The United Nations Declaration of Human Rights 1948 provides that “Everyone has a right to a standard of living adequate for the health and well being of himself and his family, including food, clothing, housing and medical care and necessary social services and the right to security in the event of unemployment, sickness, disability, widowhood or other lack of livelihood in circumstances beyond his control.
When the bread winner dies, to that extent the family’s income dies. The economic condition of the family is affected, unless other arrangements come into being to restore the situation. Life insurance provides such an alternate arrangement. If this did not happen, another family would be pushed into the lower strata of society. The lower strata creates a cost on society. Life insurance helps to reduce such costs. In this sense, the life insurance business is complimentary to the state’s efforts in social management.
As per the law and the directions of the regulatory authorities, insurance companies in country are obliged to extend insurance benefits to economically weaker sections of the society in the unorganised sector.
RE INSURANCE
Insurance companies are taking risks. They have to pay claims as and when they occur. They cannot be sure when the claim will occur and how big the claim will be. This is so because of the very nature of perils. Insurers normally financially sound enough to be able pay claims. But there are limits. An event like the tsunami and hurricane may generate claims amounting of billions of dollars, which may put a very heavy strain on the reserves of the insurers. Insurers protect themselves from such situations, which may be beyond their capacity, by re insuring the risk with other insurers. If there is a claim the burden is shared by the primary insurer and other re insurers.
There are some companies which are exclusively in the business of re insurance. Re insurance business is placed globally. When there is majority calamity, the claims affect several insurers all over the world, through the system of re insurance.