The importance of insurance in the economy

 The insurance company, by performing its original function of compensating the damage, performs another set of services and functions; 

It accumulates the savings of citizens and economic units; It plays a role in the distribution of national income, and works to use part of its surplus funds in a range of forms of investment, according to what is determined by the laws of supervision and control in various countries:

Importance of insurance in the economy:

1- The main function of insurance is to provide security for individuals and units of the national economy against risks that result in material damage that cannot be foreseen in advance.

The natural result of excluding the risk and the uncertainty of the economic units appears to be an increase in the adequacy of those economic units; Excluding the risk or transferring it to others, especially major risks, allows the company to devote its efforts to what enables it to stand up to its competitors.

2- Insurance helps to expand the scope of credit, which is necessary for all projects, for example: the case of mortgage loans; Where the lender refrains from granting credit, unless he is assured that the property is insured against the risks that it may be exposed to.

3- Insurance ensures that the citizen remains able to earn and does not become a burden, and thus the citizen remains as a productive asset and does not turn into a liability, which provides protection for his family.

4- Insurance companies, in return for granting safety, collect premiums from the insured; In this way, it plays a role in accumulating national savings.

5- Capital formation: Since insurance plays an important and effective role in raising capital; And that is through the long time between collecting premiums from the insurers (ie achieving income for the insurance company) and paying its obligations represented in compensation or the amounts saved for the insurers (ie, the obligations of the company); It is working to invest the money that the company has created and return to the community with economic benefits.

Given the seriousness of the role played by insurance companies; Legislation is constantly interfering, by setting a drawn-out policy with tight control over it to implement this policy; This is clearly demonstrated by the insurance control laws put in place by states.

6- Insurance companies perform a supervisory function in trying to prevent the occurrence of risk, as the rules and conditions of insurance in themselves play a prominent role in reducing the occurrence of risks; The lower the risk, the lower the premium; What motivates the insured to make an effort to reduce the occurrence of these risks; Terrible reduction in the cost of insurance represented in premiums; This is in addition to the research and experiences carried out by insurance companies in various fields to reduce the occurrence of risks and avoid their causes, especially in the field of general insurance.

7- A factor of prevention: insurance works to avoid risks and reduce accidents as much as possible. Therefore, it represents a factor of prevention in society. This can be achieved by several means, such as: insurance companies studying the causes of the occurrence of various risks such as fires, work injuries, and traffic accidents and working to avoid them and taking the necessary means and precautions to reduce the chances of their occurrence; It seeks the assistance of experts and specialists who undertake research and study and send bulletins and advertisements for prevention.

8- Improving the balance of payments; The increase in invisible exports; For example: the sums that insurance companies receive from hard currencies in return for the insurance services they provide to foreigners or from the return on their investments in foreign countries, the return on reinsurance they undertake,

and the proceeds that appear from the current operations in the balance of payments under the insurance item - their value increases as the insurance services increase to be paid by national companies to foreigners, or the more their reinsurance transactions with abroad increase; The greater this restriction, the more a surplus will be realized in the balance of payments, or at least a deficit in it can be avoided.