Insurance and Economic Development

Published on June 2016 | Categories: Documents | Downloads: 38 | Comments: 0 | Views: 374
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The Role of Insurance in
Economic Development
Pooja Garg

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.



Peach of mind and financial carelessness

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

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

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

Helps mobilize savings


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

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.

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.

Thank You

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