Insurance as an asset protector and its importance in the economy

Risks such as COVID-19 or climate change may arise on the horizon of economic and social progress, causing increased vulnerability throughout the world, but with a greater impact on countries whose economies are still emerging. Given the current environment, we continue to see that insurance penetration remains very low in many markets that could benefit the most from the peace of mind it brings.

In our lives, we experience an infinite number of situations that we cannot foresee and that can affect our well-being and that of our family. Here is where insurance begins to play an important role, since it allows us to eliminate the effect of these unforeseen events or reduce their impact.

That is why it is important to take out insurance to protect your property, your health, and your life: to take care of what matters to you, and to be sure that they will not be affected no matter what happens. Even so, as we pointed out earlier, insurance penetration is not the same in all countries. For example, in Latin America, the culture of living insured is less common.

• It gives you certainty: Insurance provides protection and support in any unexpected circumstance. It is better to have it and not need it than to need it and not have it.

• It reduces your losses and risks: Both on a personal and business level, having insurance makes it more likely you will overcome unforeseen events such as natural disasters that are beyond your control.

• It gives you peace of mind: Insurance also helps reduce fear and frustration in the face of future uncertainty. Not having financial stability affects our health, as it causes stress and anxiety. This is why financial literacy is also key.

A quote attributed to Henry Ford: “the whole world relies on insurance. Without it, every person would keep their money without investing it anywhere for fear of losing it, and civilization would have ground to a halt a little past the Stone Age.”

As we have seen, there are a number of essential steps for gradually closing the protection gaps that exist in emerging markets, where the consequences of uninsured risks can be even more severe and long-lasting than in other economies. Insurance allows for assuming risks that support development with the peace of mind of having protection.

At MAPFRE, we lead actions that help to close these gaps, either by promoting financial culture for all or by establishing clear commitments in our good governance policy. These commitments, which are rooted in responsibility, integrity, and transparency, are focused on permanently innovating products and services that facilitate and promote accessibility to insurance for an increasing number of groups, including those in emerging countries, while also ensuring complete advisory and information prior to taking out a policy as a basis for transparency and the creation of a relationship of trust.

The Geneva Association and the Insurance Development Forum (IDF) recently released a report exploring how regulation, as well as government policies, can either facilitate or limit the development of robust and responsive insurance markets that help close gaps in emerging markets. Among other conclusions, the following points stand out as key factors.

Political priority

First, decision-makers must make regulation of the insurance market a political priority and create a legal and fiscal framework that allows for its expansion. Emerging markets require a different approach to insurance regulation and supervision.

This regulation should take into account the maturity of each particular market, and as mentioned in the report, “regulatory techniques and practices should not go beyond what is necessary in order to achieve their purpose and opt to balance prudential and market development objectives.” That is, they should opt for simplicity.

Financial education and risk awareness

The lack of understanding of finance — the elements and tools to manage a personal and family economy or to understand risk and vulnerability in an environment such as the current one — by a large percentage of the population, is one of the main barriers to the expansion of insurance, beyond policies at the state level.

Financial education programs would be necessary as early as primary school to build this useful foundation of basic financial knowledge for day-to-day life. In addition, closer collaboration should be pursued between governments, regulators, and the insurance industry so as to improve public understanding of the role of insurance for societies and the importance of good insurance regulation.

More financial education and better understanding of exposure to loss and its consequences would help in understanding insurance — an intangible product — not as an expense but as an investment.

Simplicity and affordability

As we have seen, on both the regulatory and financial education sides, an essential element is simplicity. For the consumer, they must be products that are simple to take out, with no exclusions and complex clauses. They must provide clarity about their benefits and satisfy concrete and tangible needs. We must not forget that the price must be right and in line with the economic reality of each market.

Trust

Basic financial education, a favorable regulatory framework for insurance, and affordable products that are clear and simple to purchase will help create a context of trust in this fundamental element for economic development.

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