By Henry Uche, [email protected]
Inflation, often the result of human actions, is a creeping menace that strips value from disposable income, breeds anxiety and fuels discontent among citizens. It’s a silent thief, stealthily eroding the worth of a nation’s currency, diminishing the quality of life and unsettling the very fabric of society.
According to social scientists, the current inflationary surge in Nigeria, marked by alarming price increases, is more than just an economic crisis; it’s a widespread societal concern affecting every level of the economy.
At its core, inflation is a persistent and significant rise in the general price level, which undermines the value of local currency. While a temporary price spike might simply reflect high costs, true inflation signifies a deeper, more dangerous disequilibrium in both political and economic systems. In such turbulent times, the pressing question arises: where can individuals and governments find refuge?
Inflation disrupts economic activities at both domestic and international levels. As the prices of goods and services soar unpredictably, Nigeria’s economic relations with international investors suffer, straining foreign exchange inflows and destabilizing exchange rates. This economic volatility inevitably leads to widespread social unrest and erodes trust in the country’s political management. Amid this growing uncertainty, the role of insurance as a stabilizing force in the economy becomes more critical than ever.
Insurance plays a pivotal role in financial intermediation, a process that facilitates the circular flow of income essential to the prosperity of individuals, businesses, and nations. From its inception, insurance has been designed as a financial safeguard, protecting against unforeseen losses. In today’s increasingly complex and risky world, the importance of insurance has only grown.
Insurance institutions offer safety nets through various products like Endowment Assurance, Pension Schemes, Deposit Insurance (to protect against bank failures), and the National Health Insurance Scheme (NHIS). Life Assurance, in particular, provides financial security for the future, ensuring that individuals and their families are protected against life’s inevitable challenges. Endowment Assurance allows individuals to save for significant future needs, such as their children’s education, while deposit insurance offers protection in case of bank failures.
Dr. Abass Olufemi, Head of the Department of Insurance at Lagos State University (LASU), echoes these sentiments in his writings on insurance and risk management. He emphasizes that insurance remains a viable haven against the ravages of inflation, particularly in challenging times like these.
Today, Nigeria faces an inflationary storm reminiscent of the dry, dusty harmattan wind. Prices for essentials like food, fuel, and housing are climbing at an alarming rate, squeezing budgets and leaving many feeling vulnerable and frustrated. Inflation adds another layer of worry, as sudden price hikes can leave individuals and businesses financially exposed. For businesses, rising operational costs might lead to higher prices or lower profits, affecting everyone in the value chain. For property owners, the cost of repairs and replacements increases, exacerbating financial strain.
In the face of such challenges, experts argue that insurance serves as an inflation-proof shield. Mr. Ikechukwu Azomaukwu, a long-time policyholder and a structural engineer, describes insurance as a strategic hedge that shields individuals and businesses from unforeseen financial burdens due to inflationary pressures. Whether through life, health, or property insurance, these risk-mitigation tools provide a crucial safety net in uncertain times.
Azomaukwu elaborates that different types of insurance coverage help policyholders navigate economic uncertainties by offering financial support for medical expenses, property damage, or loss of income. Insurance is not just a protective measure; it’s a strategic component of a diversified financial plan that fosters security amid economic turbulence.
For instance, car or personal accident insurance can mitigate losses, while travel insurance protects against flight cancellations, medical emergencies, and other disruptions. Similarly, home insurance shields property owners from the financial impact of inflation, whether it’s the cost of fixing a leaking roof or replacing a broken asset. Life Assurance, on the other hand, ensures that loved ones remain financially secure even in the face of rising costs.
Despite traditional measures like interest rate hikes by central banks, inflation remains a persistent challenge. Insurance provides a flexible financial safety net for customers who have seen their purchasing power decline. It also plays a crucial role in mitigating social inequality by offering protection to those most vulnerable to economic shocks.
In this new macroeconomic environment, characterised by high inflation and slow growth, insurers have a special role to play in loss prevention and reduction. The insurance industry must evolve to meet customer needs in this volatile world. Product innovation, indexation of policies to account for rising costs, and investment in technology are essential steps insurers can take. By offering affordable, risk-focused products and maintaining clear communication with customers, insurance companies can help cushion the impact of inflation.
Strategic partnerships and diversified investments are also key. Insurers can collaborate with healthcare providers, technology companies, and other organizations to develop more efficient, cost-effective products and services. By spreading risk across different asset classes, insurers can safeguard their investments from inflation’s corrosive effects.
In a time of economic volatility, the safety net provided by insurance is more critical than ever. It absorbs the financial impact of unexpected losses, helping consumers and the broader economy weather the storm of inflation. As inflationary pressures persist, the insurance industry’s role in providing security and peace of mind will only grow in importance.