The functions of insurance can be studied into two
parts: (i) Primary Functions (ii) Secondary Functions.
Primary Functions:
(i) Insurance provides certainty: insurance Provides
certainty of payment at the uncertainty of loss. The uncertainty of loss can be
reduced by better planning and administration. But, the insurance relieves the
person from such difficult task. Moreover, if the subject matters are not
adequate, the self- provision may prove costlier. There are different types of
uncertainty in a risk. The risk will occur or not, when will occur, how much
loss will be there.
In other words, there are uncertainty of happening of time
and amount of loss. Insurance removes all these uncertainty and the assured is
given certainty of payment of loss. The insurer charges premium for providing
the said certainty.
(ii) Insurance
provides protection: The main function of the insurance is to provide protection against the
probable chances of loss. The time and amount of loss are uncertain and at the
happening of risk, the person will suffer loss in absence of insurance. The
insurance guarantees the payment of loss and thus protects the assured from
sufferings. The insurance cannot cheek the happening of risk but can provide
for losses at the happening of the risk.
(iii) Risk-Sharing: The risk is uncertain,
and therefore, the loss arising from the risk is also uncertain. When risk
takes place, the loss is shared by all the persons who are exposed to the risk.
The risk sharing in ancient time was done only at time of damage or death, but
today, on the basis of probability of risk, the share is obtained from each and
every insured in the shape of premium without which protection is not
guaranteed by the insurer.
Secondary Functions:
Besides the above primary functions, the insurance
works for the following functions:
(i) Prevention of loss: The insurance joins hands
with those institutions which are engaged in preventing the losses of the
assured and so more saving is possible which will assist in reducing the
premium. Lesser premium invites more business and more business causes lesser
share to the assured. So again premium is reduced to, which will stimulate more
business and more protection to the masses. Therefore, the insurance assist
financially to the health organization, fire brigade, educational institution
and other organizations which are engaged in preventing the losses of the
masses from death or damage.
(ii) It provides Capital: The insurance provides
capital to the society. The accumulated funds are invested in productive
channel. The dearth of capital of the society is minimized to a greater extent
with the help of investment of insurance. The industry, the business & the
individual are benefited by the investment & loans of the insurers.
(iii) It improves Efficiency: The insurance eliminates
worries and miseries of losses at death and destruction of property. The
care-free person can devote his body & soul together for better
achievement. It improves not only his efficiency, but the efficiencies of the
masses are also advanced.
(iv) It helps Economic Progress: The insurance by
protecting the society from huge losses of damage, destruction and death.
Provides an initiative to work hard for the betterment of the masses. The next
factor of economic progress, the capital, is also immensely provided by the
masses. The property, the valuable assets, the man the machine & the
society cannot lose much at the disaster.
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The main function of the insurance is to provide protection against the probable chances of loss. The time and amount of loss are uncertain and at the happening of risk, the person will suffer the loss in absence of insurance.
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