Important of insurance companies in economic development

Insurance companies play an important role in the economic development of the country. the important insurance companies may be pointed out as

Insurance agreement


1. Saving in insurance

Insurance companies lead to economic development by mobilizing saving and investing them in productive activities. Insurance companies are able to mobilize long from saving to support economic growth and also facilitated economic development by providing insurance cover to a large segment of our people as well as to business Enterprises.

2. Capital formation and insurance

The capital formation may be defined as an increase in the capital stock of the country consisting of plant, equipment, machinery, tools, building, means of transport, communication, etc.

3. Increase employment

Insurance companies also help to create employment opportunities. Liberalization and the opening of the sector to private players have now created a vast opportunity for employment.

4. Insurance as a financial intermediary

Financial intermediaries perform the function of challenging saving into domestic investment. They facilitate efficient allocation of the capital resources which in turn improves productivity and economic efficiency which results in a reduced capital-output ratio.  Insurance companies perform extremely useful functions in the economy as financial intermediaries.

5. Promotes trade and Commerce

The increase in GDP is positively correlated to the growth of trade and commerce in the economy. Even Banks demands insurance cover of assets while granting loans for the purchase. Thus, insurance covers promote specialization and flexibility in the economic system that plays a contributory role in health and smooth growth of trade and Commerce.

6. Facilities efficient capital allocation

Insurance provides cover to a large number of firms, Enterprises, and businesses and also deployed their points in the number of investment projects. The vast pool of knowledge and expertise so gained enable them to distinguish between the product team and high return projects. Therefore, the more efficient and productive allocation of capital resources, in turn, leads to increased productivity and efficiency in the system.

7.Encouraging Financial stability

Insurance for most financial stability in the economy by ensuring the risk and losses of individuals, firms, and organizations. Because of uninsurance large losses, a firm may not be able to compensate for it leading to its insolvency. Moreover, it relieves the tensions and anxiety of individuals by scaring the laws of their lives and assets.

8. Reducing Burden government exchequer

Insurance companies, particularly Life Insurance provide a variety of insurance products covering the needs of children women, and age, etc. Under social security Network and thereby reduce the body in on government exchequer in providing these services.

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