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Here’s how insurance impacts trade and commerce globally

Dec 06, 2019 | 2 months ago | Read Time: 3 minutes | By iKnowledge Team
Here's How Insurance Impacts Trade and Commerce Globally

The purpose of the insurance sector goes beyond managing risks for individuals, businesses and governments. The premium payments give the insurance industry the opportunity to attend to the needs of other requirements in the finance sector such as funds for infrastructure projects. Life insurance and non-life insurance add to the GDP growth of a nation. In India, the GDP increase due to non-life insurance premium increased from 0.56% in FY01 to 0.70% in FY15.

Empowering Trade and Commerce with protection

The insurance industry is a significant part of trade and commerce globally. By providing an insurance policy for insuring natural catastrophes to funding infrastructure development, the insurance sector of a nation lends a hand in managing the risks that can negatively affect organisations in various sectors. For example, the long-term liability of insurers funds the infrastructure development projects in the country. Based on client risk profile, competitive quotes are given by insurance companies. 

India’s GDP has been growing at a rate of 18% from FY08 to FY15 with insurance playing a pivotal role. Insurance impacts the economy in many ways. In India, the agriculture sector adds billions of rupees to strengthen the GDP and provides income to more than half the country’s population. But for loans, farmers need to take crop insurance. Natural calamities such as a tsunami can badly affect the economy of a country. Insured catastrophes make it easier for the nation to regain stability and reduce stress on the nation’s budget. The insurance coverage gives the ability for finance reconstruction as well.

Equity markets need enormous funds to keep functioning smoothly. As per an EY report on the insurance sector, insurers participate in huge volumes at the time of market corrections. In India, the insurance sector provides employment to 3,50,000 people directly and a minimum of 2 million people indirectly as field agents. Low to moderate income families can manage risks such as health care costs with the protection of insurance schemes.

Managing risks for market stability

The insurance industry is dynamic with an inflow of funds in the form of short-term and long-term investments and outflow of funds for claim benefits. By acting as financial intermediaries, insurance firms provide financing options for corporate investments and housing projects for a longer period. Trade risks in domestic markets and global markets are managed by insurance companies. Reinsurance becomes a facilitator for transfer of risks within the insurance industry at the national level as well as at international levels.

The risk transfer capability offered by the insurance sector encourages entrepreneurship and innovation. With the ease of a financial institution taking away some part of the risk, business owners can move ahead to explore new ideas for the development of innovative products or solutions. Capital is essential for business growth and businesses equipped with insurance plans have a better standing to acquire a loan for business expansion. As per the ESRB 2015 report, an insured business will be able to manage huge losses and move on instead of directly taking the bankruptcy route. Inflation is one of the key factors that affect the insurance industry and government bodies support insurance businesses with schemes to keep inflation in control.

Insurance is critical for trade and commerce to get a cushion of credit during adverse scenarios. Then, why not take advantage of one of the most crucial financial instruments that drive growth across sectors in India and throughout the world. To know about Aegon Life Insurance products like term insurance and other products, visit our home page.

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