Why have many governments found it necessary to regulate the terms, Essay

Why have many governments install it necessary to regulate the terms, conditions and processes in the sale of indemnification and fiscal services products - Essay Example indemnification is one among the fiscal system.Insurance is a part of financial system. It takes c argon of the financial consequences of certain circumstantial contingencies both in lawsuit of individuals and corporate bodies. The effect of the losses o financial system is non only negative but whitethorn be disastrous and catastrophic also. It may be at micro - level or macro - level. Insurance provides financial security wherever there is an insurance policy. In fact, insurance is legally compulsory. The insurance sector has weathered terrorist attacks of previously unknown magnitude it has suffered from a severe drop in equity trades it is going through a prolonged period of historically low interest rates and has even suffered from major credit defaults (Rossum, 2005). But it remains in practised shape. The attack on the World Trade Centre is a good example in this context.though past performance behind be relied upon to decide whether regulation is necessary or not with adore to sale of insurance and financial service products, there are certain trends which support the need for regulation. They are -The regulation of the financial system can be viewed as a particularly important case of public control over the economy (Giorgio, 2004). A plethora of theoretical motivations support the opportunity of a particularly stringent regulation for banks and other financial intermediaries. Such motivations are based on the foundation of particular forms of market failure in the credit and financial sectors.Regulatory FrameworkA regulatory framework is most essential in order to manage any financial system as a matter of fact ((ICMR), Financial Management for Managers, 2003). The governmental regulatory framework seeks to Define avenues of investing available to business enterprises in d ifferent categories, ownership-wise and size-wiseInduce investment along certain lines by providing incentives, concessions, and reliefs and typeset the procedure for raising funds from the financial markets.Despite the existence and sale of numerous insurance policies that apprehend various contingencies, the economic reason for the regulation of the insurance is yet to be defined in the financial literature. There are many rigorous arguments in favour of the regulation of insurance companies, some of which are discussed as follows (Booth, Oct,2007). First and foremost, regulation can prevent the adverse affects of information asymmetries in markets for illiquid contracts. Secondly, regulation can be used to ensure that insurers commit to contracts. In the case of life insurers these contracts may be incomplete, and it may be difficult to determine the terms of the contracts objectively this is particularly so with U.K. with-profit contracts, for example.As discussed in the initia l paragraphs of this paper, the term financial system traditionally includes banking, financial and insurance segments ((ICMR), Commercial Banking, 2003). A primary objective of financial market regulation is the pursuit of macroeconomic and microeconomic stability. Safeguarding the stability of the financial system translates into macro controls over the financial exchanges, clearing houses and securities settlement systems. Earlier, many academics and practitioners have argued that, there is a definite