Asia-Pacific is the world’s fastest-growing market – not just in insurance, but in numerous other industries as well. However, it also suffers from an insurance protection gap, which leaves significant sectors of the population vulnerable to disasters and other tragedies.
Speaking at the East Asia Insurance Congress in Manila earlier this month, Clarence Wong, chief economist for Asia-Pacific at Swiss Re, stressed the need for inclusive insurance to expand the reach of the industry to cover vulnerable sectors.
Wong defined inclusive insurance as “access to and use of appropriate and affordable insurance products for the unserved and underserved, with a particular emphasis on vulnerable and low-income populations.”
According to Wong, there are five aspects of inclusive insurance, namely:
This is especially important, Wong said, as 57%, or US$193 billion of the total US$337 billion in economic losses due to catastrophes in 2017 were uninsured.
In Asia, the gap is even larger, with 84%, or US$26 billion of US$31 billion in catastrophe economic losses, uninsured.
Inclusive insurance brings benefits to society, Wong said, as it allows individuals to take more risks in their personal lives with peace of mind. Insurance is an efficient coping strategy against disasters and enables quicker recovery. It also serves as a channel for savings and investment. All these factors have a positive spill-over leading to a better quality of life.
On the other hand, transaction costs, information asymmetries, data scarcity, lack of innovation, and an unconducive institutional setting serve to hamper insurers from delivering inclusive insurance to those who need it.
Employing new technologies can augment the insurance value chain, he said. Mobile technology, bundled with insurance, can make products more accessible and affordable to consumers. Meanwhile, paperless business processes, chatbots, and automation can improve customer experience and make operations more efficient.
Changes in institutional structures can serve to increase trust in insurance, which suffers a negative reputation in some sectors. Mutual insurance, combined with other insurance models, can adapt to local markets, allow for scale in operations, and remove capacity constraints. Public-private partnerships (PPPs) can help accelerate insurance uptake and address market failure by mandating coverage. Takaful, or Islamic insurance, will address social and cultural barriers to accessing insurance. Other organisations, such as NGOs, self-help groups, and microfinance institutions are also beneficial in building trust and reach among lower income groups.
Meanwhile, innovation, according to Wong, can improve insurance uptake. Developing innovative products, such as on-demand and usage-based insurance, can lead to simpler designs that require less intervention and are more sustainable. Being innovative extends to the tools and methods insurers use, such as fostering financial commitment, regulatory compliance, and knowledge management. Feedback mechanisms are also important, he said. Aside from having concrete performance metrics, firms must keep communication with stakeholders open, for faster grievance redressal and quicker improvements.
In conclusion, Wong said that “engaging in inclusive insurance is a must for the insurance industry.” In order to achieve this, a multi-stakeholder approach is needed, working with governments, NGOs, and other companies such as telecommunications and technology firms. He challenged those in attendance to take action, saying “What you are going to do is the key question.”
