The availability of insurance services is important for the stability of the economy. It makes business participants accept aggravated risks. That is, by accepting claims, insurance companies also have to pool premiums and create reserve funds. Insurance companies are playing an important role by enhancing internal cash flow and by creating a large amount of funds in the capital market.
A study on the insurance sector titled ‘The Relationship of Insurance and Economic Growth – A Theoretical and Empirical Analysis’ by Peter Haiss and Kjell Sümegion published in 2006 is still relevant. The study observed that the banking sector was mainly a buyer of protection while the insurance sector was mainly a protection seller for investment or portfolio management purposes. The same report states that at the end of 2003, the insurance sector particularly considered as financial guarantors, had reported a net position of $460 billion. Close to 65% of the net sold credit positions were derived from the corporate sector, 17% from financial institutions and the remainder from sovereigns. In this way, the credit risk had been transferred on a massive scale from banks onto insurance companies, providing them with a more pivotal role vis-à-vis the banks and the economy at large.
Historical overview
By 1955, there were 255 insurance companies operating in India, doing business of around ₹200 crore. Life insurance WWwas nationalised in 1956.
This story is from the November 1-15, 2019 edition of BUSINESS ECONOMICS.
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This story is from the November 1-15, 2019 edition of BUSINESS ECONOMICS.
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