Risk And Insurance: Factors That Increase Importance Of Insurance In The Modern World

Factors that Have Increased the Importance of Insurance in the Modern World Based on Speculative Risks

Discuss about the Risk and Insurance.

There are several factors that increase the importance of insurance in the modern world. With the of growth of most of the economies in the world characterized by increased numbers of both governmental and privately owned companies, protection of these investments through insurance policies has become an increasingly important factor. Statistics have shown that the stage of diagnosis is related to the presence and the type of insurance. Increased importance of insurance can be attributed to the rapid economic development in the modern world.

The increased expense of healthcare services has made it a necessity to have an insurance policy (Hadley, 2016).A medical insurance manages risk in health. For one to be issued with a medical insurance policy, he/she has to undergo a medical examination to test issues such as high blood pressure or other health concerns that pose a threat to the future (McMaken, 2012). Whereas people found to be in good health status at that time will typically see a lower rate, those suffering from illnesses such as and cancer will be charged higher.

Statistics have shown that the stage of diagnosis is related to the presence and the type of insurance (Francois, 2013). Cancer patients without health insurance are less likely to receive cancer screening and other preventive services and may have delayed symptomatic cancers because of inadequate access to health care (Michaels, 2016). Therefore critical illnesses such as cancer have made people use medical care value insurance.

Technological advancement has heightened the importance of insurance in the contemporary world. In the modern world, technology is no longer nice to have but a differentiator (Vyas, 2015). The insurers have adopted multiple channels to market and sell their policies. For example, a direct-market which entails going directly to the customer as opposed to going to a broker first (Francois, 2013).

Similarly, the advancement of software and hardware means that companies can now transform customer information into actionable insights (Andelic, 2011). In the same way, technology has enabled better individual risk assessment as opposed to relying on responses to standard questions (Green, 2011). This improvement has the capability of improving the customer experience and bringing down insurance rates.

Globalization has increased the need for insurance in the modern world. Increased interaction of international economies has led to profit and loss to others (Hadley, 2016). In the modern world, globalization is usually the result of closer ties in international trade (Andelic, 2011). One implication of globalization is that it has expanded markets and as result companies can now sell their insurance premiums across international borders. The expanded market has created a climate of competition among insurance companies. Consequently, premium rates have been lowered because, thanks to globalization, there is no monopoly of the market and it takes a shorter time to enroll in an insurance policy (Andelic, 2011).

The Challenges of Modern Aviation Industry Regarding Risks and Management

Increased importance of insurance can be attributed to the rapid economic development of countries in the modern world. Each day, month or a year comes with a new economic development. Economic growth promotes insurance development (Francois, 2013).For example, when a company purchases a tower in a town center, then it should be insured to avoid financial loss in case of fire outbreak.

An increase in the culture of saving has increased the need to get insurance (Hadley, 2016). We save for different reasons; retirement, wedding, children or a project (Purmort, 2012). When we are in possession of a valuable item, we need to take care of it so that even during the most difficult of times, we can enjoy its fruits.

There has been a financial growth of individuals/company such that, now, more than ever they need to set aside funds for future use. This way, insurance has changed people’s perception of savings from merely preparing for a loss to viewing it as a type of investment.

Additionally, people have come to value insurance because they are risk averse (Cannon, 2013).Risk sharing is an incentive used by insurance companies to give people an impression that in bad times, they will lend a helping hand. While this may true, the insured caters for the expense of the bad eventuality before it occurs. For example, some people health insurance as a prepayment for expected medical expenses in case they fall sick (Cannon, 2013).

 Risk pooling also increases the importance of insurance. This is spreading risks from the insurer to the insured (Francois, 2013). It involves grouping large numbers of people together to minimize the cost of the higher-risk individuals (Thompson, 2015).Ideally; people face different risks at a different level. Not every person with car insurance involves in an accident in the same way, not every company insured is set on fire.

High-risk people frequently pay more for insurance (Hadley, 2016). Consequently, this rewards the low-risk people with lower insurance premiums thus insurance companies get adequate funds from high-risk companies/ people that justify covering their costs should they need to use their insurance (Donlon, 2016) (Thompson, 2015).Risk pooling technique will attract people, especially low-risk people to pay for insurance knowing the practice favors them more.

Insurance policy creates confidence on individuals enabling them to invest in risky but highly profitable businesses. The insured becomes confident of compensation from losses incurred from the insured risks (Hadley, 2016). This provides a wider opportunity to establish businesses even in risky places to achieve a desirable economic progress (Green, 2011).

In the modern world, insurance policies have not only been an important factor to the insured and the insurer but also to the mother governments (Michaels, 2016). Incomes realized from the insurance companies as well as salaries paid to their workers are subjected to taxation subsequently earning revenue to the governments for economic sustainability.

If the risk insured occurs, the insured is compensated hence the business doesn’t collapse (Cannon, 2013). This important for the business to resume after compensation despite consequential losses incurred.

This section will provide an in-depth explanation of the challenges faced by the modern aviation industry regarding risk and insurance.

The first challenge is Cyber-attacks. That is, the exclusive use of computers to execute aviation activities has heightened the occurrence of risks such as interruption of business. There is a widened variation of cyber risks i.e. cyber-terrorism, extortion and network outages (Francois, 2013). Even though cyber risks have been insured, it is vital to prevent losses and the risk accumulation.

Similarly, increasing the use of Unnamed Aerial Vehicles (UAV) poses a significant threat to the aviation industry. This risk is technology related as a cyber-attack. The majority of UAVs system are operated by the military although some people may have access to it in the coming years for commercial purposes such as shooting movies (Michaels, 2016). However exciting this technology may be, it is a serious concern, especially with passenger aircraft. For instance, in 2014 an American Airlines pilot reported narrowly missing a quad copter at 2,300 feet above Florida while a drone was flown within 20ft of an A320 landing at Heathrow.

Lastly, automating computer related tasks is a challenge to the industry. Many plane accidents have occurred in recent years because some tasks are automated. For example the Asiana Flight 214 accident in San Francisco in 2013.Therefore, there is an increasing need to train pilots on what to do when automation fails (Michaels, 2016).

PESTEL	ANALYSIS
Political	Political environment also influences business risks. For example, during a political crisis, business is affected by unrest, making the cost of insurance expensive (Francois, 2013). Likewise, the cost of insurance is low during political stability.
Economic	Favorable economic policies will enhance economic performance, which means that business owners would insure their businesses against several risks therefore increasing the cost of insurance (Michaels, 2016).
Social	Social beliefs and practices influence risks as well. Men are likely to be involved in more risky activities compared to the women. For, example, the men involved in gambling activities would risk their money with expectation to make a boom income (Donlon, 2016). Generally, men are known to be risk takers compared to the women.
Technological	The advancement of software and hardware means that companies can now transform customer information into actionable insights. Likewise, technology has enabled better individual risk assessment (Green, 2011). This improvement has the capability of improving the customer experience and bringing down the cost of insurance rates.
Environment	Environmental factors also influence speculative factors and the cost of insurance cover. For example, the people living in the slums are at risk to fall sick compared to those in the urban areas. Therefore, the cost of medical cover for them would be expensive (Green, 2011).
Legal	Policies that have been enacted by the government can either increase or decrease the probability of insuring a business (Andelic, 2011). For instance, then laws allow entrance of new competitors in the market, many businesses are likely to suffer losses. With increased risks businesses will seek insurance cover against losses.

Conclusion 

Uncertainties within businesses have seen many businesses collapse in the past leading to arrested developments in certain countries. Embracing insurance policies in the modern world would surely provide not only a lasting but also a sustainable solution to this menace. No doubt, this is a way out to improve the greatest confidence in the investors and also to give the insurance companies an opportunity to smile.

References 

Andelic, G. (2011). The impact of Globalization on the Insurance and Reinsurance Market of Eastern Europe. South East European Journal of Economics and Business, 95-112.

Cannon, E. (2013, May 2013). Risk sharing. Retrieved September 13, 2016, from Get Rich Slowly: https://www.getrichslowly.org

Donlon, R. (2016, September 9). Ke takeaways: The Entrepreneurial Insurance Symposium, Day 1. Retrieved September 13, 2016, from Property Casualty 360: https://www.propertycasualty360.com

Francois, O. (2013). Risk Management and Insurance Review. Advanced search, 16-30.

Green, J. (2011). How Does Globalization Affect an Organization’s Business Approach? Small Business. Chron, 8-12.

Hadley. (2016, January 11). The Top 10 factors that affect life Insurance premiums. Retrieved September 13, 2016, from Insurance hotline: https://www.insurancehotline.com

McClintock, L. (2016, April 10). What is Risk pooling in Insurance? Retrieved September 13, 2016, from Finance. Zacks: https://www.finance.Zacks.com

McMaken, L. (2012, February 15). 4 Types of insurance everyone needs. Retrieved September 13, 2016, from Investopedia: https://www.investopedia.com

Michaels, N. (2016, September 8). 6 trends that will change insurance claims. Retrieved September 13, 2016, from Property Casualty 360: https://www.propertycasualty360.com

Purmort. (2012, 8 13). Retrieved September 13, 2016, from Purmort & Martin Insurance Agency: https://www.purmot.com

Thompson, V. (2015, September 12). Risk pooling. Retrieved September 13, 2016, from People of our every day: https://www.peopleofoureveryday.com

Vyas, A. (2015, June 9). How Technology impacts the insurance sector. Retrieved September 13, 2016, from betanews: https://www.betanews.com