Uncertainty & Insurance

What do we need to live – “Good food, fresh water, an occasional sweet and someone to care for, that’s what everyone should have” – Maria V Snyder, Magic Study

The very poor class in India struggles every day to have three square meals, decent clothing on their bodies and a roof over their heads. ?

And then there is the poor class who somehow manages these three basics albeit of poorest quality and nutrition.

The lower middle class & upper middle class, depending on which class they fit in save about 10% to 50% of their savings after caring for the basics & misc. expenditure like education, the savings are then spent on avenues from entertainment to FDs to Mutual funds to Stock market depending on their outlook on life and risk appetite.

And then there is the rich and ultra-rich mainly businessmen, IT Professionals etc who obviously have access to luxurious lifestyle & the money saved is spent on hobbies, shopping splurge, travel and art & re-invested in business and in charity.

What do these loosely defined economic strata have in common? UNCERTAINTY

Uncertainty of life, good health, Natural calamities – Earthquake, cyclone, flood, typhoon, landslide, Man-made accidents – Fire, Motor accidents, slips trips & falls while working or travelling, Trade losses like Loss of production & Profits due to fire at a factory or gas leakage / chemical spill leading to damage to surrounding environment & health issues to people living nearby, risk of riots, strike, malicious damage, Employee dishonesty, theft leading to financial loss to a firm, risk of a ship carrying goods abroad drowning or colliding with another ship/vessel in the ocean due to bad weather conditions, piracy, risk of bad debts from debtors in far lands due to insolvency, war or political unrest in the region, Technology related risks viz Cyber attacks leading to disruption of an E-commerce website, or introduction of virus, ransomware in a network of computers by a hacker for demand of ransom, Identity theft, Phishing, Spamming, Cyber bullying, loss of sensitive data by a hacker gaining access to a network of computers of a firm all this leading to financial, physical & psychological impact on the victims individually or on an organizational level. Additionally, also the uncertainty due to the various professional, managerial, and more realistically human errors/omission or negligence that can lead to questions around the integrity and professionalism of firm (and not just publicly listed firms) which can land organizations in risky waters of lawsuits.

To sum up whether on an individual or organizational level the uncertainties will be related to Natural & Manmade causes be it Political, Economic, Social, Technological, Legal & Environmental or PESTLE as we know of it. And these uncertainties or risks can impact either a human (body or mind), property (damage or loss of use of it), or financial health of a company due to the huge costs associated with it and can be devastating.

It is high time that we first start acknowledging the existence of such uncertainties or risks, managing these risks comes only after that.

One very important tool in managing the financial impact of such uncertainties is Insurance.

Is Insurance then as important a basic need then as Roti, Kapdaa & Makaan? Most certainly. Its importance is acknowledged by the Government of India by providing for various Govt. & State run Insurance schemes for the poor & unorganized sector like PMSBY, PMFBY, PMJJBY etc protecting them financially in case of natural calamities, ill health, or accidents, that is because this stratum lacks funds & knowledge about Insurance. However, for the Lower to Middle- and High-Income strata who not only have funds but are in a better position to understand and acknowledge the existence of all these uncertainties, it is imperative to look at Insurance as a tool to absorb various financial shocks. It’s more crucial for the low-middle income category to rely on insurance as mitigation tool since a single calamity/accident can create imbalance in their carefully saved/invested portfolio. Lots of start-ups who are running their businesses in a very risky environment where funds are scarce & Regulatory, Legal and Technological landscape is jittery it makes sense to protect their balance sheet through Insurance and its importance increases multi-fold if the company’s presence in more global in nature. ???

Insurance in India is mostly seen as a burden rather than a tool to manage the financial impact of these uncertainties, even where Insurance is taken it’s more like a tick box exercise to comply with law or a client/financier’s obligation. This directly reflects in the low insurance penetration in our country which stands at a dismal 3.7% of GDP as against world average which is 6.37%. (Insurance penetration refers to ratio of premium paid by the population of a country each year to its GDP)

In the developed world every household considers it elementary to have 4 basic insurance covers viz Life Insurance, Health Insurance, Vehicle Insurance, Homeowners’ Insurance including liability insurance. Corporate Insurance of course is not as straightforward and depends on factors like the nature of business, customer base & product line, geographical area of operations, company structure & the size of the company.

With Insurance being more affordable in India now than ever, easier to access, customer friendly enabled by technology & more options to choose from even to the point of designing a cover to suit an individual’s requirement & risk profile we need to start looking at Insurance in a fresh light more like a friendly hand in the times of crisis rather than just another expenditure.