Importance of Insurance
The world we live in is full of uncertainties and risks. Individuals, families,
businesses, properties and assets are exposed to different types and levels of risks.
These include risk of losses of life, health, assets, property, etc. While it is
not always possible to prevent unwanted events from occurring, financial world has
developed products that protect individuals and businesses against such losses by
compensating them with financial resources. Insurance is a financial product that
reduces or eliminates the cost of loss or effect of loss caused by different types
Apart from protecting individuals and businesses from many kinds of potential risks,
the Insurance sector contributes significantly to the general economic growth of
the nation by providing stability to the functioning of businesses and generating
long-term financial resources for the industrial projects. Among other things, Insurance
sector also encourages the virtue of savings among individuals and generates employments
for millions, especially in a country like India, where savings and employment are
Let’s understand in detail how and why Insurance as a sector is key to
development of any economy.
- Provides Safety and Security to Individuals and Businesses: Insurance
provides financial support and reduces uncertainties that individuals and businesses
face at every step of their lifecycles. It provides an ideal risk mitigation mechanism
against events that can potentially cause financial distress to individuals and
businesses. ). For instance, with medical inflation growing at approximately15%
per annum, even simple medical procedures cost enough to disturb a family’s
well-calculated budget, but a Health Insurance would ensure financial security for
the family. In case of business insurance, financial compensation is provided against
financial loss due to fire, theft, mishaps related to marine activities, other accidents
- Generates Long-term Financial Resources:The Insurance sector generates
funds by way of premiums from millions of policyholders. Due to the long-term nature
of these funds, these are invested in building long-term infrastructure assets (such
as roads, ports, power plants, dams, etc.) that are significant to nation-building.
Employment opportunities are increased by big investments leading to capital formation
in the economy.
- Promotes Economic Growth: The Insurance sector makes a significant
impact on the overall economy by mobilizing domestic savings. Insurance turn accumulated
capital into productive investments. Insurance also enables mitigation of losses,
financial stability and promotes trade and commerce activities those results into
sustainable economic growth and development. Thus, insurance plays a crucial role
in the sustainable growth of an economy.
- Provides Support to Families during Medical Emergencies: Well-being
of family is important for all and health of family members is the biggest concern
for most. From elderly parents to newborn children, medication and hospitalization
play important role while ensuring well-being of families. Rising medical treatment
costs and soaring medicine prices are enough to drain your savings if not well prepared.
Anyone can fall victim to critical illnesses (such as heart attack, stroke, cancer
etc.) unexpectedly. And rising medical expense is of great concern. Medical Insurance
is a policy that protects individuals financially against different type of health
risks. With a Health Insurance policy, an insured gets financial support in case
of medical emergency.
- Spreads Risk: Insurance facilitates moving of risk of loss from
the insured to the insurer. The basic principle of insurance is to spread risk among
a large number of people. A large population gets insurance policies and pay premium
to the insurer. Whenever a loss occurs, it is compensated out of corpus of funds
collected from the millions of policyholders.
- Ritesh Kumar, Managing Director and CEO, HDFC ERGO General Insurance Company