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