Insurance can play a pivotal role in mitigating the adverse impact of economic slumps in Nigeria, writes JOSEPH INOKOTONG.
Insurance is an important tool for managing risk and protecting one’s financial well-being. By being informed and proactive, individuals can make the most of the options available.
Also, insurance is a proactive measure to manage risk and ensure financial resilience. By taking up policies, citizens can better navigate life’s uncertainties and unexpected challenges.
Citizens need to take up insurance policies to protect themselves against unforeseen events or financial losses. Insurance provides a financial safety net, helping to mitigate financial shocks, reduce stress and anxiety, ensure continuity of essential expenses (e.g., housing, food and healthcare), protect assets and investments and support recovery and rebuilding.
By taking up insurance policies, citizens can transfer risk to the insurer, access financial support when needed, enjoy peace of mind, knowing they are prepared for unexpected events
Unplanned happenings can include job loss or income reduction, medical emergencies or illnesses, natural disasters or accidents. death or disability and business failures or economic downturns.
During an economic downturn, insurance can help citizens in several ways like income protection. Insurance like unemployment insurance or disability insurance can replace lost income, helping individuals meet essential expenses.
Medical expenses: Health insurance can cover medical costs, ensuring access to necessary care during a time of financial strain.
Debt management: Credit insurance can help manage debt by covering loan payments or credit card balances.
Home protection: Homeowners or renters’ insurance can protect against loss or damage to property, preventing additional financial burdens.
Business support: Business interruption insurance can help entrepreneurs and small business owners recover from economic downturns by covering operational costs. Life insurance can provide a financial safety net for dependents, ensuring their wellbeing even if the breadwinner passes away.
Retirement savings protection: Insurance like annuities can safeguard retirement savings, providing a steady income stream.
Emergency funding: Insurance policies with cash value components, like whole life insurance, can serve as an emergency fund. Insurance can reduce financial stress, allowing individuals to focus on recovery and rebuilding.
Through support to economic recovery, by mitigating the impact of economic downturns on individuals, insurance can contribute to a faster economic recovery. Insurance can help alleviate the negative impacts of economic downturns on citizens by providing financial support, protecting assets and reducing stress, ultimately contributing to a more resilient and faster recovery.
Indeed, insurance can play a vital role in mitigating the adverse impact of an economic downturn on citizens in several ways by providing financial protection. It provides a safety net against unexpected events like job loss, medical emergencies, or natural disasters, helping to reduce financial stress. Insurance also helps manage risk by transferring it to the insurer, allowing individuals to better cope with uncertainties.
Income replacement: Insurance, like disability or life insurance, can replace income lost due to unforeseen circumstances. Insurance can protect assets like homes, businesses, or investments from losses or damage. Having insurance can make it easier to access credit, as lenders may view insured individuals as lower-risk borrowers.
Social stability: Insurance can contribute to social stability by reducing the burden on public assistance programmes and supporting economic recovery.
Business continuity: Insurance can help businesses survive economic downturns by covering operational risks, ensuring continuity and supporting recovery.
Health and wellness: Health insurance can ensure access to essential medical care, even during economic downturns. By offering policies like retirement security, insurance like annuities can provide a steady income stream in retirement, reducing the impact of economic downturns. Insurance offers reassurance and peace of mind, allowing individuals to focus on recovery and rebuilding during difficult times.
By providing financial protection, risk management and access to essential services, insurance can be an important tool for citizens navigating economic downturns.
To actualise these objectives, insurance companies can offer policies to cover areas mentioned earlier, such as unemployment insurance, disability insurance, health insurance, credit insurance, homeowners or renters insurance. business interruption insurance, life insurance, annuities (for retirement savings protection) and whole life insurance (with cash value component).
Many insurance companies already offer these types of policies. However, insurance companies need to review and update their policy offerings to ensure they address the specific needs of citizens during economic downturns. They should make policies more affordable and accessible to a wider range of people; simplify policy terms and conditions to ensure clarity and understanding; provide flexible premium payment options to accommodate financial difficulties and offer support and resources to help policyholders navigate economic challenges.
By doing so, insurance companies can play a pivotal role in mitigating the impact of economic downturns on citizens and supporting economic recovery.
It is one thing for insurance companies to offer these policies, but it is equally important for citizens to be aware of and take up these policies. This is often referred to as the “insurance gap.” The reasons for the insurance gap include a lack of awareness about available policies, misconceptions about insurance, high premiums or unaffordable costs, complexity of policy terms and conditions, limited access to insurance products (e.g., in rural areas) and prioritising other expenses over insurance.
To bridge this gap, insurance companies, governments and regulatory bodies should conduct public awareness campaigns to educate citizens about available policies and offer affordable and flexible premium payment options.
They can also simplify policy terms and conditions, provide incentives for taking up insurance (e.g., tax benefits), expand distribution channels (e.g., online platforms, agents), encourage financial literacy and planning and offer subsidies or support for low-income individuals.
If these challenges are addressed, there could be increased uptake of insurance policies and that would ensure that citizens are better protected during economic hardships.
Citizens who cannot afford insurance policies can be assisted by the government offering subsidies or vouchers to low-income individuals to purchase insurance.
Low-cost policies: Insurance companies can design affordable policies with reduced coverage or flexible premium payments.
Microinsurance: Provide bite-sized insurance coverage at a lower cost, targeting specific risks.
Community-based insurance: Establish community-funded insurance pools, where members contribute to cover each other’s risks.
Public-Private Partnerships: Collaborate with NGOs, government agencies, and private insurers to offer affordable insurance products.
Sliding scale premiums: Adjust premiums based on income levels, making insurance more accessible.
Financial assistance programmes: Offer temporary financial support for premium payments during crises.
Insurance education: Educate citizens about the importance of insurance and available options.
Regulatory support: Encourage regulators to develop inclusive insurance frameworks.
Innovative distribution channels: Utilise digital platforms, mobile apps, or local agents to reach underserved populations. Implementation of these measures can increase access to insurance for vulnerable citizens and promote financial inclusion.
Similarly, insurers can play a significant role in assisting poor people who cannot afford to take a policy by offering microinsurance, providing small, affordable policies with limited coverage; designing policies with reduced coverage or flexible premium payments; partnering with governments or NGOs to offer subsidised premiums; supporting community-funded insurance pools; educating people about insurance and its benefits; allowing payment plans by installments; offering easy-to-understand policies with fewer exclusions, and training agents to serve low-income customers effectively.
Also, through digital distribution insurance companies can utilise digital channels to reach underserved populations. Insurers can through partnerships collaborate with NGOs, governments, or other organisations to increase accessibility; develop innovative risk assessment methods to reduce premiums and work with governments to develop inclusive insurance frameworks.
If insurers can take these steps, they can increase access to insurance for poor people, promoting financial inclusion and protection.
Other options available for citizens who cannot afford insurance policies: Government assistance programmes: Many governments offer financial assistance, subsidies, or free insurance programmes for low-income individuals.
Non-profit organisations: Some NGOs provide financial support, insurance, or access to healthcare services.
Community-based programmes: Local communities may offer mutual aid, crowdfunding, or cooperative insurance programmes.
Faith-based organisations: Some religious organisations provide financial assistance or support for their members.
Crowdfunding: Online platforms can be used to raise funds for medical expenses or other crises.
Local charities: Charitable organisations may offer financial assistance or support for specific needs.
Public healthcare services: Governments often provide public healthcare services, including emergency care, at reduced costs or for free.
Cooperative insurance: Member-owned cooperatives can offer insurance services at lower costs.
Peer-to-peer insurance: Online platforms connect individuals to share risk and provide mutual support.
Government-subsidised healthcare: Some governments offer subsidised healthcare services or insurance for low-income citizens.
These options can provide alternative safety nets for citizens who cannot afford traditional insurance policies.
Additional useful tips include starting small. Citizens should consider purchasing a basic policy or microinsurance to begin with and upgrade as finances allow. They should prioritise by focusing on essential coverage, such as health or life insurance, before considering other types of insurance and shop around by comparing policies and prices from different insurers to find the best option.
They must understand policy terms by making sure they know what is covered, what is not and any conditions or exclusions; seek advice through consultation with a licensed insurance professional or financial advisor for personalised guidance; review and adjust by regularly analysing insurance coverage and adjust as needed to ensure it remains relevant and affordable.
Equally, they should take advantage of tax benefits by utilizing tax deductions or credits available for insurance premiums or claims; combine bundle multiple policies with the same insurer to potentially receive discounts; improve risk profile by taking steps to reduce the risk profile, such as improving health or securing home, to potentially lower premiums; stay informed, stay up-to-date with changes in insurance regulations, policies and market offerings to make informed decisions. By following these tips, individuals can make informed decisions about insurance and create a safety net that works for them.
Additional points to consider are that insurance is not a one-time decision; insurers must review and update their insurance coverage regularly to ensure it remains relevant and adequate. People must not rely solely on insurance, but maintain an emergency fund and prioritise saving to complement insurance coverage; understand the claims process, knowing how to file a claim and what to expect during the process; be aware of policy exclusions by understanding what is not covered by your policy to avoid surprises.
Also, take advantage of insurance riders by considering adding riders or endorsements to customise your policy and enhance coverage; leverage technology by utilising online platforms, apps and digital tools to manage your insurance policies and claims efficiently.
Seek support: Reach out to insurance professionals, financial advisors, or support groups for guidance and assistance.
Stay organised: Keep records of your policies, premiums and claims in a secure and accessible location.
Be patient and persistent: Insurance can be complex, so be prepared to ask questions and advocate for yourself. Remember, insurance is a safety net. It is meant to protect policyholders from financial shocks, so do not hesitate to use it when needed.
The world of insurance can effectively be navigated and create a robust safety net for policyholders and loved ones by keeping these points in mind.
