Insurance Policy

The INDIA Narrative

"The Reserve Bank has taken a proactive role in the development of financial markets, particularly over the past decade and a half of overall economic policy reforms" - Rakesh Mohan, RBI, 2007

"India insurance is a flourishing industry, with several national and international players competing and growing at rapid rates. Thanks to reforms and the easing of policy regulations, the Indian insurance sector been allowed to flourish, and as Indians become more familiar with different insurance products, this growth can only increase, with the period from 2010 - 2015 projected to be the 'Golden Age' for the Indian insurance industry" - Keith Timini, Economy Watch, 2010

The NEW YORK, USA Narrative

"According to the census, 56 percent of men age 18 to 24 and 48 percent of women in the same age group live under the same roof as their parents.... the portion of 18-to-29-year-olds who live alone declined to 7.3 percent in 2009 from 7.9 percent in 2007, according to the Current Population Survey"  - Sam Roberts, NY Times, 2010

"The Accordion Family: Why Are Young Americans Moving Back Home?" - Dylan Ratigan, 2012

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The two narratives provided above hitherto described in an incongruent fashion are actually part of the same story. Or should I say they are the two sides of the same coin. 

On the face of it weaving the two narratives into one seamless story seems a difficult proposition and may be asinine as well. But as I see it, they are connected by a thin common thread. In common parlance what is known as 'Family' and in Wall-street lingo known as 'Insurance'. 

Lets first try and see what the dictionary says about Insurance - It's defined as 'A protection against a future loss".

For any individual, family is the biggest source of  Insurance that one can get. It provides us the much needed protection against most forms of losses including the biggest loss one can have - an emotional one. And it all starts from a human beings birth. A baby before birth is insured in a mother's womb, after birth in her affection.As and when a person grows into a full fledged adult, the insurance comes from parents, spouses, kids, relatives, friends so on and so forth. 

But as the world progresses, ever more quickly than Moore could have imagined, families are disintegrating, giving way to a human kind that is more individualistic and self-reliant. How does this self-reliant individual then protect himself when the family's enshroud remains no more? He goes to the financial market seeking protection for himself - heINSUREShimself. And he pays a premium too for the same. A heavy one at that.

Thus, a fast growing Insurance market is a sure symbol of a society which is certainly more self reliant and individuals find more space at the cost of an integrated family.

The premise laid above can be briefly laid down in the form of the following conjecture:

 - A place that is more family oriented and less individualistic should have smaller insurance market and vice-versa.

Mathematics should come to our rescue if the conjecture holds any truth. To test the conjecture let us do some number crunching. I shall try and do it in a step-wise manner:

1) Compare Developed economies with Emerging economies:

The reason for doing so is that most Developed countries are assumed to be highly Individualistic societies while Emerging countries are considered to be highly collectivist societies. 

The Developed countries in my subset are : Germany, Japan, US and UK

The Emerging countries in my subset are : China, India, Malaysia, Philippines and Thailand.

2) Score these countries on the level of their Individualism (IDV):

The score for IDV can be got from Hofstede's cultural dimensions where Prof. Hofstede has ranked many countries of the world based on how much individualistic they are.

The average score on IDV for Developed countries is: 73.25 and Emerging countries is: 29.2. 

Higher IDV means more individualistic society. Thus our 1st assumption laid down in point 1 that Developed countries are more individualistic vis-a-vis Emergine countries holds true.

3) Penetration of the Insurance market w.r.t each country's GDP was considered: 

Total paid-out premiums were not considered since countries such as China may have a bigger US$ Insurance market compared to UK because of the sheer size of GDP , even though the penetration remain minimal.

The following Insurance market penetration figures were found: Germany - 7.2%, Japan - 10.2%, US- 8%, UK - 13.8%, China - 3.7%, India - 5.1%, Malaysia - 4.9%, Philippines - 1.1% and Thailand - 4.3%. (Source - World Bank Insurance Review, 2011)

4) A correlation was drawn between the Insurance penetration figure and IDV score for all countries:

A correlation of ~ 75% was obtained. A high correlation of 75% between IDV score and Insurance penetration indicates that the IDV scores are indeed related to greater Insurance markets. 

This proves our initial conjecture to be "POTENTIALLY TRUE".

5) DIVE Deeper:

I further considered the average IDV scores for the 2 sets of countries - Developed (73.25) and Emerging (29.2) and correlated them with the average Insurance Penetration figure - Developed (9.8%) and Emerging (3.82%). The correlation, hence, obtained was = 1. 

A perfect correlation figure (1) further says that on an average Developed countries are more Individualistic and garner a bigger Insurance market, providing further credence to my initial argument.

Going back to the Narratives once again, we must therefore contemplate whether we as a country should mindlessly be bothered about the size of our Financial might and chasing numbers or should we be focusing more on Social security ? The situation in NY must provide us a platform to reconsider the path to our future. 

Governments should focus on "Reforms" not aimed at "easing policy regulations", rather on "stronger social security regulations for a happier family".