Is Insurance a Necessary Evil?

I have been experiencing an insatiable thirst to hunt to answer this nagging question about whether insurance may be a necessity in our country today. While the topic of insurance is broad and multi-faceted, i will be able to seek to interrupt down the perception of this subject in order that our minds for a flash aren't engrossed with the surreptitious picture of insurance agents' incessantly cold-calling potential clients or pursuit of claims arising out of insurable risks by claimants.

Data from the Insurance regulatory agency (IRA) shows that the extent of uptake of insurance in Kenya is at an rock bottom of three .3 percent. This can't be compared to developed economies like South Africa where the numbers are at 14%. Many explanations are advanced to point out why Kenyans are still averse to taking over Insurance related products.

 One prominent argument is that the Per capita income (GDP) of the typical income earner can't be enough to payment of premiums. The other school of thought is that the savings culture of Kenyans remains wanting.

While the arguments above may hold water, the fundamental understanding of insurance has not been taught to most of us from an early age. The subject of insurance I dare say is still shrouded with a lot of secrecy and misunderstanding akin to the mysticism surrounding ancient religions. The language used remains rather technical to the typical person. 

I realize that at now i need to correct myself quickly and note that each profession has its language; for an engineer has got to use engineering language, an architect the same etcetera. Insurance also has its language but if its proponents profess that it benefits most of humanity, shouldn't it's clothed in language that's not so grandiose but easily palatable to the common man?

The responsibility of the stakeholders within the insurance industry is to bring customers' perception to how insurance works during a language they will understand. This would entail offering a basic insight on what informs the underwriting decisions on various insurance products by insurers. I want to suggest that it would benefit insurers to have open days where they invite people and educate them on the fundamentals of insurance, on the meaning of risk, why insurance is important to any economy and most importantly the benefits of insurance at a personal level. 

Apart from honing their sales skills, sales professionals need to align themselves properly with the market in order to understand and respond well to their customers' needs. More often than not, sales people are perceived to be aggressive, over-achieving individuals who are not honest and are quick to point to clients the dotted lines in the application document. This negative perception must stop. Insurance sales people contribute immensely to the overall economic growth and offer important services without which an economy could not function well.

Now back to our overarching theme. Any society is fraught with risks. The risk of death by accidents, injury resulting in permanent or temporary disability, the danger of fireside arising out of artificial or natural sources e.g. lightning, subterranean fire etc, the risk of accidental injury at the place of work owing to the nature of employment, loss of luggage while travelling and many more. What insurance does is just to classify the above mentioned risks and price them into premiums. 

The premiums are then pooled and it's from this pool of funds that claims are settled. The guideline here is that a risk should be quantifiable. A close analysis of your immediate environment will reveal many known and unknown risks. Insurance companies manage losses that arise out of insured risks. Think for a moment the costs borne by the insured if there was no insurance to mitigate these risks. Imagine a petrol station owner being held liable for damage by fire arising from his petrol station to his neighbors. 

If the owner does not have public liability insurance, he may find it difficult to raise money to meet his legal fees and hence may not protect his business. This is because the value of a claim can far exceed what a business is in a position to boost and necessitate the shutting down of a business altogether. Many examples abound where insurance solve practical problems and mitigate a number of risks which will cripple businesses and slow economic process . At a personal level, medical insurance is very vital. Think for a flash the rising cost of Medicare and consultancy fees to not mention the increasing costs of pharmaceutical medicines.

But there's an antithesis to such a healthy explanation and this is often advanced by some who argue that risks are only imagined hazards. They posit that a risk is imagined and only ceases to be a risk when an actual occurrence happens. Some even counter a proposal to take up insurance dangerously by arguing that they have, for example, not been admitted to hospital for a number of years and see no need to take up a medical cover. While it is important to live healthy and avoid the hospital and its attendant costs, it would be farcical for one to wish they had a medical cover in the face of a medical emergency.

In conclusion, insurance is important to any growing economy like Kenya in spite of the low uptake. It not only creates employment and puts in abeyance the worry of meeting risks; it is an indicator of economic growth and a sign of a thriving economy. More must be done to teach the masses with reference to this subject.

 The responsibility lies squarely at the court of the regulator to place pressure on insurance companies to extend the uptake of insurance within the country. Incentives must tend to companies that have the very best level of penetration to form sure they maintain their influence and widen the market. Is insurance necessary? Indeed it is. Next time someone dissuades you from taking over an insurance plan, re-evaluate .

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