For any country, insurance is one of the main and important fields of their economy. The main objective of the insurance is to protect people from risks and dangers. People use insurance to keep their assets and life under guarantee. Insurance plays great role both in developed and developing countries’ economy.
Economic significance of insurance can be explained on the basis of:
The savings made in the insurance plan cannot be easily withdrawn before the term. Also the monthly installments have to be paid regularly. Due to this, common people acquire frugal habits and forced to saving. Huge funds are accumulated in the form of insurance premiums from lakhs of such common people. This helps in the economic development of the country by increasing the national savings.
The employment generation potential of insurance business is huge and it has directly and indirectly provided employment to lakhs of people in the country. Direct employment has been created in various ways such as insurance representatives, surveyors, development officers, divisional managers, actuaries and administrative staff. Also insurance coverage has indirectly provided employment opportunities to lakhs of people due to the development of trade, industry, manufacturing and ancillary facilities.
Development of Trade and Industries
The protection of insurance has led to the development of domestic trade and industry. Also, businessmen and entrepreneurs have dared to start international trade and big industries. In modern times, the amount of danger and loss has increased. Internal and international trade and industrial sector have developed as insurance covers losses due to various perils.
Development of Agricultural Sector
Due to natural calamities like heavy rains, droughts, pestilence, there is huge loss of agriculture. Through crop insurance scheme, the insurance company covers the loss of crops due to natural calamities. The agriculture sector has developed due to insurance cover for the ancillary industries like animal husbandry, poultry farming, silk industry. Funds from insurance business are used by the government for building dams, digging canals, power generation etc. This has helped in the development of industry and agriculture sector in the country.
Entrepreneurs and businessmen have invested huge capital in industrial business. Such industries are at risk of going out of business in case of loss due to sudden crisis. Such industries can resume business after the loss, compensated due to insurance cover. Also, if a partner dies in a partnership firm, the partnership firm is likely to be wound up. The facility of joint insurance allows the share of the deceased partner to pass on to his heirs and continue the business intact.
Increase in Foreign Exchange Earnings
Many insurance companies have started insurance business by opening branches in various countries. Overseas insurance business has helped in earning foreign currency. Foreign exchange is also earned through export trade. Export trade is mainly carried out by sea route. The risks involved in maritime transport are enormous. Insurance guarantees compensation for loss of ship or cargo due to marine peril. Therefore, traders and various organizations have dared to start export trading. This has helped in earning foreign exchange by increasing the export trade.
Capital Market Development
Insurance companies accumulate huge funds in the form of insurance premiums. Through these funds, insurance companies invest in shares and bonds of private and public sector companies. Today, most of the insurance companies have started unit linked insurance plans related to the share market. Through this scheme, a huge investment is made in the share of the companies. This has helped the development of the capital market.
Security to Loans and Deposits
Creditor’s loan and depositor’s deposit in bank are covered by insurance business. The insurance covers financial loss to the creditor in case of sudden death of the debtor or if he is unable to repay the creditor. Banks also insure deposits made by customers. This has helped to increase the deposit by protecting the interest of common depositors. As a result, the industrial business has been helped in getting loan from the bank.