Insurance’s silver lining against poverty during high inflation –experts

Cynthia Ezekwe 

In the face of escalating inflationary pressures, industry experts have emphasised the significance of insurance as an indispensable financial shield, urging individuals and businesses alike to adopt insurance policies as a potent weapon against poverty and a means to safeguard their financial well-being. Amidst the mounting costs of living and the uncertain economic landscape, experts opine that insurance can serve as a vital safety net, providing vital protection against unforeseen circumstances and enabling people to build a more financially secure future.

As a persistent global issue, poverty affects economies at different levels, but its impact is often most severe in developing countries like Nigeria, where over 170 million people grapple with limited resources and scarce opportunities.

This dire reality has been brought into stark relief by the World Bank’s latest report, which documented a staggering increase in poverty in Nigeria between 2018 and 2023. While poverty levels rose from 40 percent to 46 percent, with 79 million people falling below the poverty line in 2018, an additional 25 million Nigerians have now been pushed into poverty by sluggish economic growth and rampant inflation, bringing the total number of poor people to a staggering 104 million.

The World Bank’s report, titled “Turning the Corner: From Reforms & Renewed Hope, to Results”, highlighted a disturbing trend of increasing poverty in Nigeria, where economic reforms and renewed optimism have failed to translate into tangible improvements for the majority of the population. The key contributing factors identified in the report were slow economic growth and soaring inflation, which combined to push more people below the poverty line

Despite the sobering reality of rising poverty and inflation, analysts emphasise that insurance can serve as a powerful tool in combating the adverse effects of inflation on vulnerable populations.

They assert that by offering a safety net against unexpected events, insurance can help mitigate the consequences of inflation on individuals and families by providing the following benefits:

• Protect their assets and income
• Access essential healthcare and medical treatment
• Recover from unexpected events like natural disasters or accidents
•  Invest in their future through life insurance and retirement plans

Microinsurance, which provides coverage to low-income individuals and families, has been identified as a key component of this solution, being that the products are specifically designed to be affordable and accessible, with premiums and payouts tailored to meet the needs of low-income households.

According to Kolade Awosanmi, an insurance expert and head of energy and special risk at International Energy Insurance, insurance is a potent weapon in the fight against poverty, playing a crucial role in safeguarding the financial well-being of vulnerable individuals and communities.

Awosanmi stressed the importance of recognising insurance as more than just a financial product, but as a means to empower individuals and families, by providing a safety net against unexpected events and enabling them to better cope with the financial challenges posed by inflation and economic instability.

Awosanmi expressed his view while delivering a keynote paper tagged: ‘Insurance Penetration as a Catalyst for Poverty Eradication’ at the 2024 national conference of the Association of Registered Insurance Agents of Nigeria (ARIAN) in Lagos state. 

In his keynote address, Awosanmi highlighted the critical role of insurance in promoting economic stability by providing a financial buffer against unforeseen events.

According to Awosanmi, insurance can act as a safety net against the devastating effects of unexpected events such as illness, accidents, natural disasters, and economic downturns, which can push people into poverty.

“In countries where insurance penetration is high, there is a clear correlation between the availability of insurance and economic stability. For instance, in South Africa, the insurance sector contributes significantly to the country’s GDP and provides a robust safety net for individuals and businesses alike. Similarly, in India, microinsurance products have been successful in reaching low-income populations, providing them with much-needed financial protection.

“One of the most promising avenues for this is through microinsurance, a type of insurance designed to be accessible and affordable for low-income individuals and households,”  Awosanmi submitted.

The insurance expert noted that microinsurance products typically cover health, life, property and agriculture and are tailored to the specific risks faced by low-income populations.

Awosanmi, in his address, emphasised the critical importance of microinsurance in the Nigerian economy, given the significant proportion of the population engaged in informal activities like agriculture and artisanal work.

According to Awosanmi, microinsurance can provide a much-needed financial shield for these sectors, particularly in the face of risks related to agriculture, such as crop failure due to unpredictable weather conditions. He added that by offering insurance products specifically tailored to the needs of farmers and artisans, microinsurance can help mitigate the financial impact of adverse events, promoting greater economic stability for these vital sectors of the Nigerian economy.

Awosanmi further stressed the potential of agricultural insurance in preserving farmers from poverty and enabling reinvestment, by providing compensation when crops are lost to natural disasters or extreme weather conditions.

He also highlighted the benefits of microinsurance for artisans, whose livelihoods could be protected against disasters such as fires, allowing them to recover from losses and maintain their economic stability.

While acknowledging the immense potential of insurance in alleviating poverty, Awosanmi also drew attention to the barriers to insurance adoption in Nigeria, including low levels of awareness and understanding of insurance products, high premiums, and low literacy rates.

Precious Dappa, an economist and senior lecturer at the Department of Management Sciences, Federal University of Technology, Owerri, Imo State, also shared a similar sentiment, stressing the critical need for Nigerians to embrace insurance as a potent tool in the fight against poverty.

Dappa highlighted the significant role of the insurance sector in poverty reduction, emphasising its ability to help individuals and businesses manage risks and shield themselves from the adverse effects of unforeseeable events.

By encouraging greater adoption of insurance, Dappa posited that it would be possible to reduce the poverty rate in Nigeria, providing a more stable and secure future for citizens, businesses, and the economy as a whole.

Dappa urged insurance companies to adapt and embrace innovative approaches to insurance, in line with the changing needs and preferences of consumers.

He recommended the adoption of digital technology in microinsurance, as a means to extend insurance coverage to underserved populations and low-income earners. 

The economist also expressed his conviction that by deploying digital microinsurance, insurers can potentially boost their contribution to the Nigerian economy, increasing their share of the GDP from the current level to an impressive 12.5 percent by 2027.