How does General Insurance benefits our economy?

General Insurance is more than just compensating loss when the loss occurred. This is one of the most effective methods that we can deal with uncertainty. It helps us to manage and reduce the potential risk that we face. In fact, general insurance makes a major contribution to our lives by drives up standard because it put continuing pressure on the factors that generate insecurity. The major function of general insurance is reducing risk in our daily life. General insurance not only helps people to recover from loss but also help people to avoid those risk and this is the fundamental to general insurance industry.

Reducing risk by transferring catastrophe loss into manageable loss.

Without general insurance, people will become risk adverse and hesitate to take risk in daily life. This is because we know that high return is always associates with high risk compare to low return. But there is only few of us out of million will take those high risk chances. This is reasonable since we will not risk everything that we have into an unsecure investment, such as property. If general insurance does not exist, it is difficult to imagine that ordinary families will invest most of their wealth in single property. Besides, general insurance also allow new technology and product to be tested. This is good since we do not need to worry that such failure would bankrupt our promoters and hence more advance product will be found in the market. As a result, people would be more willing to engage in risk-taking because the risk is manageable now.

Obtaining financing

Besides, general insurance does help consumer in obtaining financing. Consumer cannot get a loan for car and house without the proof of insurance, namely homeowner insurance and auto insurance. Likewise, the business owner or entrepreneur cannot obtain financing to buy commercial building or invest in their business project without the proof of insurance. This is because the risk is too high without the proof of insurance and therefore lender will not lend. Business is unable to expand without financing and hence they do not create job for the public. Without job opportunities, the unemployment rate will increase and will lead to a decrease in spending because people have less money to spend. Eventually, economy will go down.

Prosperity of a country

General insurance industry is a major contributor to a nation gross domestic product (GDP), which is a measurement of a nation’s overall economic activity. As mention in the previous section, general insurance not only provide financing for a business but also provide a safety net for entrepreneur. This is because general insurance break down barrier for business to obtain financing and for product to launch. Individuals and businesses do not need to maintain excessive cash reserves to protect themselves against risk so that they can freely invest in other potential project. This also lead to a continuous improvement for a business.

Paying Taxes

Insurance companies and their employees pay taxes, which fund government programs that help needy people, contribute to education, protect the country, and maintain and expand the infrastructure.

Invest in capital marketing

Insurance companies are stabilizing the financials of individuals, companies and the state. They act a role as institutional investors which contribute to the development of a well- functioning capital market. Insurance companies invest the large amount of asset which is the premium that they receive and set aside some reserves as provisions for the payment in the future if the claim is made.  From macroeconomic point of view, the insurance companies help to mobilize the national saving and further they are narrowing down the investment gap of emerging economies. Insurance companies act as important long-term institutional investors which function as financial intermediaries contribute to bringing savers and borrowers.

Provides information to the investors

Insurance companies also play an important role in the economy in providing the information. The level of the insurance premiums provides will be an indication that the existing risk and of how probable it is that a loss will be suffer by the investors. This helps companies to make a comparison of the risk or return profiles of projects, thereby ensuring that the available resources are put at the best possible use. Insurance companies also offer consultancy services which advise the companies on how to improve a product's quality.

Source: https://www.abi.org.uk/~/media/Files/Documents/Publications/Public/Migrated/The%20Social%20Value%20of%20General%20Insurance.pdf

How does General Insurance benefits the Society?

            When we talk about the benefits of general insurance, the role of general insurance as a social protection mechanism often comes to our minds first. In fact, this is very true as general insurance allows the insured individuals to recover from sudden loss by indemnifying their loss or minimizing the financial burden. However, the benefits of insurance are not limited to only this but are much wider and have greater impacts to the society and economy. Due to the fact that the insurance companies diversify, manage and also absorb the risks of the insured, insurance is considered a precondition for developing other productive activities most of the time, for example, when one wants to buy a home or expand a business. These activities, though can help to improve the economic conditions and support the trade of a country, are often engaged in only once the related and attributable external risks are managed and minimized through the use of insurance. Hence, general insurance can have far greater benefit than our initial perception. Thus the saying by The Geneva Association (2012), “Insurance should be perceived not only as a protection mechanism, but more importantly as a partnership that allows individuals and businesses to spread their wings and go where they might otherwise not have dared to go.”

            To focus on the benefits of general insurance on society, there are few points of perspective we can embrace. First and foremost, as has been mentioned from the start, general insurance plays the role of social protection mechanism. This is easily understandable as it is the core objective of general insurance to protect the insureds from the losses out of property damage, bodily harm and other incidents such as accident, fire and legal liabilities. With general insurance, the insureds are protected against sudden and unpredictable misfortune and their losses are indemnified or minimized compared to the case should they have not been covered by insurance. This in turn enhances the peace of mind of the society and promotes their financial stability. It is this function of general insurance that enables not only families but also businesses to remain financially feasible and stable in an event of sudden and unpredictable loss that constitutes to the most important social protection mechanism of the general insurance. By mitigating losses through insurance services or financial indemnification and compensation, insurance helps greatly to enhance the peace of mind of the society and alleviate the society’s fear of sudden loss.

            Besides playing the role of social protection mechanism and enhancing peace of mind and financial stability, general insurance also encourages risk management, loss mitigation and raise the awareness towards various risk among the society. Risk management basically are made up of three major parts and principles, that is, risk assessment, risk mitigation/prevention, and also risk transfer. Insurance companies often send pricing signals to the society. These pricing signals can have a great effect on the behavior of the society towards risk that inclines towards loss prevention and also risk mitigation. This is all done to lower the premiums need to be paid in order to obtain an insurance to cover the possible losses. In addition to providing coverage for losses of the insured, the insurance industry also acts as a valuable and important source of risk management skills and information that could bring great benefits to the society. In fact, the insurance sector needs to do a large quantity of research on what could constitute and contribute to the risk in various areas. The results of all these researches would then send pricing signals that can fuel the public debates on loss preventions and safety. This will surely lead to a more risk-adverse or risk-resilient behavior of the insured or potential customers, and thus encourage better safety standards such as improved and revised safety performance requirements for various securities measures like fire alarms or security systems for business and home.

            Furthermore, general insurance also helps to relieve the burden on government through providing the services of social protection. The countries that have not make a shift in their welfare strategy can suffer from limited economic growth, low demand and experience lack of competitiveness due to the ever growing of demographic pressures. This is where insurance can come in and help. In fact, general insurance can help to provide security to the society and at the same time relieve their financial burden. The general insurance industry can share their experience on risk mitigation and management. They can also help to design solutions to the challenges faced by the country.

REFERENCE:

https://www.genevaassociation.org/media/99535/ga2012-the_social_and_economic_value_of_insurance.pdf

Objective

The main objective of our assignment is analyze how general insurance benefits society and the economy from different aspects. Firstly, we will briefly discuss what is general insurance and the different type of general insurance product that we can found in the market. Besides, we also compare the differences between life insurance and general insurance so that we know the advantages of buying general insurance. Next, we will discuss the benefits of general insurance from point of view of economy. There are many way that general insurance benefit our economy but we only discuss few of them in our assignment, which is reducing risk, obtaining financing, prosperity of country, paying taxes, invest in capital marketing and provide information to investor. On the other hand, we also want to know that how general insurance benefits society. We focus on few points which are role of social protection mechanism, encourage risk management, relieve the burden on government through providing the service of social protection. Lastly, we also include some of the case study on situations where the general insurance provides coverage.