Economic Significance of Insurance
The 7 major economic significance of insuranceare as follows:
1) Savings are Encouraged
Through the payment of regular premiums, insurance encourages people to make systematic savings. Regular premium payments develop a habit of saving among citizens. As a result of the small savings of millions of insured people, a huge amount of savings is generated at the national level.
2) Employment generation:
In the country, the insurance industry has a tremendous potential to generate direct and indirect employment. The administrative and development departments employ millions of people. Agents, advisors, surveyors, development officers, administrative staff, etc., are all employed directly by the insurance industry.
Apart from these direct employment opportunities, protection of insurance has also increased employment opportunities in real estate, information technology, and other sectors.
3) Development of infrastructure:
Developing basic infrastructure, such as electricity, water supply, transportation, and communication facilities, is crucial to the development of an economy. Insurance companies provide share capital, loans, and advances for the development of these basic needs. In this way, insurance is responsible for the rapid development of infrastructural facilities in the country.
4) Contributes to economic development:
A country’s economic development is facilitated by the investment policies of insurance companies. Domestic savings are mobilized by insurance to accelerate economic development. By converting accumulated capital into productive investments, it contributes to economic growth.
Public and private companies, co-operative sectors, industries, corporations, and government securities are all investments that insurance companies make. It is therefore important for the economy to have insurance to be able to grow sustainably.
5) Supports rural development and agriculture:
Agriculture is the main industry in India. A major factor affecting Indian agriculture is the regularity of the monsoon. Consequently, heavy rains, droughts, floods, wind, pests, and diseases may cause losses. Insurers compensate such losses through crop insurance. Apart from this, they can provide insurance for farmers and their assets, such as agricultural pump sets, farm equipment, poultry, cattle, horticulture, sericulture, etc.
A well or irrigation scheme can be constructed with the funds provided by insurance. Insurers are required to conduct insurance business in rural areas to a certain extent every year by the Insurance Regulatory and Development Authority (IRDA). Rural development can be greatly facilitated by insurance companies.
6) Reserves of foreign exchange increase:
It is possible for insurance companies to earn valuable foreign currency by doing business in different countries. Foreign exchange reserves are increased as a result. As a result, the country is able to meet its import requirements.
7) Contributes to the development of the capital market:
Insurance companies play an important role in developing the capital market in the country. State and central governments securities can be invested with large amounts of funds. It has become common for insurance companies to issue policies that are linked to units. The benefits provided by these schemes are more attractive to policyholders. As a result, insurance contributes to capital market development.