Opinion pool favours insurance as catalyst for economic growth
The role of insurance in the economic development of a nation cannot be overemphasised particularly when you consider its ability to support other sectors of the economy, with long-term funds, and protect the human and material resources from catastrophic risks of loss.
Though, not everyone shares the same opinion, experts say no economy in the world has developed without a strong insurance sector, justifying stakeholders effort to position the industry to effectively contribute to the nation’s GDP.
An opinion pool among a group of working population in Lagos being conducted by an independent body to be released soon shows that a larger population of the country have strong believe in the role of insurance in helping individuals and corporate organisation plan their future and attain some reasonable level of stability.
Experts said insurance provides the economic function of distributing risk, and moving people up the growth ladder on the areas of financial planning.
An individual pays a premium to an insurance company, which ensures him against a catastrophic event that has a large potential economic cost. Since the catastrophic event is usually rare, the insurance company receives a steady income, and the individual has protection against a loss that could otherwise result in bankruptcy, property foreclosure or other negative outcomes.
Large Projects
Insurance allows companies to construct large projects. For example, a microchip production factory may cost millions of naira. The company that builds the microchip factory assumes a large risk, since the factory might burn down or collapse in an earthquake. With insurance on the factory, the company can build the factory and produce microchips. Large projects like this often have economies of scale, so they can produce goods more cheaply than small projects.
Vehicle Travel
Vehicle travel requires insurance. Drivers on the road can potentially cause large amounts of damage to other cars and trucks, and they may harm other drivers or pedestrians. Insurance allows drivers to travel with protection against the risks of harming other individuals. Vehicle travel produces substantial economic benefits, since it allows trucks to deliver goods across a nation and allows workers to drive to their jobs.
Liquidity
Even if a company has enough money to protect itself against a catastrophe, insurance is still useful. A microchip production factory may have enough money to build a second factory if the first factory burns down. It can keep the money in the bank to protect itself from this event, or it can purchase insurance and use this money to build a second factory. Insurance frees capital for other investments.
By: Modestus Anaesoronye