Insurance is a risk transfer mechanism whereby the individual or the business enterprise can shift some of the qualms of life on the shoulder of the other. All the people will desire to live a cleaner, healthier, comfortable and easy life. To meet this obligation different enterprises produce and provide goods and services. They make innovation and inventions, which take great risk. Large responsibility falls on the shoulder of innovators and inventors. A small error or lapse may cause numerous side effects and cause death or disability. These types of risks highlight the importance of insurance. If there had not been insurance at the back of all innovators the world would have never progressed.

One of insurance’s key roles is safeguarding the financial health of small and medium-sized enterprises. Insurance cover is crucial for people to insure themselves against inability to work, set aside money for retirement or protect themselves against the loss of their assets. This is where insurance comes in as a key component in ensuring the healthy development of small and medium-sized enterprises. An erudite insurance sector is also important in encouraging domestic production, innovation and trade. Insurance reduces the investment risk faced by companies and the state. Many companies find it far more expensive, if not impossible, to take out a loan without purchasing the requisite insurance protection. Insured, thereby reduces the costs of raising the capital they need. This is especially important in emerging markets, as a shortage of capital is one of the major disincentives to investment. A lot of investments in new production facilities and newly founded companies would never happen if every company was required to have the necessary financial means to make good every conceivable loss. While arguable, it is no exaggeration that the availability of insurance is sometimes being heralded as a factor of production itself. The same applies to infrastructure investments: if it weren’t for insurance, a lot of infrastructure projects – such as power plants, railways or airports – would never be realized; because in the absence of sufficient financial funds to enable them to resume operations in the wake of a loss and without insurance, these projects would be reduced to nothing more than white elephants.

Insurance plays an additional role in the economy by providing information. The level of insurance premiums provides an indication of existing risks and of how probable it is that a loss will occur. This helps companies make a comparison of the risk/return profiles of projects, thereby ensuring that the available resources are put to the best possible use. Insurance companies also offer consultancy services, advising on how to improve safety standards and a product’s quality.

As well as stabilizing the financials of individuals, companies and the state. In their role as institutional investors, insurance companies contribute to the development of a well-functioning capital market thanks to the huge amount of assets they have to invest. Insurance companies receive premiums and set them aside as provisions for the payment of future claims. They proceed to invest them in the capital market, which gives them the status of major investors. From a macro-economic point of view, the insurance market could help to mobilize national savings and narrow the investment gap of emerging economies. Insurance companies as important long-term institutional investors therefore function as financial intermediaries contribute to bringing together savers and borrowers. Life insurance, in particular, can make savings available although life insurers are themselves dependent on a functioning capital market if they are to play their role in the area of risk transfer.

Insurance is a barometer of economic activity in a country. If the economy of any country grows the insurance industry of that country also grows in the same proportion. In the same manner if the insurance industry of any country grows the economy of that country also grows. So economy and insurance are interdependent upon each other. Presently 76 insurance companies are operating in Bangladesh along with the two public insurance companies- Sadharan Bima Corporation and Jibon Bima Corporation.