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Is Insurance a Necessary Evil?

I have been experiencing an insatiable thirst to seek to answer this nagging question about whether insurance is a necessity in our country today. While the subject of insurance is broad and multi-faceted, I will seek to break down the perception of this subject so that our minds for a moment are not engrossed with the surreptitious picture of insurance agents’ incessantly cold-calling potential clients or pursuit of claims arising out of insurable risks by claimants.

Insurance Regulatory Authority (IRA) data show that insurance take-up levels in Kenya are at an all-time low of 3.3%. This can not be contrasted with advanced markets such as South Africa, where the figures are 14%. Many explanations have been developed to demonstrate why insurance-related products are still averse to Kenyans. One prominent argument is that the average income earner’s per capita income (GDP) can not be sufficient to promote premium payment. The other school of thought is that Kenyans ‘ savings culture is still desirable.

While the above arguments may hold water, most of us have not been taught basic insurance knowledge from an early era. The topic of insurance that I dare to mention is still covered with a lot of secrecy and misunderstanding similar to the mysticism that surrounds ancient religions. For the average person, the language used is still rather technical. I understand I have to right myself rapidly at this stage and note that every profession has its own language; an engineer must use the language of engineering, an architect must use the same language and so on. Insurance also has its language, but shouldn’t it be dressed in language that is not so grandiose but readily appealing to the common man if its advocates profess that it benefits nearly all of humanity?

The responsibility of the insurance industry stakeholders is to take the perception of clients about how insurance operates in a language they can comprehend. This would involve giving insurers a fundamental insight into what informs the underwriting choices about different insurance products. I would suggest that it would be advantageous for insurers to have open days where they invite people and educate them on the basics of insurance, on the meaning of risk, on why insurance is important for any economy and, most importantly, on the personal benefits of insurance. Sales experts need to align themselves correctly with the industry in order to comprehend and react well to the requirements of their clients in addition to improving their sales abilities. More often than not, sales people are seen as aggressive, over-reaching individuals who are not frank and are fast to point the dotted lines in the application document to customers. It is necessary to prevent this adverse perception. Insurance sales individuals are making an enormous contribution to general economic growth and offering significant services without which an economy could not work well.

Now back to our overall theme. Every society is full of hazards. The risk of death due to accidents, accidental injury resulting in permanent or temporary disability, the risk of fire resulting from man-made or natural sources such as lightning, underground fire, etc., the risk of accidental injury at the workplace due to the nature of the job, loss of baggage while travelling, etc. What insurance is doing is simply classifying the above hazards and pricing them into premiums. The premiums are then pooled, and claims are settled from this pool of funds. The guiding principle here is to quantify a danger. A close assessment of your surroundings will show many known and unknown hazards. Insurance companies are managing losses resulting from insured hazards. If there was no insurance to mitigate these risks, think for a moment about the costs borne by the insured. Imagine that a petrol station owner is held responsible for fire harm from his neighbors ‘ gas station. If the proprietor does not have insurance in respect of public liability, he may find it hard to raise cash to satisfy his legal charges and may not defend his company. This is because a claim’s price can far exceed what a company can raise and necessitate the complete shutdown of a company. There are many examples of insurance solving practical issues and mitigating a host of hazards that can cripple companies and slow economic growth. Medical insurance is very essential on a private level. Think for a time about Medicare’s rising expenses and consultancy charges, not to mention the rising pharmaceutical drug expenses.

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