Risks and Financial Cost of Insurance
Deregulation and the boom in the Financial Sector of the Indian Economy entails the prospect of the Insurance Business. World biggies are entering Indian to tap the market, population with the effort of Joint Venture with the existing large and capable financial houses. More than 75% of the population are yet to be tapped through the insurance coverage. Earlier Insurance policies were seen as a tax saving vehicle and a life-risk hedging technique to some extent. But in these days, the generation Y and X are quite concern with the usability of the Insurance policies, specially for the health insurance policy. Insurance also serves the purpose of the money management. The popular reasons to the boom in the Insurance sector in India are:
1. Growing cost of living - Emergence of General Insurances)
2. Increasing Medical expenditures (Health Insurance)
3. Declining overall rate of interest (So Equity linked plans are getting popular for the better returns)
4. A tax saving instrument
5. Vehicle of overall savings (Money Management)
6. Increasing Insurance awareness
7. Diversified Economy - Diversified needs
The Insurance companies are facing lots of difficulties in reimbursing the claims to the insureds in the face of Natural Calamities, Terrorism Attacks, Political risks and so on. And of course you can blame the Global warming directly or indirectly. As the loss as well as the no. of claims rises, the cost of insurance (the premium in fact) rises too. There are financial loss as well that might trickle down to the society in the following ways:
1. Too much loss for the Insurance companies results in job curtailing
2. This in turn impact towards the expenditure level and the production - Slow growth rate of the economy
3. Fear of financial recession and stagflation with the appreciation of rupee - to save the export oriented sector, RBI buys Dollar in exchange of rupee - so inflation rises. Sterilization effort would have minimum as Govt. has to provide the interests
4. Increase in the cost of Insurance
Most of the Insurance companies are working hard to figure out the premium level for the different insurance policies incorporation the above factors.
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