The insurance industry has come a long way from ship owners, merchants and underwriters gathering in Edward Lloyd’s coffee house in London to discuss their marine voyages to new colonies of the British Empire. Over the years, Insurance has become essential in our everyday lives. Something we just can’t live without. Our Economics and Societies are growing phenomenal rates and have become more and more interconnected on the rest of the world, the risks exposed to us become more unpredictable and hazardous. The need to protect against unfortunate events has been around as long as human beings existed.
Individuals have always recognised their need to alleviate risks that have the potential to ruin the. At the dawn of modern history, widely dispersed groups of tightly knit hunter-gatherers, relied almost exclusively on clan relatedness as their only bulwark against the ever-present risk of death, debilitating injury and starvation. For those early ancestors, the concept of risk always existed, exclusively in terms of the physical persons of individuals, mitigated by the guarantee of personal and kin relationships, rather than objects and possessions.
(Buckham et al 2011, pp. 1-9).
According to Lopez and Raymond 1967, in antiquity, a sea loan was the first sign of transferring risk. A number of German and Italian jurists have regarded it as something close to insurance. It involved a ship owner promising to transport goods belonging to a merchant and at the same time providing a loan, somewhat of a guarantee. If the ship and the goods arrived safely to its intended destination, the merchant returned the loan but if they didn’t arrive safely, the loan was not returned.
From its origins in ancient times, the insurance industry has evolved into an essential service in our society and a “key component for economic development” (Liedtke 2007). Our lives are progressing rapidly, there is a significant increase in the general population, technology and science is continuously maturing and the world is becoming smaller. The insurance industry is now faced with challenging obstacles through “the liberalisation of insurance and capital markets, changing demographics, volatile stock markets, the shifting of climate patterns and the rising numbers of natural and manmade disasters and subsequent losses” (Ayadi and O’Brien 2006). “The global risk landscape is growing and the size of potential losses is continuously increasing” (Coomber 2006).
Society has progressed significantly from ancient times and our need of insurance has drastically transformed accordingly. The increasing sense of ambiguity and uncertainty in our lives regarding our future economic prosperity and the devastating impact of catastrophic events has certainly reinforced the need for insurance to shield us against new and emerging risks. This paper asks the imperative question: What role has the insurance industry in our economy development?
The Importance of the insurance industry for an economy can only in part be measured by the sheer size of its business, the number of its employees in a given country, the assets under management, or its contribution to the national GDP. But insurance is not just about employment and the financial compensation of Victims. It actually plays a more fundamental role in the workings of a modern society, it creates huge capital assets. Due to the nature of insurance contracts which usually involve long time periods, money coming from insurance, usually stays in the financial market of a given economy for quite some time. It is not a fickle investment capital that rushes around looking for quick gains, it is oriented toward the medium to long term. It creates a stable environment by allocating assets according to market forces where needed...