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Insurers can play an important role when it comes to promoting socio-economic resilience2. Insurance has been identified as a primary-level contributor to the UN Sustainable Development Goals (SDGs) and for these companies, the positive impact their services can have is not a by-product, but a business model3.
Insurance is designed to provide financial support to individuals, families and organisations after an economic shock, whether that be from an extreme weather event, health issue or any other loss of livelihood. In this way, insurers help provide society with financial stability, by absorbing some of the risks that threaten livelihoods. Through the very nature of the business, supporting socio-economic resilience is intrinsic to the way insurance companies operate.
The issue of socio-economic resilience is not limited to those in lower- and middle-income countries where the access to healthcare and financial services is lower. These issues can also adversely affect the wider global population. For example, the impact of extreme weather events on business operations could lower growth and hinder economic prosperity. By better managing these risks through higher insurance penetration, businesses can become more resilient, which may help them capture new market opportunities and foster innovation4.
Increasingly, socio-economic issues are becoming intertwined with climate-related issues. Impacts of climate change include rising poverty levels linked to extreme weather events, large-scale migration, detrimental impact on workers and communities from the unjust transition, and adverse health issues5.
In countries where the key industries are dependent on weather conditions, the effects of natural disasters can have a major impact on economic activity. Studies show that economic loss after disasters can be up to 200% of GDP in small island states6. Furthermore, by 2030, the World Bank estimates that up to 132 million people could be pushed into extreme poverty due to climate change7. The effect of these disasters can often seem unjust. Many of the countries with lower levels of GDP are performing better against their environmental goals (SDG 12-15) in comparison to countries with larger economies8. However, it is these countries which tend to be most negatively affected by climate disasters in general9. Therefore, it is important that the availability of insurance is increased in these areas of the world where it is currently less accessible.
The implications of climate change for health and life insurance are less well understood, when compared to the implications for property or casualty insurance10. However, it is known that changing climate and weather patterns can cause food insecurity and contribute to the spread of infectious diseases11. Furthermore, the stresses around climate can negatively affect mental health12. Climate change has also been shown to affect the social determinants of health, through its effect on geopolitical tensions, population displacement and economic hardship13. These adverse effects can often be greater for more vulnerable groups, such as the elderly and children14.
The World Bank believes that insurance can play a role in making access to healthcare more inclusive, by focusing on the needs of groups not typically well-serviced, such as those already mentioned, as well as women, the self-employed and small- and medium-sized businesses15.
Access to healthcare is not just about the availability of facilities, but also affordability16. According to the World Health Organization, 13% of the global population spent more than 10% of their household consumption or income on out-of-pocket healthcare expenditure in 201917. After initially falling in most income groups at the start of the COVID-19 pandemic, average out-of-pocket spending per capita on healthcare then rebounded and was higher in 2022 than before the pandemic in all income groups except high-income countries18. More affordable insurance and wider coverage could help contribute to achieving universal healthcare, which in turn has positive implications for social inclusion, equality and economic growth.
According to the SDG index and insurance penetration rates, countries with higher levels of insurance penetration have made the most progress in meeting their SDG commitments, particularly goals linked to social themes19. This is not unexpected, as insurance penetration is closely correlated with GDP and income levels, and there have been criticisms that the SDGs are biased in these areas20. In many areas of the world, insurance is still in a fairly nascent stage21. A key barrier to demand in lower income countries is much lower levels of financial and insurance literacy22.
Increasingly, insurance providers are being pushed to become service and solutions providers23. This could be by promoting financial literacy or by making insurance more affordable in order to close the protection gap24. Ultimately, this should be mutually beneficial for insurers (if they can attract more customers) and society (as more people are protected).
While insurance is only explicitly mentioned in one target of the SDGs25, increasing protection will arguably have a positive impact on many of the other goals. The lack of inclusion of this sector explicitly within the goals could mean that the potential benefits may be overlooked, and it is important for the UN and the insurance industry to put more emphasis on development in this area. If insurance companies shift their focus from just compensating for loss after an event, to promoting and incentivising preventative measures as well, governments, businesses and households may be encouraged to do the same26.
The UN has developed the Principles for Sustainable Insurance (PSI) Initiative to better understand risks and manage opportunities, and to serve as a global framework for the insurance industry to address sustainability challenges. The PSI defines sustainable insurance as “an approach where all activities in the value chain are done in a responsible and forward-looking way”. This refers to insurers incorporating environmental, social and governance issues into their business plans, and working with key stakeholders, with the overall aim to reduce risks and develop solutions to enable a healthy, safe and resilient society27.
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