Finance

Rethinking savings at Covid-19 time

By Aymric Kamega

In an attempt to stem the spread of the Covid-19 pandemic, many countries on the continent have imposed restrictions on human contact and movement. Economic activity is of course turned upside down, between companies which decide to reduce their activities to protect their customers and their employees and those which are forced to reduce their activities for lack of customers or goods.

Unfortunately, our socio-economic environment is unable to withstand such shocks today, mainly due to the lack of safety mattresses for workers, whether salaried or not. Also, the upcoming health crisis will give way to a certain socio-economic crisis. Only its intensity and duration are unknown to date.

These findings are an opportunity to raise certain issues in a context where new crises are likely to recur in the coming years: how to strengthen national or regional solidarity to better resist the effects of crises? How to secure workers’ incomes to guarantee the funding of everyone’s basic needs in times of crisis? How can we strengthen our financial autonomy to reduce our sensitivity to international crises? Etc. In practice, it appears that the answer to these questions can refer to one and the same challenge: the development of strong and structured domestic savings. Illustrations.

Solidarity issues

The Covid-19 crisis provoked a great surge of solidarity, both at the level of individuals and businesses, often in the continuity of measures taken by the States. However, although essential, these spontaneous demonstrations of solidarity have limits in duration, in particular because of the additional cost of these curative measures in the face of possible preventive measures. Healing is always more expensive than prevention.

It is in this context that the strong involvement of pension professionals (insurers and social security funds) is essential. Insurers therefore have an important role to play in enabling us to honor this social duty of supporting the most vulnerable over the long term. In particular, the popularization of health insurance and savings will limit the negative effects of such crises. If low-income Americans had, among other things, better health coverage and / or sufficient savings to live fully confined, we would not see any excess mortality linked to Coronavirus (it is in this context that in several American states, African-Americans represent less than 35% of the population but more than 65% of deaths linked to the pandemic).

It is therefore up to us to promote a society in which savings and foresight do not exclude anyone, in order to avoid repeating the mistakes of “more developed” countries than ours. Let us share the risks and optimize our solidarity.

Securing income

As all tontine members know, saving is essential to smooth the income, and therefore the level of consumption, of an individual over time, especially in a context where insurance (unemployment, health, agricultural, retirement, etc.) are not democratized. And contrary to popular belief, saving should not be reserved only for the middle or upper classes. Quite the contrary. If for these categories of population savings can be perceived as a simple income optimization tool, or even for some wealth management, for low-income populations savings can very quickly be reduced to a question of life or of death. When the richest lose weight, we all know what happens to the poorest.

In practice, savings can be observed in several forms (within the framework of a tontine, via the subscription of a life insurance contract, via long-term investments in real estate or agriculture, via bank deposits, etc.) for oneself (retirement savings, etc.), loved ones (education savings, etc.) or employees (retirement benefits, etc.).

In addition, this income security is proving to be the source of a virtuous circle for the economy. In fact, by transferring their income risk to a third party, an economic agent can obtain financial security and thus authorize themselves to undertake risky productive investments and therefore creators of wealth (investments which would probably not have been made without these guarantees).

Increase financial autonomy

Finally, the more our countries will have financial autonomy, the less they will be exposed to international crises, whether financial, economic, social, etc. And in this area, formal household savings is the solution of choice. Unfortunately, there are still many areas for improvement on this subject. For example, the investments of households and businesses with banks and insurance companies in Cameroon represent less than 25% of GDP (less than 3% for insurers only), against more than 150% in France (more than 100% for the only insurers).

Preventing crises as much as possible is essential, knowing that even if insurers have a decisive role to play in absorbing the shocks caused by these crises, there is an often misunderstood reality that cannot be overlooked. Indeed, although in these periods the need for insurance cover increases (due to the feeling of insecurity which develops), in fact the cover of the insurers cannot be limited to only insurable risks (the risks not insurable mainly falling under State responsibility).

Be careful, however, as the insurer Protais Ayangma reminds us in a recent column, insurers must not, however, flee from their moral responsibility in the event of crises, even beyond their legal and contractual responsibility. Indeed, with regard to our liquidity, our need to establish a bond of trust with the insured and our vocation to support the State and the population, it is up to us to invest ourselves fully in the fight against the effects of all crises, whatever their form. In the case of the current crisis, the acquisition of protective material or equipment for the population in general, and the medical profession in particular, is for example appreciable. Similarly, an easing of the conditions for payment of premiums and benefits, in order to take into account the cash flow pressures of the number of insured and beneficiaries, would also be indicated. Finally, a social commitment consisting, for example, in not dismissing any permanent employee during these times of confinement would naturally be welcome.

The mobilization of domestic savings, to strengthen our financial autonomy in order to avoid crises from which we cannot fully protect ourselves, must also go through the involvement of the diaspora. For the case of Cameroon, for example, it appears that over a year, the diaspora transfers nearly 200 billion CFA francs to its close residents, or almost five times the annual savings collections of life insurers and about 1% of GDP . The idea here is not only to encourage an increase in the amount of these transfers to participate in the national effort, the current amount already being at a satisfactory level, but rather to insist on the reorganization of these transfers. the diaspora for better use, ideally via savings professionals (in particular via life insurers, the latter having in their DNA the principle of savings for a third party beneficiary).

Savings in general, and life insurance in particular, is a major tool for contributing to the socioeconomic development of our countries, whether through its protective role with the populations or via its role as an investor in the real economy . This tool thus helps to absorb the effect of external shocks on our daily lives. It is up to everyone to measure the importance of this, and to act accordingly, for themselves, their loved ones and their fellow citizens.

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