Latin America - Class structures (article published by ART Ins. Services Ltd)

Latin America

Class structures and their Insurance education

Is Latin America properly equipped to confront a major natural disaster?

Latin America is a continent with one of the highest levels of inequality in the world, where 60% of the wealth lies in the hands of 20% of the population and around 120 individuals boast personal fortunes of over 2,000 million dollars each. By contrast, you then have an average household income of about USD 300 per month. Latin America has gone on a roller coaster in its history and it is frequently described as the land of future. 

It is because of this tradition that the whole continent continues to offer great insurance business opportunities as it is experiencing a sustained period of strong growth. However the inequality of their wealth, social and economic class structures and lack of insurance education in more than 80% of their population still prevail”.

Then we continue by analysing the social structure and class composition in the region and how its evolution directly corresponds to the implementation in most of these countries of a new economic model. Unfortunately the present era shows a strong increase in income inequality, characterized by a persistent concentration of wealth only in the top sector of the population, a rapid expansion of a subclass of micro-entrepreneurs and the stagnation or growth of the informal proletariat. 

With this in mind, we ask the question: why it is that the least favoured social classes are always the worst affected by natural disasters?

We can see that the decrease in public sector employment and the stagnation of demand in the white collar sector in most Latin America and poor Caribbean countries have led to the middle and lower classes seeking other ways of generating an income, without giving a second thought to any form of insurance protection. Their Governments are neither willing nor able to encourage them in this as there is always something more pressing to be taken care of. 

The cheapest and most common insurance policies have no direct Government involvement, which means that the people are neither safeguarded nor properly educated to make the best insurance choices.

Therefore the devastation caused by a natural catastrophe, such as the Hurricane Matthew which wiped out more many lives in Haiti this month, many of them children, is always lamented and suffered by the masses. And while it will take again billion of US Dollars and years to rebuild Haiti, it is hoped again that a better understanding of the benefits of adequate insurance protection in the region will rise again, at least to mitigate their material losses.

Haiti is the poorest country in the western hemisphere and the Hurricane has had a massive impact on a population already reeling from other recent disasters. Thousands of buildings, including many, if not all, schools in the country, hospitals, orphanages, and houses have collapsed. 

The study, based on a statistical analysis of data from 2,000 natural disasters over 40 years, estimates that the Hurricane would have had an insured damage value of around 7.5 to 13.2 billion US Dollars. However, it is estimated that less than 20% of these insurable values was protected. 

The Haitian Government joined the Caribbean Catastrophe Disaster Fund a few years ago and the recovery they are able to make from this is minimal. Very few companies from the Lloyd’s and London markets are involved.

Article published in the Insurance media  London 

October 2016