Functions of Insurance
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gives you a quick guide to the history, nature, legislation, functions and organisations of insurance in Malaysia
Functions of insurance

Primary function

  • To spread the financial loss of insured members over the whole of the insuring community by compensating the unfortunate few from the pool formed by the contributions of all members.

Secondary functions

  • Freeing funds otherwise tied up in reserves - Insurance substitutes a certain premium payment in place of an uncertain loss payment. No prudent businessman would invest large sums of money without suitable safeguards. In the absence of insurance, large reserve funds would be necessary. Insurance has the effect of releasing these reserves for further investment and developments.
  • Investment by insurers - Insurers have accumulated funds over the years and a large proportion of these resources are invested, therefore boosting the overall development of the economy.
  • Aid to credit - Seldom will a loan be advanced unless the item being financed is insured.
  • Provides employment - A large number of people are directly employed in the insurance industry.
  • Loss prevention and loss reduction - Insurers encourage loss reduction and prevention by offering lower rates and discounts to those who take loss prevention and loss reduction measures.

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