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

Pension fund and life insurance

Natural disaster indemnity plan

Facilitates trade and

Many products and services are produced and
sold only if adequate liability insurance is
available to cover any claims for negligence.


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

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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