Saturday, February 6, 2010

The Deeper Side of Insurance

The business of insurance is indeed a capital-intensive commercial endeavor; this is what I have come to realize after thorough exposure to various literature on the industry, aside from the term paper Chip and I had presented two school terms ago. Underlying this reality, when put in a certain perspective, are the repercussions on how the dynamics of the local insurance industry and the market are influenced, especially by those who wield the most capital, i.e. the big-cap companies. In a relatively under-developed insurance market like the Philippines, I think upstart and small companies tend to settle in niche positions when dealing with an insurable public market. The homogeneous nature of the product and the anemic demand for what the industry is offering, i.e. security, protection and peace of mind from risks, are some of the reasons why companies are seemingly strangling themselves to garner market share. To have a pie of limited size to divide amongst each other and compounded by the lack of understanding by the public on the benefits of insurance, companies unduly expose themselves to compromises in operations and underwriting in order to save their topline growth.
What I have come to deeply appreciate about this phase, i.e. the insurance industry, of the financial realm is how it is “in touch with the realities and circumstances on the ground”. Having been exposed to capital markets, it is my opinion that virtual global markets that trade assets like equities, fixed income, currencies and commodities are disconnected from the immediate concerns of the common man. It is true that the field of investment (which is part of banking) is a critical cog in the mechanism of the global economy, however, its importance is more or less lost in the clutter of the capitalist system and an untrained or undiscerning eye does not usually blink or dilate to the events of financial markets. The essence of insurance, however, to me, is a different story all together. Insurance does not necessarily nor directly concern itself with the churning of the economic engine because it is concerned with the churning or rather the twists, turns and uncertainties of life itself. Now, certainly life as an all-encompassing experience to human beings is bigger than the purported concerns of economics, which academically tells us that it is concerned with the efficient allocation of limited resources. Insurance business as an enterprise relates to human fears, anxieties, concerns, and even socio-political/socio-economic requirements. This practically means almost anything under the sun can be the subject of insurance; such is the nature of this business. It does not necessarily function on financial sophistication and in fact prospers on the simplicity of “the arrangement” as a social device; “I, the insurer, am taking-on your (the insured’s) risk exposure that may or may not happen, in exchange for a price that I deem fair, as I pool your premium together with those who also want this arrangement, so I may pay, using the money from the pool, the ones who will experience losses.”

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