Inclusive Insurance

Here you will find answers to essential questions about inclusive insurance. You will learn, among other things, what is meant by inclusive insurance, how microinsurance reduces the risk of poverty and contributes to the fulfilment of the SDGs. In addition, the most critical challenges and lessons from the creation of integrative insurance markets are briefly discussed.

  • Q: 1. What is inclusive insurance?
    The term "inclusive insurance" comprises various approaches to give vulnerable or low-income individuals or households as well as micro, small and medium-sized enterprises (MSMEs) in developing and emerging economies with limited access to the traditional insurance market access to suitable and affordable microinsurance solutions. The need for such inclusive insurance solutions arises from the fact that the poor and vulnerable are no less at risk from forces beyond control than the customers of the traditional insurance market. Rather, each occurrence of events, such as the illness or death of a family member, the destruction of their accommodation or business by a natural disaster, is an acute threat to their livelihood. To prevent such adverse events from causing people to remain permanently in poverty or to fall back into poverty, it is crucial to offer suitable insurance solutions to this vulnerable group. Thanks to the work of RFPI Asia and the MEFIN network, considerable progress has been made in making microinsurance products accessible in the seven MEFIN member countries. Among other things, work was carried out on the regulatory framework, partners in the insurance industry were brought on board, and awareness was created in the relevant target groups for microinsurance solutions. Efforts are now focusing on building climate risk insurance solutions to ensure that those most exposed to the risk of climate change, namely small-scale farmers and businesses, are financially protected.
  • Q: 2. Why is inclusive insurance a critical building block in the fight against poverty?
    Large parts of the population in emerging and developing countries are not insured and live with the risk of catastrophic losses. For those people who live in poverty or on the verge of poverty, any natural disaster, illness, accident, or the like can become an immediate threat to their livelihood. In connection with the often inadequate social security provided by the state or the slow payouts of aid after the occurrence of a disaster, there is a risk that these people are permanently caught in the poverty trap. Microinsurance solutions have a significant impact on overcoming this vicious cycle of poverty by providing these people access to financial means against the hazards they face. It enables low-income people and businesses to prepare for the financial fallouts of an adverse event and, in an emergency, to quickly access the resources they need to ensure their immediate survival and to start rebuilding their livelihoods. Therefore, affordable and accessible inclusive insurance solutions make sure that no one is left behind and are a decisive contribution to the fulfilment of the sustainable development goals (SDGs). In particular, they add to the fulfilment of the first SDG, the reduction of poverty and the eighth SDG, the stimulation of economic growth and the promotion of good working conditions. In addition, microinsurance helps reducing hunger (SDG 2), makes medical care financially accessible (SDG 3), and promotes gender equality (SDG 5).
  • Q: 3. How does microinsurance work and what can be insured?
    Microinsurance solutions work just like conventional insurance products only that the insurance premiums and also the payouts are significantly lower. Although the payout might be comparatively low, it can still have a substantial impact on a low-income family's living conditions or secure the chances of survival for a business that is in trouble through an adverse event. For example, the breadwinner of a low-income family has to go to the hospital for urgent treatment, but there is no safety net to fall back on. The breadwinner would either be forced to use all of the family's savings and, if necessary, to take on debts to pay for the cure or would not be able to go to the hospital at all with an even more serve impact for the breadwinner and the whole family. Insurance allows the family to pay a small premium each month that enables the low-income family to take the breadwinner (or any other family members) to the hospital for the necessary medical treatment. This prevents the family from losing all their savings and assets which they might have worked for for many years. In addition to microinsurance to secure medical care, life insurance and business interruption insurance are the most common other microinsurance products to provide shelter against the unexpected risks of everyday life.
  • Q: 4. What are the challenges in establishing inclusive insurance markets in emerging and developing countries?
    To develop inclusive insurance markets, numerous aspects and problems need to be addressed at different levels. Foremost, an appropriate regulatory framework must be established that serves the product needs of those unserved by the traditional insurance market. Insurance providers require regulations in place and permissions from the regulatory authorities to offer innovative microinsurance products that aim to make straightforward and affordable insurance products accessible to poor and vulnerable. For example, regulation for index-based insurance products (a certain threshold is exceeded to trigger the payout) or products that are sold on the mobile phone. Numerous challenges also have to be mastered below the macro level. One issue is the availability of data in a sufficient quality to develop insurance products. Concerning the development of microinsurance solutions to protect the poor against disaster related to climate risks, data is needed, which allows accessing the exposure and vulnerability of the target group to climate-related hazards. Another challenge is the development of allocation channels since the poor and weak cannot be reached via the traditional distribution channels. The biggest challenge, however, is to raise awareness of the usefulness of insurance and to create trust among the target group in insurance products.
  • Q: 5. What are lessons learned in inclusive insurance?
    An essential lesson of the past decade in the development of inclusive insurance markets has been that it is not only necessary to provide the poor and vulnerable with accesses to inclusive insurance products. Also, the population groups who do not live in poverty but have a low income need access to the inclusive insurance solutions, as they would otherwise slide back into poverty due to the risks they face. Especially against the background of climate change, and the associated increase in extreme weather events, the protection of these people is an urgent concern.

    Furthermore, microinsurance solutions should not be pursued as stand-alone approaches. They should always be part of a comprehensive risk management plan that also includes measures to raise awareness and to reduce the risks beforehand. In the long term, inclusive insurance products can only be successful and sustainable if it is possible to convince as many people as possible for these products and thus achieve a critical size. It is therefore crucial from the start to have the scalability of a micro-insurance product in mind and to pursue a clear financial strategy that does not require that the insurance solution only works with the help of subsidies.

    Microinsurance solutions should focus on the customer's needs. The customer is the focus when the product offered creates real added value for the customer and the insurance premium to be paid is proportionate to this added value (price-performance ratio). In order to enable the customer can assess this appropriately, it is critical to provide the policyholder with the necessary basics of the banking and insurance system (financial literacy).

  • Q: 6. Why should development cooperation agencies support insurance solutions for the poor and vulnerable?
    Development cooperation agencies play a vital role in the creation of inclusive insurance markets in emerging and developing countries. They bring the insurance industry and its business partners together with governments and the regulatory authorities and thus promote the necessary exchange in order to create the framework conditions for an inclusive insurance market. They also support the development of microinsurance products by sharing their knowledge and expertise, e.g. on the subject of the development of capacity or acquisition of the necessary risk data. Furthermore, the existence of a functioning insurance market for the poor and weak is also a decisive advantage when it comes to securing long-term success in other projects with insurance solutions. Furthermore, it is an important task of a development organization that all parts of the population have equal access to insurance solutions regardless of gender or ethnicity. To live up to the “leave no one behind agenda” it is also an important task of a development organization to ensure that all parts of the population have equal and non-discriminatory access to insurance solutions. This ensures that there is no negative repercussion due to the exclusion of certain groups (“do no harm”).