Inclusive Insurance: Closing the Protection Gap for Emerging Customers

I have been an inclusive insurance enthusiast ever since I worked for Opportunity International and witnessed the experiments that later became MicroEnsure. In those early days, Richard Leftley framed insurance as the missing piece in the game of Chutes & Ladders (Snakes & Ladders for those outside the U.S.). He likened credit and savings to ladders that could provide a way up for those with lower incomes –but without insurance, each borrower or saver was just one disaster away from slipping back down into destitution. I remember his—at the time—revolutionary concept of paying insurance claims within 10 days or less. He would say that days-to-payout was the only report he wanted on his desk every morning. (Today, of course, payouts can be automatic or even come pre-loss.)

As is often the case with breakthroughs, Richard, of course, was not alone. Thanks to many innovators, an entire industry has emerged with profitable models reaching millions of people, and there is a growing understanding around the world, across social strata of the impact that insurance can have for families, communities and societies. The NGOs that pioneered microinsurance spurred the interest of commercial giants such as Allianz, AXA, MetLife, Swiss Re and Zurich, which have lent their considerable weight to solving the business challenges of extending insurance to underserved and unserved customers. Market catalysts such as A2ii, MicroInsurance Centre, MicroInsurance Network, ILO’s Impact Insurance Facility, and Cenfri have offered insights on everything from the customer experience, to good product design, to proving the business case, to creating an enabling regulatory environment for reaching new insurance markets.

Into this mix comes a new paper on inclusive insurance from the Center for Financial Inclusion at Accion and the Institute of International Finance. Inclusive Insurance: Closing the Protection Gap for Emerging Customers gives a global snapshot of the inclusive finance sector, examining how providers have extended service offerings using new technologies and innovative business models, and highlighting the challenges that persist. It suggests how the industry can further expand its reach to this massive, virtually untapped potential market. The study focuses on actual on-the-ground experience of providers in emerging markets.

Here are a few of the report’s main takeaways:

Insurers are bullish on the size of the market opportunity. Using Allianz’ model, which refers to the inclusive insurance market as those with the bottom 60 percent of incomes, we estimate the potential market to be 3.8 billion people worldwide (though more study is needed on segmentation). Insurers report feeling great personal satisfaction about the social impact of their products — but by far the most significant drivers of inclusive insurance are the base of the pyramid (BOP) market size and the rise of the middle class. In fact, Martin Hintz, previously with Allianz, said, “Don’t get distracted by charity! There is a clear business case.”

Insurtech goes far beyond mobile payments. Insurers are using tech innovations to build new products, increase trust among customers, and more. In Colombia, prospective DaviPlata customers can send an SMS with their national ID number and they are instantly enrolled. In Indonesia, robo-calls and automated text messages teach Allianz customers about the products they are already enrolled in and build customer trust and loyalty.  In Zimbabwe, weather satellite systems provide data that allows Blue Marble Microinsurance to offer parametric insurance with automatic payments in the event of drought – without customers even submitting a claim! And all around the world, new sources of data are available on customers who were previously invisible, with sophisticated analytics making it possible to design products to meet their needs.

Simplicity is the best innovation for the BOP. Insurers are cutting down costs and reaching new customers by simplifying processes and products. MicroEnsure has designed life, accident and hospitalization products with no exclusions, which dramatically reduces the cost of enrollment. Some policies are based only on phone numbers, without even capturing customer names, ages or any demographic information. Recognizing that lower income people often prefer to pay for things in small increments, Lorenzo Chan of Pioneer Life in the Philippines promotes “insurance in a sachet”—a concept that in many emerging markets is yielding trials of micro terms, micro cover and micro payments. And Aviva looks at the full range of services people need at different life stages (not limited to insurance), and bundles them together into simple packages that, in their words, “kill complexity.” Take, for example, the wonderfully named YOU, ME and WE products in Poland. In the case of WE, the needs of young families are met through a bundle that includes insurance for property, education, childcare, critical illness for parents and children, disability, and household goods.

New customers are being identified. AXA has shared a landscape study on the women’s market for insurance, predicting the annual premium value of the women’s global market to grow six to nine times by 2030 to between $569 and $874 billion. Met99 is reaching rural residents in Mexico by partnering with the Government. And insurers are looking at the customer journey for low-income mass markets for health insurance in India as well as for niche markets such as motorcyclists working in the sharing economy.

Insurers see new opportunities to move risk models from protection to prevention. This is especially apparent in regards to climate risk. As an example, Blue Marble Microinsurance, Swiss Re, and others are not only ensuring that farmers have agriculture insurance and other financial services, but they are also working with a range of partners to provide access to farm inputs that help guard against climate risk through water conservation methods and other climate-smart strategies.

Distribution channels make or break inclusive insurance. Microinsurance was first distributed through community organizations, microfinance institutions and cooperatives that addressed the last mile challenge and served hard-to-reach customers. In the last 10 years, mobile network operators have stepped in with the convenience of payments by mobile phones and banks have begun to cross-sell as part of their bouquet of services. Insurers are working with retailers, postal banks, workplaces, governments, and everyone you can think of to aggregate customers and find convenient ways to reach them. CARD Pioneer Microinsurance (CPMI) in the Philippines works with over 70 distribution partners.

This last point is one of the key findings of the report — that insurers are doing their part, but they can only do so much on their own. They need partners from the private, public, and non-profit sectors to come alongside to make protection possible for all. In his foreword, Denis Duverne of AXA writes that “Informal risk management is ten times less efficient than formal protection mechanisms, and one single emergency can force families to sell productive assets, move back to the village, remove children from school to help the household earn extra income or go back into poverty.” With these kinds of consequences, the real life game of Chutes & Ladders takes on added urgency, and all those who can play a part in ensuring protection for the vulnerable should seek an insurer to partner with. The insurers are ready.

To learn more about inclusive insurance, from the many sources doing good work around the world, see the curated Resource List that accompanies the paper to get a glimpse of the wealth of material that insurance experts have produced.


Have you read?

Making Microinsurance Work in Bangladesh: Three Takeaways

Bundling mHealth Info and Microinsurance to Improve Health Outcomes in Kenya

The Forumula for Mobile Microinsurance Success in Senegal and Pakistan






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