Welfare Insurance. The Purpose of Insurance is to reach the last man in society

As we all know the history of insurance, the purpose of insurance was to protect ship-owners in time of difficulty. But we do not have data to validate how much ship-owners population was covered. I received many emails after the first thoughts on welfare insurance were out. While interacting with some intellectuals, a point came up that the penetration of insurance is low, because of the cost. How many people can afford insurance, is a key factor for low penetration. I believe it is a very sharp observation, because most of us believe it is the awareness which is low, and second would come the cost, where people try to cut down price. At some extend it is true, because we have seen increased number of people buying specialized policies, when cost of insurance came down in last 5-6 years.

Following figures would give us some an idea about the population that needs insurance in CIS countries.

Each country has different dynamics, different socio- economic situation, geography would be different, temperaments would be different. Western world has handsome price compared to middle east and CIS countries. But still we see a common factor among all of them, is low level of insurance penetration. After the first article, one of my mate in Australia who is engaged in working on gender issues, shared a thought that insurance can be the most effective tool for social security. If it has been the most effective tool of social security, how government, development organizations, etc. have missed it? The blame is not on insurance companies here, because they are more or less concerned with profit and loss business. Every one of us know it, but still to put it in perspective,

- CAR or EAR policy would protect the contractor from financial losses against property damage and liabilities.
- Fire policy would protect against losses out of named perils.
- Accident policy would provide compensation in case of death of injuries.
- Pension Scheme would provide regular income when a person in almost incapable to work in old age.
- Health Insurance would cover expenses in case of sickness.

Likewise, there are number of policies and the benefits are endless. Each of these policy is designed to protect the individual or business in difficult times. Then why the penetration is very low? We would be compelled to think, who owns the blame? Is it the insurance industry, government and development agencies or people in society themselves? Less than 5% penetration of insurance in a modern country like Russia would surprise! What can be done? What needs to be done? Where did we lack? Who lacked? What is required to increase the penetration? Are our products wrong? Or the methods are wrong that we adopted to sell insurance? These are some of the questions, insurance industry has to answer. The end beneficiaries of increased penetration would be insurance industry, therefore insurance and reinsurance industry would have to invest in R&D (research & development) and find out the reasons.

May be, each country will have different reasons, or each product of insurance would come with different reasons, but someone have to take initiative and identify them. There are many researches that has been carried out, market surveys are done regularly by different agencies, but majority of them are with perspective to profit and loss statement. A Sociological, Psychological, Developmental research, both qualitative and quantitative have to be carried out by various agencies. Insurance and reinsurance industry will have to take initiative for it.

One more suggestion that can be made is, we have seen multi profession people in the industry. Actuaries, Chartered accountants, engineers from various stream, finance professionals, veterinary for cattle, marketing, doctors, office administrators etc. However; more specialized people from the field of Social work, Psychology and social Sciences needs to be engaged for design of insurance products, pricing, need assessment (what kind of products are needed), evaluation of existing products and business, implementation (sales part), managing data, claims management, establishing links between various agencies, budgeting. Etc. A gap between company selling insurance, and common people have to be reduced.

Some figures that gives us idea of untapped market is as below. These segments need expertise of people as mentioned above.
  • 54% of the global population was living in an urban area in 2014, up from 34% in 1960. 651 million urban residents lived in slum conditions in 2009.
  • According to UN; in cities of developing countries, more than 50% population lives in sums and have little or no access to shelter, water, and sanitation, education or health services.
    • Sub-Saharan Africa had slum population of 199.5 million representing 61.7% of its urban population.
    • South Asia with 190.7 million in slums making up 35% of urban residents.
    • East Asia with 189.6 million (28.2%), Latin America and the Caribbean with 110.7 million (23.5%), Southeast Asia with 88.9 million (31%), West Asia with 35 million (24.6%), North Africa with 11.8 million (13.3%), and Oceania with six million who constitute 24.1% of the urban population.
  • Percentage of population living in Rural areas is Belarus has 24%, Kazakhstan 47%, Russian Federation 26%, Tajikistan 73%, Uzbekistan 64%, Azerbaijan 46%, Moldova 46%, Armenia 37% as per World Bank in 2011 to 2015. 
Insurance industry need to see more efforts toward rural, lower class population. I am sure many have in different countries, but each insurance and reinsurance company should have separate vertical promoting business in Rural, Slums, Semi-Urban, Forest, etc. areas. They need to work on Health, Accident, Life, Pension, Agriculture, Cattle insurance, etc. policies. These are the areas where the traditional workforce of current insurance industry would fall short. These are the areas where penetration of insurance is even low, when we compare it with average figures of various countries. These are the areas, where normal life is different compared to urban, metro areas. They need more attention, they need different products, they need to be reached, accessibility needs to be made easy.

A successful example of what I am saying is, statistics of people covered with health insurance in European countries, where insurance is provided by government programs. Readers can refer to statics on Wikipedia and other source that more or less gives an idea that nearly 100% population is covered with health insurance. One more example is, if a single government funded insurance program of RSBY in India can cover 35 million families (5 members family) within span of 4-5 years, what can CIS countries do? While comparing RSBY with total population of countries, taking average family size of 3.5 member, Belarus has to achieve only 7.73%, Kazakhstan 14.22%, Kyrgyzstan 4.72%, Tajikistan 7.03%, Azerbaijan 7.64%, Moldova 2.9%, Armenia 2.47%, At these percentage efforts in comparison to RSBY, they would be covering their 100% population.

The next statement is quite rigid, personally I don't mean it literally, but an orthodox mind in some part of the world would say "The purpose of insurance is to reach to the last man in society, if it cannot, what is the need for its existence"?

by Hitesh KHRISTY

Hitesh KHRISTY is a Development, Project Management and Reinsurance Professional, having worked in multiple countries. He has been writing for NGOs, IT Companies, insurance sector and on social issues, political empowerment, United Nation and it's concerns, war and peace, for more than one decades. Has been involved in speaking at Social work and Social science schools & various universities on Welfare Insurance, Micro Insurance, War & Terrorism, Social issues. Few of his upcoming books are on 1) Modern Social Problems, 2) Liability Insurance,  3) Terrorism etc.

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