By Daniel Boi ADDO
In 2015, the United Nations set 17 global goals called Sustainable Development Goals (SDG) to help achieve a more sustainable and equitable world by 2030. The SDGs addressed various aspects of human life and the planet. SDG 10 was to “reduce inequalities”.
In the context of insurance coverage, SDG 10 focuses on ensuring everyone has access to fair and affordable insurance products, regardless of their income level, social status, or geographical location. These goals are not just aspirations but a roadmap for urgent action, and they play a crucial role in the discussion of inclusive insurance in low-income countries.
In many low-income countries, including Ghana, insurance remains a luxury rather than a necessity. The disparity in access to insurance services is a growing concern, leaving vulnerable populations at risk of financial instability. However, there is hope. Insurers, with their critical role in mitigating inequalities, have the potential to make a significant impact.
By designing inclusive products and fostering fair claims practices, they have the power to not only bridge the gap but also significantly reduce the inequality in insurance. This article delves into the issue of inequality in insurance, the barriers faced by marginalised communities and emphasizes the potential of insurers’ actions to bring hope and optimism through innovation, inclusivity, and fairness.
The Role of Insurance in Economic Stability
Insurance plays a crucial role in protecting against financial hardship, offering individuals and businesses a safety net in times of crisis. Whether through health, life, property, or agricultural insurance, having insurance cover enables policyholders to recover from unexpected events.
However, insurance remains inaccessible for many people in low-income countries, especially those in rural areas or informal economies. This category of individuals or groups may face barriers in obtaining insurance due to income, race, gender, age, or geographic location. As a result, millions of people are forced to rely on informal or inadequate mechanisms that offer little or no protection during times of crisis.
This lack of coverage deepens inequality by disproportionately affecting those who are already economically vulnerable. Without insurance, they are more likely to fall into poverty when faced with natural disasters, health issues, or accidents. Conversely, those with access to insurance can recover more quickly, enabling them to maintain or improve their economic standing. This divergence in outcomes contributes to a widening wealth gap between those with insurance and those without, exacerbating existing inequalities.
Barriers to Insurance Access
Several factors contribute to unequal access to insurance in low-income countries. These include:
Affordability: One of the most significant barriers to insurance access is cost. For many low-income individuals and families, insurance premiums are perceived as unaffordable, especially when immediate needs like food, shelter, and healthcare take precedence. Even when lower-cost insurance products are available, the perception of insurance as a luxury rather than a necessity can dissuade potential policyholders from purchasing coverage.
Awareness and Literacy: Many people in low-income countries need more awareness or understanding of how insurance works and its benefits. Low financial literacy compounds this, preventing individuals from making informed decisions about insurance products. The people in these brackets perceive insurance as expensive and will not even attempt to learn more about its benefits.
Geographical Constraints: Insurance services may be difficult to access in rural or remote areas. Insurers often concentrate their operations in urban centres, where the potential customer base is more extensive, leaving rural populations underserved. This geographic disparity further entrenches inequality, as rural populations are more likely to engage in agriculture or informal work already fraught with risk.
Regulatory Challenges: Regulatory frameworks in some low-income countries can also hinder the development of inclusive insurance products. Without clear regulations or incentives for insurers to offer affordable products to low-income consumers, the market tends to cater to higher-income individuals and large businesses.
Trust Issues: Many individuals in low-income countries distrust financial institutions, including insurers, due to past experiences with fraud or mismanagement. In Ghana, the activities of some “susu” schemes where people bolted with accumulated funds from low-income contributors will remain a scar that will haunt insurance for a long time. In contrast, these schemes were not regulated insurance entities; their deeds have always been one of the reasons people shy away from insurance, especially on the life side. This lack of trust can prevent people from engaging with insurers, even when products are affordable and accessible.
Complex processes: Most insurers still attempt to cover society’s vulnerable on the same terms as they would to a large corporation. For most low-income individuals and enterprises, any attempt to include onerous clauses on documentation and complex wordings is a put-off.
In conclusion, insurance can significantly reduce inequality in low-income countries by offering financial protection and stability during crises. However, barriers such as affordability, awareness, geographic constraints, and trust issues continue to limit access for vulnerable populations.
To truly bridge the gap, insurers must innovate and adapt their products and services to meet the specific needs of marginalised communities. By doing so, they can help level the playing field and create a more inclusive and equitable future.
Please stay tuned for part two of this article, where we will explore how insurers address these challenges through inclusive product design and innovative practices.
