The insurance companies which work with the principle of probability provide funds in the event of an occurrence of a risk. The Scots invented the sophisticated forms of insurance mainly for businessmen and ship owners (Marwick, 2018). However, the invention has contributed to the shaping of the modern business world because these inventions have since expanded to the modern forms of insurance. Soon after, the different parameters of insurance such as probability, utility, normal distribution, and life expectancy came into place, the settings were particularly useful in Edinburgh in building life insurance for the Church of Scotland Ministers (Alborn, 2017). The ministers, led by Robert Wallace and Alexander Webster raised funds through the group of ministers which were meant to pay the ministers' widows after being profitably invested (Alborn, 2017). The scheme thrived into a big organization with increased predictability of payout. Otto Von Bismarck was also the first promoter of a state-sponsored pension scheme for the poor and elderly (Alborn, 2017).
Initially, the Scots distributed and transferred risks among the traders and developed contracts that were separate for pooling of risks. They were also involved in the development of maritime insurance policies (Alber & Flora, 2017). The maritime policies have been modernized to bring different varieties for the customer and also educate them on the security and rights in the management of risks. To the modern insurance customer, the evolution of insurance from its original form in Scotland has been essential because previously, the customer was unaware of the details that pertain an insurance contract. The insurance covers did not comprehensively cover all the issues that the customer wished to address. What is more, some details of the contracts have improved over time, and now consumers have a variety of choices to decide on which type of contract best serves their needs. Customers now are more appreciative of the improvements of the contracts in that they are more aware and educated of the policies and contract information for the protection of their rights and privileges thanks to the evolution from Scotland.
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In every transaction, money is an essential part, and at times, the transacting parties may not have enough of it. For this reason, the concept of debtors and creditors comes in handy. Borrowing of money is essential especially to individuals and institutions who spend more than they have. Borrowers can be classified into governments, consumers and business entities (Jiménez et al.,2017). On the flipside, some institutions usually have more funds than they need and may decide to lend some of the finances to the borrowers. Such institutions are referred to as lenders or creditors. The lenders, therefore, provide money to debtors with interest (Jiménez et al.,2017). For this reason, the economic systems where debtors can entrust their funds to these clients and the banks have ways to keep track of payment records to curb the menace of defaulting. The move helps the debtors put into use the excess funds and also make profits in the form of interests that the loans accumulate. Besides, the banks through the creation of deposit accounts allow lenders to deposit their excess funds while offering them interest (Waemustafa & Sukri, 2015). After ‘borrowing' the funds, banks then invite potential borrowers who are screened using the various rules and regulations. Finally, the bank provides credit to qualified applicants at higher interest rates. When the borrowers pay back the funds to the bank, it reimburses the funds to the original lenders, after taking the excess credit. In doing so, the cycle of borrowing that the banks create stimulate extra credit and lenders get their share in the interest for their money. Productive activities which are funded by the banks lead to the production of excess goods and services while the investment generates more profits. The results of this are improved living standards and economic growth.
References
Alber, J., & Flora, P. (2017). Modernization, democratization, and the development of welfare states in Western Europe. In Development of Welfare states in Europe and America (pp. 37-80). Routledge.
Alborn, T. (2017). Anglo-American Life Insurance, 1800-1914 Volume 1 . Routledge.
Jiménez, G., Ongena, S., Peydró, J. L., & Saurina, J. (2017). Macroprudential policy, countercyclical bank capital buffers, and credit supply: evidence from the Spanish dynamic provisioning experiments. Journal of Political Economy , 125 (6), 2126-2177.
Marwick, W. H. (2018). Economic Developments in Victorian Scotland . Routledge.
Waemustafa, W., & Sukri, S. (2015). Bank specific and macroeconomics dynamic determinants of credit risk in Islamic banks and conventional banks. International Journal of Economics and Financial Issues , 5 (2), 476-481.
