The case for inclusive insurance

With so many left unprotected, insurers must take steps to bring cover closer to people

The case for inclusive insurance

Insurance News

By Gabriel Olano

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:

  • Unserved customers – the insurance industry must go beyond traditional customers to reach unserved populations
  • Simplicity – simple products foster trust and transparency in insurance
  • Accessibility – innovative distribution methods are needed to help customers get cover
  • Affordability – lower sums insured and distribution costs, as well as premium subsidies
  • Technology – insurers must leverage technology across the value chain to help the other aspects
Why inclusive insurance?
Inclusive insurance can help insurers access a newer risk pool, with 3.5 billion individuals in the lower 60% by income in developing countries, he said. Accessing the low-income population is also important in closing the protection gap. Wong cited the United Nations 2017 Asia-Pacific Disaster Report, which said that poor and lower middle-income countries suffered 15 times more deaths due to disasters compared to their richer Asian neighbours.

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.

Barriers to insurance
Wong outlined the various barriers to inclusive insurance, which exist on both the supply and demand sides. For consumers, there are constraints such as affordability, liquidity issues, informal risk-sharing mechanisms, cultural factors, lack of awareness and trust in insurance, and behavioural biases.

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.

Closing the gap
Wong highlighted three factors that can help close the insurance gap: technology, institutional structures, and innovation.

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.”



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