By Henry Masasire
According to the International Labor Organization (ILO), social security is a basic human right and is universal. Locally, the Zimbabwean constitution reconfirms the international standards. Zimbabwe identifies and advocates for the need to provide social protection to its citizens as provided in Section 30 of its Constitution which states that… “The State must take all practical measures, within the limits of the resources available to it, to provide social security and social care to those who are in need”.
In general social insurance to cover life, health, old age, disability and at times unemployment is essential to most national social protection systems. However, there are significant benefits to risk sharing in other areas, which are currently under-utilized and in need of more attention from governments, as well as private insurance providers.
Without access to insurance poor members of the society end up facing severe financial shocks whenever they experience a major loss or setback and this comprises not just death, illness or disability, but regular incidences such as loss of informal job, crop failures, flood/drought, livestock deaths just to mention a few. Often, people exhaust all their resources dealing with these shocks, rendering them susceptible to falling further into poverty.
While governments world over are working towards extending universal social safety nets that cover life, health and ageing, it is also worthwhile to explore the development of financial instruments that can provide cushion against other setbacks, such as those mentioned earlier.
For Zimbabwe, inflationary pressures, contraction in economic activity and the outbreak of the COVID- 19 pandemic have exposed livelihoods for the majority of the populace. In relative terms extreme poverty rose mostly in urban areas while in absolute terms, rural extreme poverty remains much higher than urban. World Bank estimates of 2020 suggest the number of extreme poor reached 7.9 million which is almost 49 percent of the country’s population. Furthermore, circa 500,000 households in Zimbabwe have at least one member who lost her or his job, causing many households to fall into poverty and worsening the plight of the existing poor.
However, it is worthwhile to note the government’s positive intentions. According to the NDS1, the Government intends to develop and implement the National Health Insurance Scheme to cover all citizens, which will entail moving away from the current Assisted Medical Treatment Order (AMTO). This will go a long way in mitigating the severe impact of the pandemic and other health related risks.
Non-conventional insurance services for social protection include crop, weather or rainfall insurance. The one we are familiar with of these specific-focus insurance products is crop insurance, or rainfall/drought insurance. While normally offered in developed countries, the product has been slow on the uptake (with contributory premiums being paid by farmers) in developing nations. On the other hand, in most developing countries like Zimbabwe, rain-fed agriculture is the norm and variation in weather as a result of climate change often leads to crop failure. This is not only the main source of risk for poor local farmers, but also affects decision-making about the type of crops to produce (opting for low-risk, low-returns staple crops as opposed to high-risk, high-return cash crops) and the amount of investment in their farms. Arguably, when a farmer is insured against crop failure he/she is encouraged to cultivate higher-return, higher-risk cash crops, which is essential to breaking out of vicious poverty traps.
Another non-conventional insurance service is livestock insurance. This insurance service is provided at a small scale world over by governments and private insurance providers. There are a plethora of factors hindering the uptake of livestock insurance and these include: high operational costs, complications in verification of claims, high insurance premiums, and lack of awareness about insurance products. However, continued progress in development of digital or index-based products is countering these impeding factors. A good example are developments in Africa. By considering the risk to livestock from frequent droughts which affects fodder, the Index-Based Livestock Insurance product was developed in Ethiopia and Kenya. Using remote sensing, it generates a vegetation index and correlates it with livestock losses associated with fodder shortages. This enables it to offer insurance coverage in regions without much access to conventional insurance products.
Disaster insurance is also another non-conventional insurance for social security. According to DFID every year, natural disasters force 26 million people further into poverty. Zimbabwe is still feeling the effects of the devastating Cyclone Idai of 2019 and had dire economic and social consequences on the country. Experts consider that when insurance pay-outs are available during a natural disaster, economic recovery is quicker, human deprivation is lower, and there is lower cost to the taxpayer. In developed nations, circa 50% of the costs of natural disasters are covered by insurance. But in the poor countries such as Zimbabwe, less than 5% of losses suffered are covered by insurance and humanitarian appeals do not raise enough funds.
Conclusively, insurance is a prized mechanism in providing protection against shocks, but it is difficult to scale. Huge operational costs and difficulties in the verification of claims thwart private insurance providers from entering the market whilst low trust or awareness of products, and the high cost of premiums is on the other side hindering users from adopting the product.
Going forward, as we embrace digitalization, there is immense scope for government, NGOs, as well as private players to tap into existing gaps and find solutions of insurance market failures for the betterment of large communities of vulnerable people.
Henry Masasire is a qualified Economist with experience in the financial industry and the agriculture sector. He is passionate about research and analytics. For feedback, mail on email@example.com.