in more jobs and increased
overall economic activity.

Insurance companies provide financial security to customers:

Consumers have become so accustomed to the routine that they are often unaware of the daily
onslaught of risk and uncertainty. Unexpected problems can strike at any time, whether a car accident,
house fire, a flooded basement after a major storm, or a work injury.

By providing crucial financial protection, insurance can assist manage this uncertainty and potential loss.
When a calamity occurs, an insurance policy can help consumers get the money they need. Many people
in these situations would be financially pressured and possibly bankrupt if it weren't for insurance.

Insurance companies help in the funding of economic development projects:

Insurance companies often invest the premiums that are not utilized to pay claims and other operating
expenses. These investments frequently finance building construction and offer other critical assistance
to economic development projects around the country through stock, corporate and government bonds,
and real estate mortgages.

Insurance is about much more than the monthly premiums that individuals and businesses must pay.
The insurance business, as a whole, is an important thread in the fabric of a healthy economy.

Insurance has a favorable impact on the financial system's stability:

One of the most important industries in the service sector is insurance. Insurance firms are an essential
component of the financial system. In addition, insurance corporations have a significant role in the
formation of state budgets. They are large taxpayers in the state. Taxes, as we all know, make up a large
portion of the state budget. As a result, the insurance industry plays a critical role in maintaining the
stability of the tax and financial systems.

Insurance provides employment:

Unemployment is one of the most serious economic issues. This is a problem that many countries are
dealing with these days. In most emerging countries, the number of unemployed individuals is rising.
However, the insurance system aids in the resolution of this economic issue by providing employment.
Insurance contributes to an increase in GDP:

GDP is one of the most important macroeconomic metrics. The volume of GDP is used to determine
each country's level of development. People can choose from a variety of insurance plans offered by
insurance firms. These premiums are used by insurance companies in the financial and investment
operations of the economy. As a result, this process boosts the economy's GDP.