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INSURANCE| 12.05.2023

Insurance, the necessary driver for the development of society

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New York. A lot time ago. A city that was very different to the city we know today, although perhaps not so different. 

Journalist and writer Giovanni Papini enthusiastically and thoughtfully observes the Empire State Building, which at that time was the tallest skyscraper in the world. Next to him, Henry Ford, who says to him:

  • “What are you doing here all alone, Mr. Papini?”
  • “I was taking in the city”, he replied, “and it seems incredible to me that men were capable of building all this.”

Henry Ford comes closer to the writer and, in a confidential tone, says:

  • “You are mistaken. This city was not made by men. It was made by the insurance companies.”

Papini looks at him puzzled and Ford adds:

  • “Without insurance we would have no skyscrapers, because no man would dare to work at such heights, at the risk of killing himself and leaving his family destitute. Without insurance, no businessman would invest his millions in constructing a building like this, when a single spark could reduce it to ashes. Without insurance, no one would drive on these streets, knowing that they could have an accident at any time. And this is not just in the United States. The whole world relies on insurance. Without it, every person would keep their money without investing it anywhere for fear of losing it, and civilization would have ground to a halt a little past the Stone Age.”

This is an anecdote that we don’t know whether is real or not. However, it could well be a sequence of a film that values ​​the importance of the insurance industry.

Insurance is much more than just a policy that people pay for with the intention of never having to use its services. Although it is also true that when you need to resort to insurance, this is when you truly discover the investment you have made.

Insurance is one of the bases of the economic and social development of mankind. And this is reflected in the fact that it was not invented a century ago, or two or three centuries ago. Insurance dates back 2000 years before Christ, to Babylonia. There, under the framework of mutual solidarity, merchants began to realize that the damage suffered by a caravan crossing the desert had be assumed by everybody, because otherwise it would ruin the one person who had the bad luck to suffer that mishap. The concept of trust, which is the basis of modern insurance, is reflected there. It starts to grow and is maintained over the centuries until the modern day. First, it was a caravan, then boats, buildings… now we insure satellites, drones, liability for malpractice. Today, practically anything can be insured.

Insurance has become a buffer against adverse events, as it is a “magic wand” that minimizes these negative or unforeseen impacts and allows economic activity and people’s lives to continue, while having a psychological effect, bringing peace of mind and reducing the fear of uncertainty.

Beyond these considerations, objective data demonstrates just how much this industry has contributed to the economy. At a global level, the insurance sector represents more than 7% of world wealth, with premiums (what a customer pays for their insurance) amounting to almost 7 trillion dollars in 2021. An impressive figure: the Gross Domestic Product (GDP) of Spain, Italy, and France combined. Far from being one of the industries that in times of crisis, like the one we are experiencing, sees its importance reduced, insurance sees its importance increase. 

Insurance also plays an important role as an investor, in both private companies and countries’ debt. Because insurance companies do not keep the money they collect from their customers, rather they invest it, becoming a cog in the economic and productive system, allowing both companies and Public Administrations to finance themselves. The investment of European insurance in public debt alone comes to more than 2.5 trillion euros, a figure similar to the funds channeled for investments in private companies, thus boosting their development, growth and even, in some cases, the internationalization of these companies. However, they are not the only destination for investment in the insurance industry. Real estate or alternative investments also benefit from this impetus from the industry as a generator of confidence for other activities.

Insurance, not only a source of direct employment In Spain, more than 50,000 people work for insurance companies, with the percentage of permanent employment standing at over 95%, a degree of stability almost no other sector of the Spanish economy can boast… However, the contribution by this industry to employment goes much further. In Spain, intermediaries, agents and experts directly collaborate in insurance activities, bringing the number of direct employees in this industry to more than 130,000. However, this fails to paint the full picture: the indirect employment generated by the insurance sector. These include: workshops, plumbers, painters, doctors, electricians… Thousands and thousands of employees participate in the insurance industry every day and their activities depend to a large extent on it. It’s impossible to determine the exact figure. Insurance companies also employ a wide variety of profiles in their workforce: from lawyers, actuaries, physicists to telecommunications engineers and mathematicians. The list is endless. 

The question that we must ask ourselves is whether the level of insurance in our society is really optimal. The answer is, no. MAPFRE Economics has created an index known as the GIP (Global Insurer Potential Index), which makes it possible to measure the difference between the idea level of insurance that a country should have and the actual situation and the estimated time that it will take to close this gap. Logically, it is in the least developed countries that we can see the greatest lack of protection and where the growth potential of this industry and social improvement is greater.

The insurance sector, often considered the “Cinderella” of finance, is, however, a catalyst of innovation. It always has been, although this has not always been acknowledged. Can you imagine an insurer in today’s society assessing the damage suffered by your property as a result of a flood and compensating you for it, but leaving it up to you to look for the workers to perform the necessary repairs? No. In today’s society, that is unthinkable. Well, this was how it worked until just a few decades ago. It was MAPFRE that introduced the concept of repair instead of compensation in Spain.

The insurance industry has quickly adapted to the changes that society has experienced. When electric vehicles came onto the scene, insurance companies designed specific policies for them; when drones become a reality, there will have to be insurance for them. And as part of these changes we are seeing, we cannot forget the importance that sustainability is taking on in the business world. This also extends to the insurance industry. Sustainable investments, care for the environment, transparency, good governance. No matter the axis being sought, the insurance industry has already positioned itself and its commitment is, as always, real and unwavering over time.

This is what insurance is all about, it is predictable but also a source of wealth and a impetus for global economic activity. A world without insurance is now unimaginable. It has been unimaginable for 4000 years, although nobody referred to it as insurance back then. 

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