Insurance organizations might outperform the individual because there are transactions costs that exist in identifying andmatching the individuals that are willing to sell/buy insurance to/from each other. There are scale economies in
An insurer also have a comparative advantage in providing services to individuals and corporate entities. Pre-loss services include the loss prevention activities developed by the insurer such as on-site inspections. Post-loss services are related to the administration of claims and include adjustment services, legal defense services.
The reduction of uncertaintyis possible at the macroeconomic level (for the society as a whole) because there is a large number of insurance contracts and therefore a reduction of risk through pooling and diversification.
The payment to buy an insurance contract is made before the insured benefits from the potential indemnification. This is often referred to as an "inverse cycle of production". At the macroeconomic level, the premiums are collected by the insurer (or the market) during a budgetary year to cover immediately the claims incurred within that period or to cover for claims that will occur in an uncertain future. Although the purpose of insurance is not to save (at least in the usual meaning of that term, i.e. the transferof purchasing power from one period to another ), it is clear that insurance contracts generate funds that are available for investment.
Although insurance contracts generate transaction costs and also information costs, at the macroeconomic level, the insurance industry contributes to the formation of national income. The service offered by the insurer is that of an intermediaryand the cost of insurance, which measures the effort made by the community to provide itself with an insurance system, generates the payment of salaries, commissions and dividends.
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