Insurance And Its Economic Importance

  • Insurance And Its Economic Importance

    Humans are inherently risk-averse. One of the basic human needs is the need for security. Faced with the constant threat of a wide variety of risks, prosperity, social security and economic growth can only be secured in the long term. If society has effective social risk management, this is possible. Various mechanisms and institutions have developed for this purpose within the framework of social risk management. The insurance industry is of central importance here.

    Economic functions of the private insurance industry

    It is true that not all risks in business and society are accessible to private insurance. However, you can use many other instruments within the framework of social risk management. For numerous risks, however, the insurance principle of risk equalization in the collective together with the use of a highly developed risk policy instrument represents the most efficient possibility of risk management. They can do this within the framework of private insurance cover. In the course of organizing the insurance process, the insurance industry takes on a number of central functions. Without which a modern national economy would hardly be conceivable.

    Insurance industry as part of social security

    In accordance with its task in the context of social risk management, the basic economic function of the insurance industry is to fulfil people’s basic need for more security in their life planning. Insurance contracts protect private households against property damage and liability damage. Financial risks can thus be planned and controlled for private households. At least as important from a socio-political point of view is the protection of elementary personal risks.

    Sim Gakhar

    Insurance industry as a catalyst for economic activity and innovation

    At the same time, insurance protection is also a prerequisite for a society to be able to take more risks in the field of production or the provision of services. Many economic activities would be unthinkable without insurance cover. Without insurance protection no plane could take off, no production facility could start. Even in the field of freelance professions, practicing a profession without liability insurance is unimaginable. But the risks of business interruption or the loss of important employees can also be relieved of the company within limits.

    The importance of insurance protection for the economic development of a society is also evident in the area of ​​private households. Without home insurance, many households would be reluctant to invest in home ownership. A modern economy always requires the existence of private insurance protection.

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