There would also not be reason to cause fraudulent losses to collect from insurance as discussed under the moral hazard above. Insurance also facilitates credit transactions as an entrepreneur with a good risk management and insurance program has greatly reduced pure risk and hence is a better speculative or business risk. This is as if the applicants total risk has been reduced. Insurance is also a good anti-monopoly device as small business via appropriate purchase of insurance can compete with large businesses that can afford to assume or self insurance pure risks. Insurance also tends to lower the cost of capital as many small insurance premiums are combined and invested until needed.
Insurance also leads to added loss prevention and medical research.
An outstanding example of this is Underwriters Laboratories which was started by insurance industry seed money but is today self supporting via testing charges for hundreds of consumer and business products. Finally, relative to total dollars in assets and investments indicates both property and liability and life and health insurers, are very important financial intermediaries. Hazards may increase either the frequency or the severity of losses. Speculative risk refer to those events which can only result in loss. A fire is an example of a hazard.