We live in an increasingly urbanised world. According to the World Bank, around 55 percent of the global population, or 4.2 billion people, live in cities - a trend expected to rise to around 70 percent by 2050. Climate change, water and food insecurity, conflict and a global economic downturn exacerbated by the Covid-19 pandemic all contribute to urban migration. Urban areas are the main destinations for migrants, refugees, internally displaced persons, and other people on the move across the world - some one billion urban poor live in informal settlements just to be nearer to opportunities. But for many, the hoped-for rise in living standards and earnings fails to materialise.
Unemployment, illness, accidents, destruction of property and death are ever-present risks. In climate-vulnerable mega-cities in developing countries, the dangers are exacerbated by extreme weather events and natural catastrophes. Pandemics such as Covid-19 thrive in over-crowded, insanitary slums. Yet lack of financial education and awareness means many have no idea of how insurance could help them manage their risks. Urban women - the majority of whom work in the informal economy and thus have even less protection - are particularly vulnerable.
Insurance is an important part of risk management for urban livelihoods, but lack of financial savvy on the part of consumers, combined with insurers’ poor understanding of customers’ needs, means uptake is generally low. The problem is compounded because donors and NGOs have tended to focus on the rural poor - insurance for small-scale farmers in particular. As the Asian Development Bank notes, “while rural financial inclusion assumes importance from policy makers and academicians, urban financial inclusion needs urgent attention.”
Monami Dasgupta of the Bharat Inclusion Initiative calls for a better understanding of the urban poor and the reasons behind financial exclusion, warning that there is a growing need to have an in-depth understanding of the financial lives of urban poor households, in order to enable effective identification of missed opportunities in developing a targeted financial market. In other words, low-income city dwellers are missing out on financial products - including inclusive insurance - which could dramatically improve their lives.
Financial education is essential to build trust and confidence and protect the end-consumer. Initiatives such as Comic Contracts aim to eliminate baffling financial jargon and densely-worded insurance contracts which can be a barrier to illiterate and semi-literate consumers. Meanwhile, as the recently-published GSMA Digital Literacy Training Guide points out, there are also fears about mobile money, with many not aware of the availability and benefits to digital financial service products. It’s clear that when even ‘developed’ insurance markets such as Australia struggle with financial literacy, there is a real need for simple, accessible products.
City dwellers in emerging economies may encounter even more barriers to accessible financial products. A 2020 joint study by the Grantham Research Institute and the Centre for Climate Change Economics and Policy found that uptake is not only determined by demand, but also by the availability of a product. On the demand side, a lack of financial literacy can lead to misunderstanding of risks and the role of insurance, leading to false expectations on payouts, cover levels and limitations of insurance. On the supply side, insuring climate and natural disaster risks can be technically challenging, with a wide range of ‘risk drivers’ at work, including urbanisation and climate change. Calculating the impact of these factors on risks is difficult for insurers.
Urbanisation and the gender inclusion gap
“Women are often more than just the bread-winners for urban poor families,” says Habitat for Humanity. “They find themselves playing an indispensable role in running their own household, holding their families together, raising children besides their work-roles outside their homes.” Yet despite this crucial economic and social role, women are even less likely than men to be able to access financial services.
Data compiled by the MiN from 18 countries across Asia, Africa and Latin America reveals that women in emerging markets are more likely to be excluded from financial services, including insurance. On average, 40 percent of women have a bank account compared to 50 percent of men; fewer than 13 percent of women have a mobile money account, while for men it is more than 17 percent; and just 30 percent of women had borrowed money in the previous year, compared to 35 percent of men. Yet a study of low-income women in urban and rural western Kenya shows access to mobile money saving tools can reduce women’s reliance on high-risk financial sources such as resorting to sex work.
In Latin America, MiN members are working hard to redress the balance. Edufina, a financial education programme for women funded by the Swiss Agency for Development and Cooperation (SDC) and run by Fundación PROFIN, aims to boost women’s economic empowerment and reduce gender-based violence in Bolivia. So far 20,000 women have been through the training programme, says Ximena Jáurequi, PROFIN Project Coordinator. “Financial education is a tool that promotes people's economic empowerment, therefore, it contributes to their economic autonomy, allowing them to make responsible financial decisions.”
In Colombia, Fasecolda’s Viva Seguro financial education programme runs face-to-face and online workshops, and social media channels, targeting marginalised communities including women. “Financial education is a sign of the insurance sector's commitment and transparency towards its clients and towards society in general,” says Fasecolda.
As with climate change, urban poverty and financial exclusion tends to hit women harder. According to the Observer Research Foundation, women between 15 to 49 years are overrepresented in low-income urban settlements. “Women in slums face the double whammy of greater climate change related risks and low-income levels, thereby entrapping them in a poverty cycle.” Yet the evidence suggests that increasing women’s financial inclusion has multiple benefits. “Women who have access to bank accounts, savings mechanisms, and other financial services may be better able to control their earnings and undertake personal and productive expenditures,” write Sarah Gammage and Julia Arnold of the International Centre for Research on Women. “They may also be able to make more choices about how they use their time, whether for employment, leisure, income-generating activities, or education.”
Since women displaced by climate change, conflict or gender-based violence frequently migrate to the city to find work and escape their tormentors, they can find themselves, according to the Global Partnership for Financial Inclusion (GPFI), particularly underserved by existing products and services. Lack of official identification can hinder access to digitised payments for women who are forcibly displaced. They may not be able to “safely store money, send or receive money transfers, and build up a transaction history that helps them to access services such as credit and insurance when needed.”
As a new report from UNOPS and Cities Alliance points out, informal low-paid employment, the increased burden of unpaid care, and difficulty accessing digital technologies, capital and market opportunities all add to the challenges faced by urban women. “Everyone involved in urban planning needs to understand how women live in and experience their cities.”
Creating resilience for urban entrepreneurs
Micro, small and medium enterprises (MSMEs) are the engine rooms of urban economies. According to the UN, MSMEs are “key to the inclusive growth of cities and creating employment for urban dwellers, including marginalised groups such as migrants from poor rural areas, young people and women.” Yet they are frequently underinsured and ill-equipped to deal with disaster when it strikes. The devastating fire which swept through Nairobi’s Toi market in 2019 destroyed hundreds of stalls and caused thousands of dollars in damage. Given Africa’s significant protection gap, it is unlikely that many of the market traders were covered. Stall holder Bernice Wasike said: “We did not salvage anything. Our goods were burned. Personally, I have lost 200,000 shillings (US$ 2000) worth of stock in shoes and other wares.”
The Covid-19 pandemic has only made things worse. “At the coalface of this disaster are MSMEs who have been disproportionately affected, as their financial reserves simply don’t stretch as far as big business and multinational corporations,” says Patrick Tarbuck of the UN Development Programme. The UNDP’s recently-launched Insurance Risk and Finance Facility aims to address this through a US$4.7 billion inclusive insurance initiative covering 170 million MSMEs in ten countries. Key elements include cover for loss of income; bundled pandemic and climate risks; automatic parametric triggers for climate and pandemic risks; and education on financial planning and book-keeping, especially for women entrepreneurs and SME owners.
Low-cost business interruption (BI) insurance could mean the difference between MSMEs, along with their owners, employees and their families, going under - but once again, poor uptake resulting from low awareness and high scepticism of insurance is hindering market development.
In Ghana, faced with increasing mistrust from consumers, the Ghana Insurers’ Association (GIA) has embarked on a microinsurance awareness campaign aimed at harmonising insurance education; enhancing consumer trust; developing an insurance education strategy; reforming the country’s Financial Literacy Week; and securing funding for widespread insurance education.
For Kingsley Kwesi, acting CEO at the GIA, winning consumer trust relies both on consumer protection and self-regulation. “Treating customers fairly is a key component of achieving responsible insurance.”
Many migrant workers returned home - either forcibly or voluntarily - during the first months of the Covid-19 pandemic. In India, hundreds of thousands were left stranded when the government introduced a national lockdown with just a few hours’ notice. From Venezuela to Thailand to Mozambique, millions of migrant workers headed home. For the cities they left - and indeed returned to - the pandemic has had a profound impact. Ironically, some urban areas enjoyed improved water and air quality during lockdown.
In the long term, however, it’s likely that the trend towards mega-cities will continue and the challenges of providing risk protection for those living there will increase. For insurers, this is an opportunity - as Daniel Runde of the Center for Strategic and International Studies noted in 2016, “Given the way that cities can foster growth and creativity, greater urbanisation could be an unprecedented business opportunity to provide infrastructure, technology, and financial services and other necessary products and services.”