Importance of Insurance and Risk Management

National Insurance Academy (NIA) Pune is a private institution established in the year 1980. NIA Pune offers only one course at the postgraduate level, which is a PGDM programme for 2 years. To be eligible for NIA Pune admissions, students must have valid marks in entrance exams like CAT-2024 / XAT-2025/ CMAT-2025 examinations. NIA Pune courses are available in the stream of Management and Business Administration. This article by NIA Pune shares the importance of Insurance and Risk Management.

The insurance market in India has been growing at a CAGR of 15 to 20%, the insurance penetration is hovering around 4.2% (Life 3.2 and Non-life 1.02%). The insurance Density of US$90 (2023) is also much lower as compared to the global average of US$809. As per the IRDAI report, the insurance industry has garnered a total insurance premium of Rs. 10,40,000 crores in 2023-24. India is emerging to be 10th largest insurance market globally in the coming years.

India Government has envisaged an economic growth of 7% to 8% in the next couple of years, which would help our economy to reach 5 trillion USD by 2025-26, even though the pandemic has slowed down the pace, the positive market outlook, economic growth, Increasing Urbanisation and industrial developments would pave a way for improved infrastructure development in the country. This would positively propel the insurance growth to a greater extend in the coming years.

Due to Climate Change risk, India is witnessing Increasing NATCAT Risk Exposures: As a result, global natural Catastrophic Risk losses have increased in recent times. As per Swiss Re report, 2024, the direct economic losses and damages from notable natural disaster events were assessed at US$280 billion in 2023. Although this figure was far from reaching the record-level peaks recorded in 2011 – US$557 billion in losses and 2017 – US$485 billion, nevertheless, standing at US$280 billion, it exceeded the average of the 21st century by 33%. More than 90% of those losses are uninsured in developing countries and 60% in developed markets.

Insurance acts as a vital risk protection instrument protecting the losses of individuals, corporations, business houses, and government. Individual’s Risks: An Individual may need to protect his life, from accident, disability, health disorders, loss of employment, savings, and old age needs. There are various insurance schemes available to protect against these risks i.e. Life insurance covers the death of an individual, savings, Health insurance covers medical expenses, Personal accident insurance protects accidental liability, disability, and hospitalisation expenses, while home insurance protects against property damage.

Property insurance covers any property damage including stocks of business houses, commercial and industrial organisation, MSMEs, etc., from any fire, explosion-related perils, and natural catastrophic events like floods, cyclones, earthquakes, landslides, and storms, etc. Cybersecurity insurance mitigates the financial impact of data breaches, and liability insurance protects against legal claims.

There are various insurance schemes available to protect the Government’s property, including infrastructure assets like road lines, railways, airports, dams, bus stations, etc. National disaster relief programs often incorporate risk management and insurance to address large-scale catastrophes.

Risk management and insurance are critical components of personal, business, and organizational planning. They provide a framework to identify, assess, and mitigate potential threats, ensuring stability and long-term success. Some of the important features of insurance and risk management are discussed below:

1. Protection Against Financial Loss: Risk Management involves identifying potential risks and implementing strategies to reduce their likelihood or impact. Insurance provides financial coverage for unexpected events like accidents, natural disasters, illness, or liability claims, helping to avoid catastrophic financial losses.

2. Business Continuity: Risk management ensures that businesses can anticipate and prepare for disruptions, maintaining operations during crises. Insurance offers a safety net, covering losses and enabling businesses to recover quickly from adverse events.

3. Legal and Regulatory Compliance: Many industries and business houses require specific insurance coverage (e.g., workers' compensation, and liability insurance) to operate legally. Proactive risk management ensures adherence to laws and regulations, reducing the risk of penalties and legal issues.

4. Peace of Mind: For individuals and businesses, having insurance provides confidence that unforeseen events won’t lead to financial ruin. Knowing that the risks are managed and covered allows for a focus on business growth and achieving corporate objectives/ personal goals.

5. Cost Efficiency: Proactive risk management can reduce the likelihood of costly incidents, such as property damage, machinery breakdown, accidents, or cyberattacks. Insurance may offer financial predictability by spreading the cost of losses over time, helping in budgeting and financial planning.

6. Safeguarding Stakeholder Interests: For businesses, managing risks and having adequate insurance protects the interests of employees, customers, investors, and partners. It ensures that all stakeholders can rely on the organization's stability and commitment.

7. Encouraging Innovation and Growth: Effective risk management and insurance reduce fear of potential losses, enabling businesses and individuals to take calculated risks. This encourages innovation, expansion into new markets, and the pursuit of new opportunities.

In essence, risk management and insurance are vital for maintaining financial stability, promoting growth, and ensuring resilience in the face of uncertainty.

Disclaimer: The article has been published as a marketing initiative between NIA Pune and Careers360.