Insurance and Economic Development & Insurance companies' Finances Research Paper

Insurance and Economic Development & Insurance companies' Finances - Research Paper Example The way the insurance company makes payments more easy and convenient to the insured is that it pools in the risks of various customers of different individual risks and invest in relevant financial assets such as bonds, stocks, real estate, mutual funds etc. This enables the insurance company to establish a suitable correlation of risks and returns so as to reduce the overall risk. Considering the nature of the service provided by insurance companies, they ensure financial protection for individual investors who then are ready to invest in their willing ventures without any fear of liquidation or insolvency. This aspect fosters entrepreneurial attitude that is creation of new businesses takes place and innovation is triggered in the market by those who are insured. This ultimately accelerates investment in the economy which in turn enhances economic development as the productive capacity of the firms and the economy as a whole increase. This further enhances living standards of peop le and per capita income also rises. The entrepreneurs are willing to take risk as they get protected financially with the help of insurance companies which pool in risk of versatile clients. ... Uninsured companies, on the other hand, are not able to reap out the benefits of innovation and tapping into new markets. This is because they have not created a framework for risk mitigation which is present when a firm is insured. Uninsured companies invest less of their earnings in innovation and so they participate less in domestic as well as global markets leading to less acclaimed market share. 2. Insurance and its contribution to consumption and economic stability Consumption is the spending of resources particularly money to acquire something. In financial terms, it is discussed alongside savings as they are two totally opposite concepts. Savings means to save money for the future; this concept is tried to being implemented in almost every country as this leads to benefits for the economy. Consumption trends vary between people and between their life stages. These two imperative concepts make up the standard of living of people in an economy. To produce an optimal standard of living, there should be a balance between consumption and saving patterns. Consumption patterns are one of the igniters of economic development, growth and the wellbeing of the dwellers of a country. Insurance is a helping tool for people to smoothen their consumption throughout their lives. Regardless of any insurance type, this service works as a security border for households as it provides financial protection; with its help they can stabilize their consumption throughout their life time. The added advantage of this is that in times of income fluctuations, consumption remains unwavering. Property or home and damage insurance shield the status of clients in unfavorable