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Insurance – The socio-political silver bullet

I have been meaning to write on this topic for a while now but, having listened to a few socio-political economists/ analysts (the titles vary quite a bit) over the last three weeks, I decided it is time to nail my colours to the mast.

The point I would like to make is that the insurance industry, life and short-term, does not receive enough due recognition from the authorities and the public in general. Now, I am not talking about a pat on the back with newspaper headlines blasting out how we save the country on a daily basis, but rather about recognition for the value of the industry to the future of the country.

Imagine the cost to the country of raising a child, from schooling, medical, safety and security, to tertiary education and then, into adulthood, the costs of things like voting, transport, subsidies etc. This same person now works for 30 years, building up a large sum of money. When he is retrenched, he invests this sum of money in a clothing factory employing 50 people. Now, imagine a fire destroys the factory and there is no insurance. In the blink of an eye we, the people of South Africa, loses our total investment in this person. 50 people have loses their livelihood and the Government loses its prospective income, not only from the business, but also from the owner’s tax and the tax generated by the 50 employees. The education for the kids of the employees are in jeopardy and the Government may have to start paying a variety of unemployment benefits and social grants. Now, extrapolate that to various other scenarios, like a fire destroying 200 informal dwellings and taking with it the only “capital” built up over many years, by people with very little capacity to regain their relatively small wealth. Even on a very small scale, the knock-on loss for the family, Government and country, when a breadwinner dies without life cover or becomes disabled.

On a larger scale, a good example is the headlines after a major natural disaster in a first world country, i.e. a tornado in Texas: Economic loss USD110b, Insured loss USD98b. The same thing happens in a developing country: Economic loss USD65b – Insured loss USD3b. That country can be put back 50 years in the blink of an eye. All the output from its business and labourers, in personal gains and in taxes paid, are wiped out. This is one of the major reasons for the major disparity between the developed and developing worlds and between the poor and more affluent communities.

Add to this the fact that my opportunity to study law was a direct result of my father saving money in an endowment, and the tertiary education of my children was possible because I did not have to look after my mother financially. My father’s life policy and pension savings takes care of that, and the ripple effect is illustrated.

This brings me back to my heading and the fact that insurance is a silver bullet in that it is one of the greatest socio-political stabilisers any government can hope for. Less loss of wealth will make communities more comfortable and less dependent on Government, it will provide more capital for greater entrepreneurial ventures, providing more employment, generating more tax and leading to greater infrastructure development from authorities etc etc.

If I was Government, I would treasure the possibilities created by the insurance silver bullet and do every thing I can to enable an environment where this industry can thrive. I will cooperate with the industry to ensure the public understands the above opportunities and I will assist in creating broader insurance participation on every level of society. Yes, we need effective regulation and we need appropriate enforcement, and the industry is thankful for the huge effort Government is putting in here, but we also need a much more holistic approach from Government. We need a government that recognises that it has a silver bullet at its disposal and grasps that opportunity with both hands.

This article is the editorial in the June 2012 edition of Cover magazine.

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