Answer to Question #279129 in Economics of Enterprise for Navodita Sharma

Question

Analyze the impact of insurance sector on gross domestic product (GDP) and financial help of an economy. Also explain why focusing simply on GDP can be harmful for economic development of a country?

Answer 1

Solution:

The insurance sector has a huge influence on a country’s GDP in terms of insurance premiums paid out in health and life policies. There has been an increase in health and insurance premiums which is valued added to GDP, thus increasing the overall GDP.

The insurance sector provides protection against financial aspects of premature death, injury, loss of property, loss of earning power, legal liability, or other unexpected expenses. The insurance sector also acts as capital protectors and infusers, credit and capital providers, and infrastructure development thus enhancing economic growth.

 

Focusing simply on GDP can be harmful to economic development of a country due to the numerous limitations that it has, which include the following:

• The exclusion of non-market transactions
• The failure to account for or represent the degree of income inequality in society
• The failure to indicate whether the nation’s rate of growth is sustainable or not.
• The failure to account for the costs imposed on human health and the environment of negative externalities arising from the production or consumption of the nation’s output.