Insurance: a financial product for development
The positive impact of insurance on development is clear. But measuring it remains tricky, because the relationship works both ways: economic development encourages the development of insurance, which in turn strengthens the economy - a kind of virtuous circle.
If the impact on growth is difficult to assess, it is also because the role of insurance is difficult to distinguish from that of the financial sector in general (Chang and Lee, 2012). Insurance will only find a fertile ground in the presence of complementary financial institutions, which first allow the monetization of the economy and the diffusion of commercial practices, but also offer the means of pooling risks. Insurance also needs sufficiently sophisticated and dynamic financial markets to efficiently allocate savings to different sectors of the economy. Despite these limitations, a World Bank study (Arena, 2006) shows that insurance has a positive and significant impact on economic growth. It distinguishes life insurance, which has a really significant impact only on high-income countries, and non-life insurance, which has a significant impact on all countries.
One of the main beneficial effects of insurance is its role as a provider of savings to active sectors of the economy. The insurance industry (including pension funds) is the largest investor in financial markets. For example in France, life insurance investments represent 75% of gross domestic product (GDP) (Kamega, 2013). To understand the importance of the relationship between insurers and financial markets, it is necessary to grasp a specificity of the insurance sector: it operates at a rate reversed from that of the rest of the economy. Where companies must invest in order to make money first, an insurance company begins by collecting a premium before having claims to repay. Contrary to popular belief, the ratio of premiums collected to reimbursements paid is not always to the advantage of the insurer, especially in highly competitive areas such as auto insurance. It is therefore on the investment of available liquidity in the period between payment of the premium and reimbursement of the claim that insurers make most of their profit. Hence the issue mentioned above of the regulatory determination of minimum reserves.
One of the hallmarks of life insurance and pension funds is their presence in long-term investments. As they cover long-term risks, on which they pay regular indemnities, it is consistent that life insurers seek income of the same type. All insurers are also constrained by regulators, which require that a certain quota of reserves be devoted to liquid and risk-free investments - and in particular in treasury bills.
In 2014, life insurance in the Fanaf zone invested 987 billion CFA francs - an average annual increase of 10.1% since 2010 (inflation-adjusted figures, Fanaf 2015). This windfall remains very unevenly distributed since Côte d'Ivoire alone accounts for nearly half of it (44%), and the three main beneficiary countries (Côte d'Ivoire, Cameroon and Senegal) represent 71%, i.e. three-quarters of investments. The structure of these investments favors cash (39% of total investments), bonds (20%), real estate (11%) and equities (10%).
Non-life insurance is not to be outdone, with CFAF 804.1 billion in investments in 2014, better distributed since Côte d'Ivoire still the leader only attracts 20% of investments followed once again by Cameroon. (16.6%) and Senegal (13.3%), the three main beneficiaries representing only half of the total. The structure of investments is different, with cash only representing 29.7% of the total, followed by real estate (22.7%), bonds (19.9%) and stocks (13.6%).
However, the impact of insurance goes far beyond economics. It allows everyone to have a safer life, less exposed to the vagaries of life. Life insurance improves access to care and promotes prevention. Civil security insurance provides coverage in the event of an accident to all citizens and thus contributes to peace and social confidence. In some sectors, therefore, it plays a complementary role to that of the state.
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