Functions of insurance

1. Principal function: risk-bearing – financial losses of few are equitably distributed over
the many
2. Subsidiary functions:
a. Stimulates business enterprises – enables industrialists to use their capital in the
development of their business by paying remiums and obtaining financial security
against risks
b. Encourages business efficiency and enterprise – the natural result of the elimination
of risk
c. Promotes loss-prevention
d. Encourages savings
e. Solves social problems
3. Indirect functions
a. Investment of funds – insurers accumulate large funds, which are then invested,
which will lead to larger funds and huge resources for underwriting projects that
contribute to national development
b. Productive use of reserve funds – insurer’s reserve funds will be invested, and will not
be static c. Effect on prices – although the cost of insurance to the businessman is
passed on to the consumers, the existence of insurance benefits the consumer in terms
of reduced prices because the cost of insurance is less than the cost of risk without
insurance