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  Why does it matter?

  Why does it matter?

  • SDG 1 is critical for protecting the poorest and most vulnerable in communities from the devastating effects of poverty. It is also an SDG advocating for equal human rights and basic living standards for all, which are pivotal for social and economic advancement. 

    The World Bank estimates that around 648 million people globally, live in extreme poverty, as they live on less than $2.15 per day which is the current international poverty line, a measure of global poverty reflecting the median of poverty lines in low-income countries. 

    Poverty is, however, more nuanced than simply considering income levels and monetary measures, and is more deeply understood by considering multiple dimensions of deprivation. The global Multidimensional Poverty Index (MPI) is an international measure of acute poverty and tracked across 100 developing countries to complement traditional monetary poverty. It considers deprivations in health, education and living standards and provides a useful tool for countries to holistically address SDG1. 

    There are 7 global targets and 14 indicators underpinning SDG1. A summary of these are as follows: 

    • To reduce poverty by at least 50%, within each nation. An indicator is analysing the proportion of the population below the international poverty line, measured in "international dollars", a hypothetical currency, adjusting for country price differences. 
    • To support the poor and vulnerable by implementing nationally appropriate social protection measures. An indicator is assessing the percentage of the population covered by social insurance, security, and health insurance. Moreover, the UN department of economic and social affairs have highlighted that there is a strong link between poverty and disability. Almost 80% of persons with disabilities live in developing countries, and only through meaningful integration of this population in the economy, the SDGs could be achieved. 
    • To achieve equal rights to basic services, technology, and economic resources for all. An indicator is the proportion of the population in households with access to basic services, including improved drinking water, sanitation, and electricity. 
    • To reduce the exposure, of people in poverty to extreme climate-related events and environmental disasters. An indicator is the number of deaths or reports for internally displaced people due to natural disasters. Another Indicator is the number of countries that adopt and implement disaster risk reduction strategies in line with the Sendai Framework for Disaster Risk Reduction 2015–2030. 
    • To mobilize resources to invest in poverty eradication and end poverty. An indicator is the resources allocated for poverty reduction programmes and government spending on essential services such as education and health. 

    The United Nations SDGs Report 2022 highlighted that over 4 years of progress against poverty was erased by Covid-19, making SDG1 more important than ever to alleviate poverty and reduce human suffering. It is estimated that poverty was steadily reducing over the past 25 years, however the pandemic, rising inflation, and impacts of war, have derailed this. This was expected to lead to an additional 75M-95M people living in extreme poverty in 2022, compared with pre-pandemic projections. Many countries introduced new social protection measures in response to the crisis, but many were short-term, meaning limited help for vulnerable people. Little progress had been made to catch up to the pre-COVID trend and, with the volatile geo-political environment, it was likely that poorer countries needed greater levels of pro-poor growth to achieve poverty eradication. 

    In 2022 the World Bank stated that it was unlikely that the goal of ending extreme poverty by 2030 would be met. They also suggested some national policy reforms which could aid in poverty reduction: 

    • Half of all spending on energy subsidies in low-middle income economies go to the richest 20% of the population who consume more energy, so cash transfers are more effective for supporting poor and vulnerable groups. 
    • Focus on long-term investing in education, research and development, and more efficient spending for the next crisis. 
    • Mobilizing domestic revenues without hurting the poor, so broadening the base of personal and corporate income taxes to offset their effects on vulnerable households. 

    Moreover, the working poverty rate rose for the first time in two decades, meaning an additional 8 million workers globally were pushed into poverty.

• Supporting initiatives

  Supporting initiatives

  • The World Bank’s Poverty and Shared Prosperity Report 2022 highlights the latest estimates in global poverty, following global economic shocks and calls for a course correction. The report provides insights into how fiscal policy can be optimised by governments to alleviate poverty. 

    The High Level Political Forum (HLPF) on Sustainable development is a global platform for SDG follow-up. The 2021 meeting provided an in-depth review of SDG1. The meeting found that challenges to poverty eradication has increased, due to pandemic-related economic downturn, conflict, and climate change. It was found that an additional 101 million children and young people had fallen below the minimum reading proficiency level, with an additional 10 million girls being at risk of child marriage in the next decade. 

    The CIPD (the professional body for HR and people development in the UK) have suggested that employers can help to tackle poverty by paying a fair and liveable wage, financial wellbeing support and in-work progression.

    A resilient recovery from global economic shocks, promoting sustainable development, will encourage the growth and achievement of SDGs over time.

• Importance for actuarial practice

  Importance for actuarial practice

  • The intersection of SDG1 to actuarial practice can be shown within insurance as the Institute and Faculty of Actuaries have called on the UK government, to ensure that vulnerable and low-income consumers are not priced out of insurance coverage, and reported in The Actuary magazine. 

    In the UK, there are around 14 million people estimated in poverty, which is increasing due to the pandemic and volatile market conditions. UK low-income households pay an additional £490 for purchasing essential goods, including insurance. This is classed as the ‘poverty premium’ when its costs more for low-income households to purchase similar essential goods as higher-income households. The World Bank Group consider that financial inclusion is key to reduce extreme poverty.

    However a report produced by the IFoA and Fair by Design called “Hidden Risks of being poor: The poverty premium in insurance” argues that insurance is the least well-documented which makes true financial inclusion harder to achieve. It focuses on how low-income consumers can be quoted higher insurance premiums or be refused insurance due to factors outside of their control. The poorest in society are affected by financial and economic shocks dramatically and due to insurance being unaffordable or hard to obtain, this leads to consumers potentially falling further into “poverty”. 

    Evidence shows that groups with protected characteristics are even more vulnerable to experiencing the poverty premium, with car-insurance being shown to be one of the largest contributors to the overall premium. Another issue which can affect people in poverty is complex insurance products, being mis-sold and penalties for monthly payment of annual premiums or even penalties for being loyal to an insurer such as price hikes. 

    Overall, there can be benefits and drawbacks to both risk-pooling and individualised insurance pricing, with trade-offs being important to identify for low-income consumers. For example, there has been a refocus on risk-pooling, because if the weighting in individualised pricing models on rating factors such as postcode or certain health conditions, was increased, it would be harder for low-income consumers to obtain vital insurance. A study by the National Institute of Health in the US, has shown a relation between income inequality and mortality, meaning that mortality risk is likely to be greater for those people with lower levels of income, and would lead to life insurance being more expensive for lower income families. 

    It is important that the UK Equality Act 2010 is adhered to which seeks to protect people from any unjust or unlawful discrimination. In 2019, the Treasury Select Committee investigated consumers’ access to financial services and found some difficulty in assessing whether insurers complied with the Equality Act. The report also found that insurers needed to provide further evidence on whether their pricing models and data were compliant with the Equality Act requirements and to be reviewed by the FCA. 

    There are some products which are presented as potential solutions to address the poverty premium within the Fair By Design report: 

    • Ending the monthly payment premium 
    • Having a government-agreed reinsurance scheme – Postcode Re or Health Re 
    • Ensuring clearer and more simple products 
    • Auto-enrolment of group income protection or life insurance through employment contracts 
    • Microinsurance as a form of affordable insurance for low-income families 

    Further, the report provides these recommendations: 

    • The government should determine a minimum level of protection for all, including low-income families, so financial resilience can be sustained through unexpected shocks. 
    • The FCA should support the government, by investigating market outcomes for low-income consumers and embed the Equality Act within insurance pricing. 
    • The government should deliver a minimum level of protection through social policy interventions, such as extending the Flood Re model of insurance for different insurance product lines, to cover low-income consumers who could be priced out from the market. 
    • The government should work with the FCA and industry to incentivise the insurance sector to address the poverty premium, through innovative solutions. 

    The Social Market Foundation (SMF), have produced a report on insurance and the poverty premium as at March 2023. The report highlights how insurance needs to play a key role in tackling UK poverty and helping lower-income families manage their finances. The report shows how people in poverty pay more for the same cover because they experience different risks. All these issues can be tackled by further analysis and government support. 

    The following recommendations have been detailed in the report which seeks to alleviate the insurance poverty premium:

    • The FCA should investigate the poverty premium in insurance and should publish results on firm-by-firm basis. 
    • In parallel, the FCA should conduct a Market Review of single-item insurance cover, to assess for significant consumer detriment. 
    • The Government should review potential, state-backed insurance products for people on means-tested benefits or low incomes, and introduction of stricter regulation on pricing. 

    The IFoA have stated that they support these recommendations, reported by the Actuarial Post. A further intersection in actuarial practice and SDG1 is in appreciating the role of pensions to prevent old-age poverty. On average in the OECD, 14.1% of over-65s live in relative income poverty, higher than the rate for the population as a whole (11.6%). It rises with age and is higher for women. 

    The Actuary magazine published an article which discusses how the UN SDGs, and the Paris Agreement are aligned in their aim to balance climate action and poverty eradication. The article claimed that climate change adaptation should accompany poverty eradication efforts in a targeted manner since poverty reduction (SDG 1) and climate change are intrinsically linked. 

    On the investment side, the microfinance asset class often targets SDG1 by providing access to finance in developing nations to those who are excluded from the mainstream financial system due to things like size of loans, geographical proximity to banking facilities or lack of credit history. The investment is typically made by lending to development finance banks and providers of targeted finance (e.g. banks specialising in lending to agriculture or credit agencies lending to female entrepreneurs), who then lend at below-market rates and/or provide financial education/technical assistance to the ultimate beneficiaries of the capital. The ultimate beneficiaries are often entrepreneurs, micro and SMEs or infrastructure companies. In general, returns to investors (who are often EU-based) have been very stable through some volatile periods. And an interesting point to note was that pre-pandemic default rates of microfinance borrowers without credit history was extremely low. Even through the pandemic, well diversified microfinance portfolios were only impacted negatively to a small degree.

• Relationships to other goals

  Relationships to other goals

  • There are strong links between SDG1 to other SDGs, these include the following: 

    • Goal 2: Zero hunger 
    • Goal 3: Good health and well-being 
    • Goal 5: Gender equality 
    • Goal 8: Decent work and economic growth
    • Goal 10: Reduced inequality 
    • Goal 13: Climate action