Economy: Importance Of Insurance Sector

Insurance is a key component of highly developed economies. Economic activity and growth are only made possible by hedging against risks.

Important key function life insurance for the economy as a business location

The insurance industry is one of the few sectors in an economy whose performance is of great importance to practically the entire economy. Thus, the insurance industry is thus fundamentally comparable to banks or the energy sector.

It assumes insurable risks for the entire economy and thereby supports economic activity and innovation.

Risks are ultimately hidden costs. The pricing of insurable risks within the framework of insurance contracts makes the costs of alternative courses of action clear. In this way, companies and politicians can make well-founded decisions, avoid costs and make better use of their resources. With life insurance, companies not only benefit from this but the employees as well.

Identifying risks is one of the core competencies of the insurance industry. Insurers have extensive risk information systems for this purpose, for example on natural disasters, which are often also made available to the public. As “risk communicators”, they play an important role in forming public opinion, for example with regard to climate change.

In addition to the domestic economy, foreign trade also benefits. Efficient insurance solutions are a prerequisite for companies being so heavily involved internationally.

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Possibilities and risks of the insurance industry for economic growth

Not all risks are insurable. The extent to which private insurance cover is offered depends primarily on the respective risks. A risk must be “calculable” so that it can be insured. But the legal framework is also important here, for example the supervisory system.

With ever more complex economic relationships and new technological advances, modern economies are becoming more vulnerable. A current example are so-called cyber risks. Viruses, Trojans and other malicious software or targeted hacker attacks can significantly disrupt operational processes. Industrial espionage can be carried out and copyrights can be violated. These risks change quickly and are therefore difficult to calculate. The limits of insurability become clear here.

The new risk landscape entails major challenges for everyone involved, insurers, business, but also the state and society. These risks can only be managed through a whole bundle of measures from extended insurance cover to new laws and requirements through to extensive damage prevention measures. This is where the insurance industry is particularly challenged. Innovative insurance models must be developed even more than before, especially in the borderline area of ​​insurability. This way, you can achieve economic growth through the insurance industry.