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