Role-of-insurance-in-economic-development

hi

1. The Role of Insurance in
Economic Development

2. 2
Contribution of Insurance to growth
Positive contribution towards economic growth
Strong complementary between insurance and
banking
THE CONCEPT OF MICROINSURANCE
Household insurance, Crop insurance, Health
insurance, SME insurance
THE RELATION OF PER CAPITA INCOME
AND INSURANCE

3. 3
Role of Insurance in Economic
Development
Promote financial stability
By indemnifying those who suffer or
harm, insurance helps stabilize the
financial situation of individuals,
families and organizations.
It encourages individuals and firms to
invest and create wealth

4. 4
Role of Insurance in Economic
Development
Substitutes for and complements
government security programs
Private insurance can relieve pressure
on social insurance system, preserving
government resources for essential
social security.
Pension fund and life insurance
Natural disaster indemnity plan

5. 5
Role of Insurance in Economic
Development
Facilitates trade and commerce
Many products and services are produced
and sold only if adequate liability insurance
is available to cover any claims for
negligence.
Innovation
Credit enhancement

6. 6
Role of Insurance in Economic
Development
Helps mobilize savings
Insurance and financial intermediation
Insurance enhance financial system
efficiency in three ways
Reduce transaction costs associated with
bringing together savers and borrowers
Create liquidity
Facilitate economies of scale in investment

7. 7
Role of Insurance in Economic
Development
Financial intermediaries vs. financial
markets
The more developed a country’s financial
system, the greater the reliance on markets and
the less the reliance on intermediaries.
Insurers vs. other financial intermediaries
Commercial banks –short-term deposits
Contractual saving institutions –long-term view

8. 8
Role of Insurance in Economic
Development
Enables risk to be managed more efficiently
Risk pricing –greater the expected loss, higher the
price
Risk transformation –risk exposures can be
transferred to an insurer for a price
Risk pooling and reduction
(1) insurers make reasonably accurate estimates as
to the pool’s overall losses.
(2) insurers diversify their portfolios.

9. 9
Role of Insurance in Economic
Development
Encourages loss mitigation
If pricing is tied to loss experience, insures have
economic incentives to control losses.
Fosters a more efficient capital allocation
Insurers will monitor the companies to reduce risk-
increasing behavior and act in the best interests of
their various stakeholders.
A watch-dog role.