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