Insurance is one of the principal strands of the genetic code running through the DNA of capitalism.
It enables and turbocharges economic growth. Without insurance economies cannot function and valuable trade cannot take place. All business entails risk and without insurance risks cannot be run.
Insurance is a force for good that helps people help themselves to become richer.
Forget GDP per capita – one of the best measures of wealth is insurance penetration.
This is one of the main reasons why poor countries stay relatively poor and rich countries keep getting richer.
We saw proof of this in Haiti after its 2010 earthquake and painfully slow recovery. Almost a decade on and that nation has barely clawed its way back economically whereas, on the other side of the world, New Zealand rebounded in a couple of quarters after far worse temblors.
The contrasting experiences are like the difference between receiving a scratch and severing a limb.
When wealthy nations set out development goals to help less well-resourced nations they are almost always centred around physical infrastructure.
Roads are built and irrigation systems, dams and power stations constructed, but it is only recently that we have looked to develop the essential financial plumbing that must be put in place to support that vulnerable physical world.
Robust insurance is almost as essential as fresh drinking water.
Hurricane Dorian’s path through the Bahamas has brought this topic sharply to the fore. With possible damage in 72 hours equal to a whole year’s output, how is a relatively underinsured country supposed to recover from disaster without massive foreign aid?
Surely the answer is staring us in the face? If the foreign development agencies of the world were able to channel their energies into subsidising insurance so that penetration rates could approach the levels found in Western nations, we would really be onto something.
Insurance is excellent value because events like the one that has just befallen the Bahamas only come around once in many hundreds of years.
Subsidising the take-up of insurance is therefore hundreds of times less expensive than paying for a full rebuild after an event has happened.
Commendable schemes such as the World Bank-backed Caribbean Catastrophe Risk Insurance Facility already exist, but I am talking about something on a far larger scale, that turbocharges the insurers in
these countries.
The other key difference is that it must be our sector that provides the hard commercial finance and the underwriting expertise, not a pan-national bureaucracy. This is because the world needs the added-value skills that only come with serious for-profit businesses. True risk management and risk mitigation are only properly encouraged when real financial incentives are in play.
The benefits would be huge. The more resilient a country becomes financially, the more investible it becomes and the faster its economy can grow. It completes a virtuous circle. In this way, emerging economies, particularly those most exposed to natural catastrophe risk, can break out of the cycle of poverty.
The greater the success, the quicker any subsidy can be withdrawn. And when this happens we will have helped grow our global market.
To read the first of our Monte Carlo dailies for 2019, please click here.