How can insurance help society? Some people think insurance is good to have in case the worst happens. This has been referred to as the “safety net” benefit of insurance. It may be the only benefit that readily comes to mind, but is there another benefit that insurance provides to society?
Janice Abraham, the CEO of United Educators, discussed this common perception in a recent presentation she gave at the Wisconsin School of Business. In 2011 she had the opportunity to see this benefit first-hand helping a micro insurance initiative get off the ground in Southeast Asia. She spoke about how families would start to climb from poverty towards middle class only to suffer a dramatic loss pushing them back into poverty. Once this had occurred, it was highly unlikely they would ever again have the opportunity to improve their status. One of the goals of the initiative was to provide this safety net so that families could weather some of life’s hard times and continue to move their family forward.
But there is a second benefit Ms. Abraham spoke about. Often small business owners in the region would see an opportunity to expand but would hesitate. A loss could not only cripple the expansion project but threaten the existing stable business because reserves had been spent on the expansion. Projects were abandoned because of uncertainty. This highlighted the benefit of insurance as a “spring board.” Because insurance can decrease uncertainty and serve as a backstop, it can allow business to thrive, encourage investment and bring jobs and growth to a local economy.
While Ms. Abraham used her experience in Southeast Asia to illustrate the benefits insurance can bring to society, these benefits are in play wherever insurance is used. While not the only risk management tool, insurance is often an efficient and effective financing arrangement serving both as a safety net and a spring board for individuals, families and the local economy.