The Value of Insurance to Society

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    Over the past three months as one of the participants of the Zimselector.com mentorship programme for insurance journalists I have learnt that every individual or business faces risks. It could be the risk of loss and damage to property, vehicles and stock due to fire, burglary, flood, accident and even theft. I have also learnt that Insurance plays a critical role in protecting the society against all these risks and also plays a critical role in economic growth, loss prevention, credit support, and revenue creation for the government.

     BY Donald Tafadzwa Chidoori

    Over a long period of time society has benefited from the products and services provided by insurance companies. Insurance does not only reimburse people when they suffer loss or their property is damaged but also helps businesses and individuals resume their normal business operations and standards of lives respectively, which also benefits the whole society and the government in revenue creation. Overall in a world filled with uncertainties insurance helps us to have a peace of mind.

    Payment of losses;

    Do you want to buy a house today build a house today, buy a car today not insure that car and then what happens when the car is written off in an accident or the house is destroyed in a flood, you want to go back again and buy the same car or build the same house. Certainly not; you would definitely need cover for you to be able to replace them.

    How many of us ever imagined that we would get the kind of excessive rains that we have had over the past few months and the drama that accompanied that rain; houses collapsing, cars moving from one point to another. For some it was a fascinating time while for others it was traumatic. What was amazing however was that the majority of the people unfortunately did not have insurance.

    Insurance protects us all against unforeseen eventualities that could result in financial hardship. The protection that insurance cover offers permits us to: buy cars; buy homes and businesses; and protect our families’ financial futures. “So insurance cannot bring back life, but there were things that the insured  was doing for you either sending you to school providing you with accommodation, food all these necessities without the funder insurance comes in and pays for those things,” Ipec’s Head of Prudential Supervision, Mr Pupurai Togarepi told journalists at an insurance journalists mentorship programme hosted by Zimselector.com.

    Recently one insurance company actually paid close to half a million dollars in a space of three weeks to people whose assets were  damaged by the incessant rainfall and floods that rocked the country this rainy season.

    Not a few months ago a business premise was burnt down to ashes near the Seke Road Flyover, in Harare. Fortunately the business had insurance and the building has been rebuilt. However, if the business had no means to resume operation, the owner of the building would have been faced with an unforeseen financial hardship. The negative impact would have also extended to the employees who would have been forced to join the over 3 million unemployed Zimbabweans, and those from other businesses who benefited from the goods and services that were being provided by the business would have lost a supplier, and not to mention the loss of revenue by the country.

    The reality is that insurers are in the business of paying claims if they were not in the business of paying claims, then they would be in no business at all, that’s what insurance is about.  The proceeds of an insurance policy benefit everyone in society by restoring the insured person or organization to the same financial condition as before the loss and preventing the loss from rippling out and affecting others negatively.

    So insurance makes sure that beneficiaries or dependents are well covered for or if we lose any assets today we will be able to replace them.

    Economic Growth;

    Over and above the protection that the insurance industry gives, it plays an important role in the nation’s economy. Insurance companies are one of the largest sources of investment funds in the country, because insurance companies invest millions of dollars they get from premiums in a wide range of investments.

    In Zimbabwe Insurance companies have played a key role in infrastructural development, says David Muchakagara the the General Manager – Corporate and Strategic Development at Old Mutual Insurance Company (Omico).

    His sentiments were augmented by the Executive Officer of a leading insurance aggregator Zimselector.com,  Mr Ngwerume who highlighted that, “Insurance companies and pensions funds have funded many developments nationwide like; office buildings, shopping malls, housing developments, roads, dams, power stations, transmission lines, agricultural and mining activities.”

    Old Mutual over the years has been critical in the development and construction of modern day shopping centres, shopping malls and office buildings and currently has a new baby is the SME Centre which is under construction in Harare. The SME Centre is expected to lead in the formalisation of the informal sector and creating revenue for the country through a strong tax base.

    Insurance companies like Old Mutual use premiums collected from policyholders to build cash reserves. These cash reserves are invested in government bonds that are used to construct roads, build schools and public utilities.

    “We support the government in a big way through treasury bills, at a social level a lot of rural areas particularly clinics have benefited from OMICO, we have been going out to all provinces drilling boreholes to make sure that people have clean water we are also building technology centres for young children to learn about computers,” stated Mr Mutyakagara.

    Cash reserves are also invested in commercial developments and the stock market. The Africa Trade Insurance Agency (ATI) is keen to support various infrastructural, financial and energy projects in Zimbabwe worth over $300 million. These investments promote economic growth in communities and also support the insurance company’s requirement of maintaining sufficient capital reserves to pay future losses and earn a profit.

    Insurance Companies also provide Construction Bonds and Guarantees. In short insurance premiums collected by the various insurance companies, forms a very important pool of liquid funds that are an important source of finance for the development of the national economy.

    Loss Prevention;

    If your House is on fire do you just sit and wait until it burns to the ground because you are fully covered and risk the loss of invaluable material like your grandmothers wedding ring or you call the fire brigade to minimise the loss that would result from the fire? This is where Insurance risk advisory services come in.

    Insurance companies do a lot of risk management to assist their customers to avoid loss of property and loss of lives in most instances and sometimes to understand their operations. Insurance agents and risk managers often work with individual and commercial clients to implement loss prevention measures such as security systems, better construction materials or employee disaster evacuation plans.

    Just recently Nicoz Diamond held a mock fire drill to assess the readiness of their staff and security systems at their head office. Such activities prepare people in cases of fire or disaster and limit the loss of life and property if disaster strikes.

    Just recently we witnessed CBZ launching its Risk Advisory Services branch; such advisory services especially in the life insurance industry educate individuals and businesses on the need to develop financial plans in the event of a premature death of a breadwinner or key person (Key Person Insurance). If a key man  dies for example a doctor dies the surgery dies because  there is no other doctor, the same applies to a  lawyer no one can come and practice in your office if you die, you are gone unless one of your child is in that profession as well. As such insurance companies play a big part in society through helping their clients eliminate or lessen the amount of loss and human suffering as a result of unforeseen incidents.

    Over the years Insurance companies have benefited the society through leading the development of innovative mechanisms and systems that minimise loss. The Insurance industry has encouraged activities and devices that reduce the amount of losses and their economic impact. For example, Insurance companies were pivotal in the development of standards and regulation requiring Seat belts and other passive restraints in automobiles as standard equipment in all vehicles. These have led to the significant reduction to the extent of injuries suffered by occupants involved in vehicle accidents.

    If you own a vehicle you may have noticed the “UL Approved” label on your vehicle. The acronym UL actually stands for Underwriters Laboratories, a leading think tank in the insurance industry that develops safety standards for objects used in businesses and residences. 

    Credit Support;

    If you take out a mortgage or a business loan, banks usually demand that you take out insurance for the house you would have bought or the office buildings you put up as guarantees, this is insurance will help Banks and credit institution to recover loans if disaster occurs.

    Insurance as such enables borrowers to guarantee creditors that their investment is protected against disasters. If a key person is incapacitated to pay back loans due to injury or premature death, Insurance protects the value of the property.

    Commercially insurance shields businesses such as exporters from customer defaults. Credit insurance protects merchants, exporters, manufacturers and other businesses from losses or damages resulting from the non-payment of debts owed them for goods and services provided in the normal course of business. Credit insurance facilitates financing, enabling insured companies to get better credit terms from banks.

    Companies as well as private individuals transfer risks to the insurer giving them a safety net to take calculated risks in product innovation, new investments and private decisions like mortgages on homes, a second professional education and improving their quality of life.  This enables companies and individuals to borrow money and invest it in projects that lead to economic growth and employment creation.

    Companies like Credisure facilitate export finance by cession of Credit Insurance Policies to Financial Institutions and Suppliers, which is critical to the growth of Zimbabwe’s economy.

     Conclusion;  

    This article gave just a preview of the importance of insurance for the society. With the society facing a number of grotesque challenges like floods, droughts, amongst others, the role of insurance becomes more important than ever. One of the most important value of insurance to the society and one which is over looked is the fact that the Insurance Industry is a major employer and educator which has provided a number of skilled jobs in a number of professions directly and indirectly.

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