Functions and benefits of INSURANCE

Insurance has many functions and benefits, some of which we may describe as primary and others as ancillary or secondary, as follows:

(a) Primary functions/benefits: Insurance is essentially a risk transfer mechanism, removing, for a premium, the potential financial loss from the individual and placing it upon the insurer.
The primary benefit is seen in the financial compensation made available to insured victims of the various insured events. On the commercial side, this enables businesses to survive major fires, liabilities, etc. From a personal point of view, the money is of great help in times of tragedy (life insurance) or other times of need.
(b) Ancillary functions/benefits: Insurance contributes to society directly or indirectly in many different ways. These will include:

(i) employment: the insurance industry is a significant factor in the local workforce;
(ii) financial services: since the relative decline in manufacturing in Hong Kong, financial services have assumed a much greater role in the local economy, insurance being a major element in the financial services sector;
(iii) loss prevention and loss reduction (collectively referred to as ‘loss control’): the practice of insurance includes various surveys and inspections related to risk management (see 1.1.3(b) above). These are followed by requirements (conditions for acceptance of risk) and/or recommendations to improve the ‘risk’. As a consequence, we may say that there are fewer fires, accidents and other unwanted happenings;
(iv) savings/investments: life insurance, particularly, offers a convenient and effective way of providing for the future. With the introduction of the Mandatory Provident Fund Schemes in 2000, the value of insurance products in providing for the welfare of people in old age or family tragedy is very evident;
(v) economic growth/development: it will be obvious that few people would venture their capital on costly projects without the protection of insurance (in most cases, bank financing will just not be available without insurance cover). Thus, developments of every kind, from erection of bridges to building construction and a host of other projects, are encouraged and made possible partly because insurance is available.