Socio-economic inequality
Socio-economic inequality can be measured in several dimensions but is most often described in terms of the income and / or wealth distribution (economic inequality), on a global scale as well as between and within countries.
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Other dimensions of socio-economic inequality include gender inequality, environmental inequality and digital inequality amongst others.
The issue has received more attention since the Covid-19 pandemic, which is said to have acted as a catalyst and further increased socio-economic inequality. More-precisely, the pandemic has set the scene for an environment where increased inequality is spurred. Generally, the pandemic hit the world regions differently with countries where inequality had already been very high, having been hit the hardest. In many countries this was the result of a high proportion of informally employed workers and increasing unemployment during lockdowns, or of the lower growth perspectives in certain economic sectors. In addition to the loss of the household income, food price spikes, unaffordable or limited access to healthcare services and underinsurance due to lower education meant that the already vulnerable part of the society had lesser means to avert the socio-economic impact. The erosion of social cohesion is another consequence that has a significant impact on the economic recovery.
These pre-existing conditions are now exacerbated by the war in the Ukraine and accompanying global repercussions, e.g. food supply stress, a higher burden on the financial situation of individuals, families, companies and communities. At present, it is impossible to predict whether the current situation represents a tipping point of inequality that will not only set back previous efforts, but also manifest or even exacerbate them in the face of war, inflation and global decoupling, i.e. the reversal of globalisation.
Overall, it has to be noted that global socio-economic inequality is not a universal trend but a development per country. It can be said that domestic policies make a difference as there is a causation effect between policy shifts and (in)equality. From this it was deduced that inequality is not a deterministic consequence.
At the macro-level, socio-economic inequality is a test of the stability and resilience of societies and nations. It threatens the capacity of countries to develop smoothly along an economic growth path and may impact wealth and assets in case of shock events, as economic growth is less stable and less dynamic. There is a higher vulnerability to financial crises and a higher risk of social unrest and political violence.
The (re)insurance market might be affected through:
- Coverage of social and political violence: higher severity and probability of events and resulting insurance claims
- Lower expenditure on health (insurance): life expectancy may drop with resulting insurance claims on the life insurance side
- Disruptions in yield patterns impacting particularly (re)insurers’ investment income
Social insurance handles the topic of inequality by means of wealth transfers. As state resources are limited, private insurance plays an important role in supporting public schemes. Private insurance might act as a good complement or even substitute, as it often enjoys a higher level of trust compared to government-sponsored schemes. One element in this context is “inclusive insurance”, which is not aimed at not middle-income groups but specifically at low-income ones, e.g. through microinsurance and community-based insurance schemes. The basic idea is to offer insurance schemes for resilience and socio-economic development. The insurance solutions intend to transform vulnerable populations from reactive to proactive risk managers, providing them with power and choice, as well as developing local markets. The strategic focus of most initiatives is on reducing the protection gap and geographically targeting areas where the need and vulnerabilities are the highest, i.e. emerging and developing countries where governments or the public sector are involved or organised by private actors.
The role of insurance in driving sustainable development is undeniable, but not universally accepted or understood by key stakeholders, including many relevant government agencies. Enhanced access to insurance services helps reduce poverty, improve social and economic development and resilience, and supports major public policy objectives. The latter include, for instance, improving health and preventing short-term setbacks from undermining broader development achievements and goals by providing protection and security for families and livelihoods. However, it must be recognised that insurance can only play a certain role. Risk prevention, preparedness, response and recovery are also highly important to improve resilience. Consequently, the most effective insurance should be incorporated into an integrated risk management approach.