What is the role of insurance in economic development?

Answer 1

Benefits to the Insured and capital protection
The system of insurance provides numerous direct and indirect benefits to the individual, his family, to industry and commerce and to the community and the nation as a whole. The insured - both individuals and corporate, are directly benefitted because they are protected from effects of the loss that may be caused by an accident or uncertain event. Insurance, thus, in a sense protects the capital in industry and releases the capital for further expansion and development of business and industry.
Encouragement of Investment
Insurance removes the fear, worry and anxiety associated with one's future 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 thereby contributes to a healthy economy and increased national productivity.
Increased creditworthiness
A bank or financial institution may not advance loans on property unless it is insured against loss or damage by insurable perils. Most of them insist on adding their name in the policy as co insured so that total loss claims are paid to them if there is balance loan to be paid back.
Sharing of risk expertise and lower rates of premium
Before acceptance of a large or complex risk, insurers arrange survey and inspection of the property to be insured by qualified engineers and other experts. They not only assess the risk for rating purposes but also suggest and recommend to the insured, various improvements in the risk, which will reduce the chance and severity of losses and also result in lower rates of premium.
Foreign exchange
Insurance ranks with export trade, shipping and banking services as earner of foreign exchange to the country. Indian insurers operate in more than 30 countries. These operations earn foreign exchange and represent invisible exports.
Foreign exchange is also earned through acceptance of Reinsurance from abroad.
Widespread industry association
Insurers are closely associated with several agencies and institutions engaged in fire loss prevention, cargo loss prevention, industrial safety and road safety.
Investments
Investments benefit the society at large. An insurance company's strength lies in the fact that huge amounts are collected and pooled together in the form of premiums. These funds are collected and held for the benefit of the policyholders.
Insurance companies need to keep this aspect in mind and make all decisions in dealing with these funds in ways that benefit the community. This applies also to its investments. That is why successful insurance companies would not be found investing in speculative ventures, but they play a major role in the capital market investing in Government and debt securities as well as in stocks and shares to the extent permitted by the insurance regulator.
Social Security
The share of healthcare expenditure in India's GDP was very low at 4% for 2014. It is low when compared to other developing countries such as China 5.6%, Brazil 9.7% and South Africa 8.9%. Most of the government funds for health care is spent on manpower and other human resources leaving less funds for infrastructure.
As per World Bank, out of pocket health care expenditure in India was 86% leaving individuals to bear a large proportion of health care expenditures. As health care is very expensive, it leaves an individual, especially the poor population, vulnerable in case of any sickness. Health insurance provided by both commercial insurers and various governments helps individuals to tide over their medical emergencies and prevents families from falling into poverty.
Health insurance enables an individual to avail best quality health care whenever an individual requires. Cashless facility provided by insurers enables an individual to take quick medical aid without having to mobilize huge amount of money at a short notice.
As such, individuals are prevented from becoming bankrupt due to high medical costs at the time of emergencies due to existence of health insurance cover. Health insurance cover also provides for benefit payments when the individual is sick and he/she cannot engage in productive employment activities.