The Role of Insurance in

Economic Development
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
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
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
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
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
Role of Insurance in Economic
Development
Financial intermediaries vs. financial
markets
The more developed a countrys 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
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 pools overall losses.
(2) insurers diversify their portfolios.
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.