The role of insurance in poverty reduction and nation building

MANILA, Philippines — Throughout my experience heading financial corporations across Asia and my fourth year leading a bancassurance company in the Philippines, I’ve observed that there is only one thing that stands against the plans people have to prosper themselves and their future – uncertainty.

 When I ask my own teams if they’ve dipped into their savings to pay for medical bills of a loved one, many hands in the room will be raised. People are busy earning to save up for a house or for the education of their children, but unexpected emergencies can force them to dip into their hard-earned savings and interrupt their progress. Filipinos are very good at saving, but they don’t know how to protect these savings, so their money doesn’t get wiped out when emergencies happen.

 Generally, the same cycle can be seen in a macro-economic scale as well – while communities are busy preparing for and addressing current and future needs, lack of preparation for disasters like sudden earthquakes and typhoons or crises like war can disturb economic development.

 In this case, the poor are the most affected by the shocks that stem from these instances as they are the most unprepared due to their lack of resources. They experience great difficulty in coping with and overcoming these emergencies. Because they keep having to deplete their resources to pay for emergencies, they are pushed further into financial setbacks that trigger deficiencies in their day-to-day needs.

 When a vast majority of the population is left behind financially, economic development as a country can be stunted. That’s why the government acknowledges the importance poverty reduction and helping the poor recover from calamities have for building the nation. Their strong resolve to accomplish this can be seen in the establishing of their 25-year roadmap for development – AmBisyon 2040 which aims to make all Filipinos middle income earners through comprehensive educational, financial and social services. 

Risk management

The World Bank released a report on Philippine poverty reduction and recommended measures the government can employ to continue reducing, and eventually eliminate poverty – one of which is managing risks and protecting the vulnerable.

 On an individual level, citizens should take up insurance policies to secure themselves and their families financially. Even when the worst happens, their hard earned money remains largely intact and accessible and can be used to rebuild their lives.

The report also mentions that the government’s poverty reduction programs can include effective disaster prevention measures like early warning systems, improved access to personal banking, insurance policies, and social assistance like money transfers which can also help the poor recover from shocks.

Insurance plays a larger, more long-term role in this area as it stabilizes the financial standing of individuals and families.

 However, Filipinos have long been plagued with misinformation on what insurance can do for their households and its importance in securing their future. They often shy away under the impression that only the rich can afford to protect themselves.

We all know someone who has for sure dipped into their savings because they needed to help a family member who unexpectedly got sick or had a financial emergency. Insurance prevents the depletion of one’s funds and is in fact all the more a necessity for the poor who are the most affected by natural and social emergencies. It protects their health and secures their ability to earn a living in the future. Should an emergency arise, it buffers their costs through a fund accumulated over time by their premium payments.

Recently, financial institutions have developed more flexible and modernized solutions like microinsurance for low-income households, so everyone can benefit off of insurance. Its growing uptake each year means more and more people are seeing and experiencing its benefits. — Surendra Menon chief executive officer of BPI-Philam.