Inclusive Reinsurance in Practice in Emerging Asia
• Inclusive insurance is not a new concept but an evolving one. Its importance in meeting the sustainable development goals in emerging markets is undisputed.
• Inclusive insurance enables positive social outcomes by cushioning vulnerable populations from various risks and empowering them to become more entrepreneurial through risk-sharing.
• In this article, we discuss inclusive insurance in practice, including an interview with Peak Re’s Head of South and Southeast Asia, Jasmine Miow.
As a reinsurer focused on the protection needs of emerging Asia and the rising middle class, inclusion in insurance is a part of Peak Re’s business mission. Inclusive insurance is critical to development in emerging markets and is even more important today as the effects of the COVID-19 pandemic, social inequality and macro trends such as climate change threaten to leave vulnerable populations even further behind[1].
Inclusive insurance is evolving. The COVID-19 pandemic, for example, has increased the awareness of health and life protection in emerging markets in recent years, while the accelerating pace of digitalisation globally has improved financial access and inclusion. Moreover, financial innovations, such as social and impact bonds[2], are bringing risk capital to promising social interventions that support vulnerable segments of the community .
[1] Geneva Association: The role of insurance in mitigating social inequality, August 2020
[2] Social impact bonds or ‘pay-for-success’ financing is a contract where investors finance effective social services through a performance-based contract with the public sector. This transfers financial risk from the social sector to the private sector.
[3], [8] Access to Insurance Initiative: Inclusive insurance protects households and promotes economic growth, September 2019
[4] Pew Research: Are you in the global middle class?, 21 July 2021
[5] World Health Organization: Half the world lacks access to essential health services, 100 million still pushed into extreme poverty because of health expenses, 13 December 2017
[6] World Bank Policy Research Working Paper 9417: Revised Estimates of the Impact of Climate Change on Extreme Poverty by 2030, 7 October 2020
[7] Annual Review of Economics Vol. 9:235-262: Agricultural Insurance and Economic Development, August 2017
[9] N. Jensen, C. Barrett, A. Mude, “Cash Transfers and Index Insurance: A Comparative Impact Analysis from Northern Kenya”, Journal of Development Economics, online, 2017
[10] S. Janzen, M. Carter, M. Ikegami, Valuing Asset Insurance in the Presence of Poverty Trap, Working Paper, University of California, 2012.
[11] World Bank and WHO 2019
• Inclusive insurance enables positive social outcomes by cushioning vulnerable populations from various risks and empowering them to become more entrepreneurial through risk-sharing.
• In this article, we discuss inclusive insurance in practice, including an interview with Peak Re’s Head of South and Southeast Asia, Jasmine Miow.
As a reinsurer focused on the protection needs of emerging Asia and the rising middle class, inclusion in insurance is a part of Peak Re’s business mission. Inclusive insurance is critical to development in emerging markets and is even more important today as the effects of the COVID-19 pandemic, social inequality and macro trends such as climate change threaten to leave vulnerable populations even further behind[1].
Inclusive insurance is evolving. The COVID-19 pandemic, for example, has increased the awareness of health and life protection in emerging markets in recent years, while the accelerating pace of digitalisation globally has improved financial access and inclusion. Moreover, financial innovations, such as social and impact bonds[2], are bringing risk capital to promising social interventions that support vulnerable segments of the community .
Inclusive insurance’s lasting impact on economic development
Several studies have alluded to the lasting contribution of inclusive insurance in economic development and poverty reduction. Insurance can help break the cycle of poverty by helping individuals and families overcome significant financial shocks, thereby reducing the reliance on costly debt or unpredictable external aids in times of financial distress.[3] The ability to recover quickly from financially impactful events, over the long term, can be a significant support for upward social mobility. This is important, as 51% of the world’s population, living on low incomes (between USD2.01 – 10 per day)[4], is vulnerable to falling back into poverty from external financial shocks. For almost 100 million people, out-of-pocket medical expenses can be high enough to push them into extreme poverty (defined as income of less than USD2 a day).[5] For up to 130 million people, exposure to climate change and ‘natural disasters’ threatens to do the same.[6]Figure 1: Pathways between inclusive insurance and positive social outcomes
Source: Peak Re, adapted from Access to Insurance Initiative (a2ii.org)
Inclusive insurance’s influence beyond financial risk protection
Beyond building resilience, insurance risk transfer is also known to promote risk-taking and entrepreneurship. Field studies have shown that insurance can empower farmers to shift towards higher-return but higher-risk cash crops (such as castor or groundnut) and increase their appetite for and access to more profitable activities such as livestock farming. Ultimately, insurance had a positive impact on improving farmers’ incomes.[7] Other studies have shown that insurance can promote a productive shift in resource allocation for entrepreneurs, where they can allocate more resources to their core business, shifting from saving for unexpected risks. Insurance is also shown to reduce reliance on harmful coping strategies among low-income households, such as the sale of productive assets, or taking children out of school for extra labour.[8] Several of these studies concluded that insurance could be more beneficial and cost-effective than cash transfers as a policy tool to alter poverty dynamics and meet countries’ long-term development goals.[9][10]Figure 2: Examples of Models of Inclusive Insurance
Source: Peak Re Research. See more details on these models discussed in “Inclusive insurance to fuel an inclusive recovery”
In addition to these models, the private sector is exploring new technologies that can address the issues of Affordability, Availability and Accessibility to tap into the opportunity in inclusive insurance.
Inclusive Insurance and the contribution to UN Sustainable Development Goals (UN SDGs)
Insurers and reinsurers are working together to support and co-develop non-life focused inclusive insurance programs in Emerging Asia. There is a significant opportunity to recognise and cater to the needs of the rising middle-class to help close the protection gap in emerging markets. Importantly, insurance risk transfer mechanisms can contribute towards multiple UN SDG goals.Figure 4: Role of Inclusive insurance in supporting UN SDG Goals:
Summary: Inclusive insurance in practice
Inclusive insurance is inextricably tied to growth and development of emerging markets. While the concept is gaining traction worldwide, major challenges remain on both the demand and supply side. On the demand side, more awareness of the benefits of insurance as a policy tool and the promotion of deeper public-private collaborations are needed to overcome some of the structural challenges in insuring vulnerable population segments. On the supply side, the insurance industry must collectively endeavour to be more innovative and agile in designing suitable products, adapting to the needs of the different consumer segments (in terms of different risk exposures, consumption and income patterns), exploring new and efficient distribution channels and promoting insurance and financial education. Reinsurance is part of the puzzle to solve the problem of insufficient financial inclusiveness. A long-term stakeholder approach, where partners share the same long-term vision and are strongly committed to inclusion, is the key to success. Anecdotal evidence also points to the need for supportive regulation and policies that enable different business models and incentivise innovation. There have been significant developments in technology and digitisation that could overhaul the current market dynamic through advances in accessibility and awareness of inclusive insurance solutions. Technology can also support affordability of products by fast-tracking the product design process – such as by facilitating market research, reducing distribution costs and enabling easy servicing of products. For the re/insurance industry, collaboration with technology promises to be a significant opportunity towards its ultimate mission of closing protection gaps.[1] Geneva Association: The role of insurance in mitigating social inequality, August 2020
[2] Social impact bonds or ‘pay-for-success’ financing is a contract where investors finance effective social services through a performance-based contract with the public sector. This transfers financial risk from the social sector to the private sector.
[3], [8] Access to Insurance Initiative: Inclusive insurance protects households and promotes economic growth, September 2019
[4] Pew Research: Are you in the global middle class?, 21 July 2021
[5] World Health Organization: Half the world lacks access to essential health services, 100 million still pushed into extreme poverty because of health expenses, 13 December 2017
[6] World Bank Policy Research Working Paper 9417: Revised Estimates of the Impact of Climate Change on Extreme Poverty by 2030, 7 October 2020
[7] Annual Review of Economics Vol. 9:235-262: Agricultural Insurance and Economic Development, August 2017
[9] N. Jensen, C. Barrett, A. Mude, “Cash Transfers and Index Insurance: A Comparative Impact Analysis from Northern Kenya”, Journal of Development Economics, online, 2017
[10] S. Janzen, M. Carter, M. Ikegami, Valuing Asset Insurance in the Presence of Poverty Trap, Working Paper, University of California, 2012.
[11] World Bank and WHO 2019
