Making markets work for the poor (also called Market Systems Development or M4P) is an established approach to poverty alleviation in the global development community, and we believe inclusive insurance is a key aspect of this that works in the same, systemic way.
Across the developing world, low-income people do not have access to the benefits of quality markets – either because they do not exist in their countries or because they are excluded from them because of geography, education, financial access, access to capital, ability to manage risks, and many other possible reasons. As a result, millions of people cannot share in the upside of economic growth.
Making markets work for the poor is an approach that seeks to analyse the underlying causes of this to look for opportunities to change the way markets work so that they are more inclusive. By understanding how poor people participate in markets and designing interventions to improve the outcomes of this participation, the intention is to create systemic and sustainable change that reduces the risk of poverty traps.
Risk management is a critical element in this. An inability to manage risks can result not only in exclusion from the economic system, it can also build vulnerability into any progress achieved and limit the potential to improve one’s situation.
Low-income customers are commonly difficult (and potentially expensive) to reach. There are often geographic reasons for this, but factors like literacy, education, technology literacy and access, and prohibitive airtime / data costs can also have a major impact on insurers’ ability to communicate with customers and vice-versa.
Understanding these underlying causes can help to unearth opportunities to better reach customers with information and products. Across the globe, there are multiple examples of insurers who have innovated around customer education and awareness; and even more examples of insurers who have managed to build or partner for inclusive distribution channels.
To provide value-adding inclusive insurance to low-income customers, solving the challenge of distribution is paramount – it is at least as important as having the right product available.
Inclusive insurance is not simply traditional insurance ‘translated’ into lower premiums and claims sizes. For insurance to be truly inclusive it must understand the needs of low-income customers and households and their businesses and look for opportunities to address these with insurance products.
Once a customer segments’ needs are understood, inclusive insurers can determine which needs can be met through insurance products, and then determine whether this can be done sustainably with the right product design and distribution model. But for inclusive insurance to succeed, more than just products and distribution channels are required: at the MiN, we work with all the players in the ecosystem to help create an enabling environment that aligns incentives across players and leads to better outcomes for low-income people.
Sustainability is, in fact, the goal for everyone in these ecosystems: insurers need to run sustainable, solvent businesses; customers want to have sustainable risk management solutions; and at a macro level, to create systemic change and deep impact, the inclusive insurance industry has to deliver sustainable, lasting change.
Low-income people are vulnerable, and inclusive insurance has a significant role to play in reducing that vulnerability and helping prevent people from being unable to adequately manage their risks.