EFFECT OF INSURANCE ON ECONOMIC GROWTH IN GHANA
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EFFECT OF INSURANCE ON ECONOMIC GROWTH IN GHANA
Chapter two.
REVIEW OF RELATED LITERATURE.
2.0 Introduction.
In this regard, literature review is all about people’s attitudes about insurance. Other themes relating to the topic under discussion, such as the function of insurance services provided to the general public and the challenges that insurance faces in Nigeria, will be considered.
2.1 Definition of Insurance.
Insurance has been defined by a variety of authors and stakeholders.
According to Greene and Trieschman (1985), insurance is “an economic institution that reduces risk by combining under one management a group of objects so situated that the aggregate accidental losses to which the group is subjected become predictable within narrow limits”.
Insurance can be defined as “certain legal contracts under which the insurer, for consideration, promises to reimburse the insured or render services in the event of certain specified accidental losses sustained during the term of the agreement.”
The definition emphasises how insurance’s fundamental economic purpose, risk reduction, is fulfilled. The word “usually” is emphasised, implying that a legal contract does not apply to all insurance.
To a socialist, insurance is a device used by contemporary society to mitigate the financial impact of losses or damages suffered by victims of unintentional accidents.
Furthermore, Steven Dracon and Trevor Watkins (1987) described insurance as “an agreement by which one party, the insurer, promises to pay another party, the insured or policy holder, a sum of money if something happens which causes (or has the potential to cause) the insured to suffer a financial loss”
According to the definition, the adverse effect of the loss on the insured is mitigated to the extent that it is offset by the benefit received from the insurer; thus, the primary service provided by the insurer is a guarantee of payment of valid claims, benefits in accordance with an accidental loss or event covered by the policy.
Furthermore, the Encyclopaedia Britannia defines insurance as “a system in which the insurer, for a consideration, usually agrees in advance to reimburse in the event of certain accidental occurrences resulting in losses during a given period.”
This concept also indicates that the basic function of insurance is to substitute certainty for uncertainty in terms of economic cost or loss-producing events. Typically, consideration is provided in advance for an event that may occur in the future.
Once more, according to D.J. Anderson, “Insurance is the payment of sum of money by one person to another on the understanding that, in certain specific circumstances, any losses suffered by the first person (the insured) will be made good by the second person (the insurer)”
In a nutshell, insurance is similar to our indigenous “Ndoboa” of “edusua system” on which we all rely for assistance in times of need. The traditional “edusua” system distributes the individual’s burden (whether funeral or financial) among individual family members, making the burden lighter on the shoulders of many rather than weighing heavily on the misfortune, providing security for both the individual and the community.
Insurance is thus a ‘pool’. It is a common fund built on policyholders’ contributions (premiums) to give up their home or accept undesirable alternatives such as poster home living with relatives or receiving a relief payment.
A fire or a liability claim can force an organisation to fail, but the cost can be met through insurance, which provides indemnity or payback in the event of a need, allowing the family or business to continue operations.
Provides Investment Capital: A portion of the premiums paid by policyholders are disbursed as loans to help investors launch enterprises.
The issue of investment is crucial to the success of business. Some insurers participate extensively in both the money and capital markets; the funds invested by these insurers serve as a significant accessible funding source for long-term projects.
Individuals, company entrepreneurs, and the government can also use the invested funds to start or grow their reparative businesses and activities.
Provides a foundation for credit: one cannot imagine the credit economy of a factory without insurance. Several types of insurance are quite useful as the foundation for credit transactions.
Insurance allows borrowers (both individuals and businesses) to get more favourable credit terms, hence reducing the chance of difficulty.
Individuals and corporations obtain bank loans and utilise life insurance (either face value or cash value) to ensure that the loan will be repaid in the event of an unpredictable contingency such as the borrower’s death or disability.
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