Question

In: Economics

What are considered the benefits and the costs to society of operating an insurance mechanism? How...

  • What are considered the benefits and the costs to society of operating an insurance mechanism?
  • How do a reciprocal exchange and a mutual insurance company differ?
  • Describe the changes that were brought about by the Gramm-Leach-Bliley Act, and, its overall impact on financial services today.

Solutions

Expert Solution

Insurance is a legal agreement between two parties i.e. the insurance company (insurer) and the individual (insured). In this, the insurance company promises to make good the losses .

Benefits;-

  1. it indemnifies individuals and organizations for covered losses
  2. it helps in managing cash flow uncertainity
  3. it meets statutory and legal requirements .
  4. it controls the risk and handles the risk of individuals

COSTS :

House fire, serious car wreck with bodily injury and or major property damage, total loss of house or business location due to storm, earthquake. Most people can not afford to pay for cancer treatment out of their pocket, replace their home and contents, etc. without insurance.

RECIPRAL AND MUTUAL DIFFERNCE

A reciprocal is an unincorporated risk-pooling alternative to stock or mutual insurance companies where the members, known as “subscribers,” agree to an exchange of contracts of insurance among themselves — thereby attaining a preferred level of risk pooling and diversification to indemnify the other members. The subscribers are part of an association in which the amalgamated risks are exchanged to cross-insure each other. A reciprocal is often likened to a partnership where each member is individually and severally liable, but, as is the case in — for example — a law firm, not jointly liable.

GRAM LEACH BILEY ACT

His act was enacted on nov 12 ,1999.many larger banks and insurance companies were desired in this act.this act seems to guide people to put more money in investments in insurance so that economy rise and not in saving accounts to decline the economy level


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