By Joel Muhumuza
On September 2, 1666, a fire broke out at Thomas Farriner’s Bakery in Pudding Lane in London. What could have been an isolated incident of fire destroying property, eventually led to four days of destruction across the narrow streets of London. The only reprieve came in the form of large scale demolitions of property to prevent the fire from spreading any further.
Subsequently, in the plans for the rebuilding of the city, the architect Sir Christopher Wren, included a site for an insurance office and this reflected the change in opinion of insurance no longer being a matter of convenience but one of urgency. More than 13,000 houses had been destroyed, and an unknown number of lives lost.
That kind of unpleasant imagery seems like the kind of anecdote delivered by an insurance peddler trying to scare you into buying a policy. I apologise for opening with it; I raise it only to make a few observations about our view of insurance.
If we consider the conditions that led to the 1666 fire, we can see that they were not very difficult to identify with the benefit of 20-20 hindsight.
According to reports, many wooden buildings as far as the eye could see had been rendered tinder dry. Narrow streets meant a fair wind could blow a spark from one flammable structure to another. However, people went about their business without a care.
This shows how the human mind is usually focused only on the task at hand. It’s not natural for us to respond with urgency to dangers that might never even happen.
Not only is it not a matter of urgency, it’s upsetting to think about losing property, falling sick or even worse, losing one’s life. We tend to hope for the best and find it difficult to plan for the worst.
The second lesson we can learn from this is risk management. One of the reasons the fire burnt for so long and grew as much as it did is hesitation on the part of the authorities. Prompt action is the surest way to mitigate effects of risk.
Translated to our own lives, perhaps you have already experienced a startling loss, a robbery, a health scare for which you had no insurance cover. Perhaps it’s been a few months and this is behind you but you worry that it might happen again. The best way to manage this is to act now. Speak to an insurer, consult as many as possible and treat it as a means of preventing any further fires from spreading.
The last lesson we learn from the great fire is that prevention is better than cure. Oft used as a cliché’ by doctors and teachers encouraging us to be prepared, this has lasted in our cultural lexicon for a reason.
While insurance companies make advances to raise the insurance penetration in the country from 0.85 per cent to 3 per cent by 2025, the duty to educate comes together with the responsibility to teach people how to minimise the probability of loss.
Many people see insurance as a costly endeavor covering something that might not happen and see that money in opportunity cost terms for instance a car or land they could have bought. Further complicating this, a KPMG survey conducted in 2016 shows that fraud is a big concern for many insurers in East Africa and Uganda in particular. I think we need to look closely at fraudulent claims. Is it a matter of dubious individuals seeking to gain from the system or a misunderstanding of the basic concepts of insurable interest, utmost good faith, accidental loss, calculable loss and proximate cause?
Unlike credit and savings, insurance’ more easily understood and appreciated financial cousins, insurance doesn’t proffer an immediate benefit, it doesn’t put money in the hands of the user. It is supposed to be a fall back, the way to ensure that when disaster strikes, you’re not taken back to the drawing board. It’s therefore imperative that we talk about it as much as possible, and equip ourselves with the information we need so that all we’ve worked for doesn’t go up in flames and we are left with nothing to start with.
Mr Joel Muhumuza is a Partner Support Specialist, Financial Sector Deepening Uganda.