Role of Insurance in Economic Development

There are a number of ways that insurance contributes to the economic development of a country. In fact the role of insurance in economic development cannot be underestimated.

1) Investments from savings: Life insurance policies are major instruments for mobilization of savings of people.The life insurance companies provide insurance for all income groups of people. Some proportion of the premium is invested into investments that  accelerate economic growth. This happens because investments made by insurance companies are not speculative in nature, but are invested for the overall benefit of society.

2) Engine of growth:  Insurance provides indemnity for losses caused by accidents or fortuitous events to the insured. Insurance is provided for individuals and their families, corporate and industries and for commerce. As a consequence, insurance protects the capital and this capital is made available for future consumption by individuals and for  development of business and industry.

3)  Loss minimization: Insurance provides indemnity against loss in value of capital invested. This encourages investment of capital in business. Existing resources are used more efficiently as records have to be maintained and loss minimization measures are implemented, as these are required by insurance companies.

4) Foreign exchange: Insurance operations in foreign countries earn foreign exchange. They are also like intangible exports. and can rank with export trade, shipping and banking services as earner of foreign exchange for the country.

5) Economic equality: Rural insurance and the obligations of insurance companies to the rural sector are important for the growth of the rural economy. This provides an avenue for the rural sector to develop. Documentation becomes enabled in the rural sector as banks and insurance companies collect documents to provide insurance. Economic efficiency speeds up due to mitigation of losses as indemnity is provided by the insurance companies.