Turning Challenges Into Opportunities: Insurance for Informal Sector

Lazarus Sauti

Simon Nyaropa, a carpenter at the Glen View Home Industries Complex along Willowvale Road, lost his property worth thousands of dollars when a raging inferno destroyed part of the complex recently leaving him and other entrepreneurs with no source of living.

The complex was gutted by fire on the 26^th of June this year, destroying property worth approximately US$100 000 belonging to over 500 informal traders.     

“I have lost my foam rubbers, sofas, tables, chairs and wardrobes worth thousands of dollars,” said the depressed father of two.

Heartbreakingly, the fire had destroyed Nyaropa’s livelihood for the second time. The first time was in 2015.

“This is the second time my property has been razed by fire at this complex in less than four years,” he said, adding: “I’m on point zero. I don’t even know what to do.”

Harare City corporate communications officer, Michael Chideme, said informal workers at the complex – largely uncovered by social protection schemes – should not only exercise caution to prevent fire, but also take out insurance cover to protect themselves against shocks.

Sadly, Nyaropa believe insurance is not for informal traders like him, but for formally employed people only.

“My property was not insured. Honestly, insurance is not for informal traders; it is only for formally employed people and the elite,” he grinned as he shared his heart-rending story.

In the presentation paper titled “Expanding insurance with large informal sectors”, senior assistant secretary, finance division, Ministry of Finance, Bangladesh, Md. Rajibul Ahsan, said most people in the informal sector in Asia and other developing nations believe that insurance is only for the formally employed people and the elite.

Ahsan also said lack of knowledge on insurance in general; low financial affordability as well as financial savings; and unstructured working conditions are some of the challenges to expand insurance coverage in most – if not all – developing nations, a fact supported by Insurance and Pension Commission (IPEC) spokesperson, Lloyd Gumbo.

“Informal workers are not only aware about insurance and pensions,” Gumbo said. “They think insurance is only for formally employed people. The truth is insurance is for everyone, whether you are a cobbler, a vendor or a farmer.”

He also said to expand insurance cover in the informal sector, building trust and confidence of people is important.

“To build this trust and confidence, we are sensitising the public on insurance and pensions as well as encourage people not only to deal with registered companies, but also to campare prices from these companies,” said Gumbo.

“Insurance companies that are registered with us have insurance products that are suitably designed for those in the informal sector so that they can insure their assets.”

IPEC pensions manager, Nhau Chivingira, also urged people in the informal business to have all forms of insurance to cover for their products, as well as life.

He also said insurance companies should target informal traders and educate them on the importance of having insurance policies to cater for various risks they might face in their business.

“Our guiding principle is that everyone with a source of income should be insured. Accordingly, insurance companies should prioritise financial education campaigns and target participants in the informal sector,” he said.

Chivingira also said IPEC came up with a Micro Insurance Framework recently to provide an enabling environment and incentivise companies that provide insurance for vendors.

Significantly, he cleared the mistaken belief that insurance companies do not pay claims on time.

“The argument that insurance companies do not pay claims is not correct,” Chivingira said. “In 2017, short term insurance companies paid $60 million in claims and life insurance companies paid in excess of $200 million in claims.”

For Life Offices Association representative, Edwell Gonde, informal traders at the Glen View Home Industries Complex should save to buy equipment and move to better workplaces.

“Informal traders are squashed at that small complex, a situation that puts them at the risk of losing everything whenever fire breaks out,” he said. “Thus, they should insure their products, as well as save to buy modern equipments and expand their businesses.”

In an interview with 263Chat.com on the sidelines of Insurance Awareness Day celebrations in Gweru recently, Technical Manager, Insurance Council of Zimbabwe, Nicholas Sayi, also urged members of society who are knowledgeable about insurance to assist neighbours, relatives and friends about the importance of insurance cover.

“This is a necessary step useful in expanding insurance cover in the country,” he said.

 The International Labour Organisation (ILO) – a United Nations agency dealing with labour problems, particularly international labour standards, social protection and work opportunities for all – strongly believes that the extension of social insurance schemes to include informal workers represents positive progress towards reducing poverty and vulnerability for the poor.