Role of Insurance in the development of economy

From very rudimentary beginnings, the concept of insurance has travelled a long distance as to become an effective engine for the development of economy. The present day economy, it is said, would be unthinkable without the business of insurance. Factories and industries in the modern days involve investment of thousand of crores.

Aeroplanes costing hundreds of crores of rupees fly in the sky. The ships of today cost a fortune. Each one of them face the risk of damage to total destruction for reasons beyond one’s control. If the owner is always to be worried of their possible loss due to some such reasons, would he be able to sleep in peace?

Would he turn into a maniac worrying as to what is going to happen to him if this asset is lost? Insurance provides that peace of mind, freedom from worries, confidence to take risk which alone drives the economy forward.

Today’s economy, it is said, is a credit economy. The businessmen, the factory owner, even the ordinary serviceholder takes loan to provide for himself capital, to  purchase goods, to start a factory, to purchase a house, or conveyance even a holiday. Such credits are available because of the mechanism of insurance.

The creditor ensures that there is a provision for insurance in case of any unforeseen thing happening to the debtor. Life insurance, fire insurance, transit insurance, theft insurance, insurance against the risk of earthquake and flood are only some of the basic forms which have made the development of economy possible.

The application of the idea of insurance has gone much beyond the tangible assets, of which we have talked so long. There are intangible assets like the voice of a singer, the skill of a surgeon, the finger of a sitarist, the toe of a dancer, the fidelity of a messenger which are the essential requirements for their importance. There is a provision to insure each one of the above intangible assets.

The modern knowledge based economy i.e the information technology has not much in terms of physical asset to exhibit. But it is the most thriving economy. The venture capitalists do take a lot of risk, but they do work on the principle of insurance, i.e. calamity will strike a few and others unaffected would compensate.

At a macro level, insurance provides long term capital for investment in the development of economic infrastructure. The basic reason which prompted the Indian Government to nationalize the life insurance business in 1956, was to provide long-term capital to finance the Five year plans.

Even today, when the government has opened the economy to multiple players in the field of insurance, the objective is to get a lot of long-term investment to build roads, generate power, transport and other infrastructural facilities for the fast growth of the economy.

Life Insurance Corporation  of India alone as on 31.3.2000 has invested almost 1.5 lakh crores of rupees in the furtherance of the Indian economy. More than half of it has gone directly to be invested in state and central Government securities and the balance for such nation building activities like electricity boards, housing, water supply, transport etc.

The investment in the corporate sector is a mind boggling 28000 crores. If this one life insurance company could do, think of the expectation from the scores of the life and general insurance companies which are going to dot the economic horizon of the country.