Except that is not exactly "productive", isn't it? After all, risk was not eliminated, only redistributed. Productive output, e.g., would be something that reduces the chance of your house catching fire.
... or especially to somebody who happens to bear the reverse risk.
For example, a wheat farmer doesn't want the risk that wheat prices might collapse by harvest time due to windfall harvests somewhere else in the world; and the spaghetti maker doesn't want the risk that wheat prices might be soaring due to crop failures somewhere else-else. They make a deal now so they don't need to worry about the future, but they don't need to make the deal directly, they can each buy or sell wheat futures.
Visit a part of the world where most people do not have access to home loans, health insurance etc. and you will not have to ask how mere redistribution of risk and capital adds to productivity ever again. (I happen to have been born one such part of the world.)
Which is true, but there's another angle that needs discussing - that of a high-trust society vs low-trust society.
In all places where there are well functioning financial markets, there exists a high trust society. This trust is the foundation on which the financial markets exist.
So in poorer countries where such financial markets don't exist (or don't serve the people), it's not because they've chose not to have it, but that individual actors cannot trust that the system is fair and is rules based. So the problem isn't the lack of financial markets (which is a symptom), but that of a lack of good governance (bad or non-existant laws, corruption etc).
Urban India is a very low trust environment, but people still have access to things like home loans, insurance and capital markets (equity and loans).
> lack of good governance (bad or non-existant laws, corruption etc)
I agree that good governance is a necessity for development of financial markets, but not sure what it has to do with being a high trust or low trust society.
i would imagine that high trust but only within the village is not really high trust. Anyone outside the village who would've otherwise had the capital to lend to this village would not trust them to repay the loans, and perhaps would also not trust that the authorities would come in to enforce the collection of collateral (and in any case, if you forcibly evicted the original owners of a property for debts, the other villagers are probably not going to let you live there peacefully).
> but not sure what [good governance] has to do with being a high trust or low trust society.
Good governance allows high trust to exist, which allows many other things to exist as a precondition.
Care to elaborate for those of us who never made it out of middle-america?
(Likewise with credit allowing people to finance ventures that they would otherwise be unable to)
So, effectively [1], with insurance everyone can build a house nearly twice as big as without. That strikes me as productive.
[1] if the probability of a fire is sufficiently small
For example, having fire sprinklers greatly reduces the risks from fire. However even the reduced risks are still too great for your typical homeowner, so therefore those risks are distributed (and the reduced risks are reflected in lower premiums for the homeowner).