With a long list of climate-related disasters and record-breaking catastrophic events, 2022 has been a stark reminder of how devastating the impacts of climate change can be, and why resilience is crucial to the very future and survival of both society and the planet. Such resilience comes in many forms – from climate-resilient farming practices and weather-resilient homes, right through to sustainable living. But what underpins and connects these different aspects is financial resilience.
Currently, 80% of the world’s population has little to no access to a financial safety net, in particular insurance, and it is crucial that the entire inclusive insurance ecosystem addresses this. Over the past 12 months, we have therefore explored and shared valuable market intelligence and best practice ideas to help all stakeholders put this vision into practice and close the protection gap once and for all.
As well as highlighting the benefits insurance brings for different markets and groups, including micro, small and medium enterprises (MSMEs) and underserved groups – such as women, migrant workers and their families back home – we have shared valuable insights on how distribution models can be improved, the benefits of blockchain, and harnessing opportunities by implementing parametric cover, particularly for agriculture insurance. With the right information at hand, we believe the right products can be developed and delivered the right way for the right people – underserved, low-income households and businesses.
We looked at inclusive insurance in the context of both Corporate Social Responsibility (CSR), and Environmental, Social and Governance (ESG) criteria. With a particular focus on the “social” aspect of these guidelines, such as ensuring diversity and inclusion as well as youth and women’s empowerment programmes, such actions have naturally led to greater attention being placed on women – and in particular the gender protection gap.
The missing middle
Kicking off with our International Women’s Day video in March 2022, we placed a recurring emphasis on closing the gender protection gap, which culminated with our Executive Director, Katharine Pulvermacher participating as a panellist during the European Microfinance Week 2022 Plenary on Financial Inclusion that Works for Women.
By acting as a key mechanism for women’s economic empowerment and resilience, insurance forms a key part of this action plan; however, products need to be accessible, affordable and tailored to truly meet the women’s needs. However, as Pulvermacher explained during the session, it is not just low-income women at the bottom of the pyramid who are lacking financial security – it is women from middle-income segments as well.
As a result of these findings, it is estimated that by 2029, this market share will represent a potential USD 2 trillion opportunity. To break into this market, however, insurers need to not only reach this target audience, but they need to deliver customer-centric products that overcome both societal and cultural barriers. Unfortunately, the road to delivering this is still littered with obstacles.
As we have explored, many women work in informal and unpaid sectors, meaning they are unlikely to have social protection; they also face very different and very specific risks compared to men. In addition, as Barbara Magnoni, President of EA Consultants, pointed out, women seeking financial services often require a signature from their husband or a male relative. And the restrictions don’t stop there; a lack of collateral, expensive internet data, male salespersons, and even branch opening times can all inhibit women from accessing the financial services they desperately need.
To overcome these barriers, three courses of action need to be taken. As outlined by Mary Ellen Iskenderian, CEO of Women’s World Banking and author of There’s Nothing Micro about a Billion Women: Making Finance Work for Women, these are: to collect disaggregated data to understand women’s needs; to use said disaggregated data to drive product development; and to develop the digital and financial capabilities of women.
For insurers unsure of how to begin such a journey, taking inspiration from some best practice examples is always a good place to start. Banco FIE from Bolivia integrates gender focus into its product offering to ensure easy access for women. This progress, combined with its inclusive leadership and equal opportunities in the workplace, were recognised with Banco FIE taking home the top prize for financial inclusion that works for women at the 2022 European Microfinance Awards.
Prevention is better than cure
While closing the gender protection gap has been a main source of focus for the MiN during the past 12 months, climate change has remained a core theme throughout. Part of this approach has been to highlight ways in which insurers can work to mitigate the impacts of climate change by protecting and restoring nature.
The Philippines Country Workshop in September (hosted by the MiN, the Insurance Development Forum and GIZ), touched on building climate resilience and reducing disaster risk through nature-positive insurance. Nature-positive policies can provide benefits not only for nature, but climate-vulnerable communities and insurers as well – a win-win situation for all.
With increasing risks stemming from climate change, the need for climate-focused insurance products has never been greater – especially for populations in developing and emerging economies where there is a strong reliance on climate-dependent activities, such as farming. One way in which insurers are helping protect and serve these often climate-vulnerable communities is through risk management and by adopting a ‘prevention is better than cure’ approach. From planting mangroves to reduce the impact of storm surges and flooding, to de-risking renewable energy to ensure a smooth transition on the path to net-zero, the insurance industry is key to ensuring the implementation of such risk mitigation.
To help insurers deliver the right products and services for these projects, we have shared real-world examples from MiN members on how to improve resilience and risk management of smallholder farmers, including the Smallholder Safety Net Upscaling Programme as well as small-scale fisheries and aquaculture insurance.
Climate risks and resources
This realisation that the whole world needs to be cushioned with financial protection against climate change isn’t new, but it takes time to design solutions that can help build and sustain a country's resilience against weather-related perils. Progress, however, is being made, as has been seen with the introduction of numerous reinsurance mechanisms, initiatives and tools designed to help with disaster risk.
One such development is the Global Risk Modelling Alliance (GRMA). Initially proposed by the V20 members, the GRMA provides open risk data to climate-vulnerable countries, ensuring they can develop their own tailored risk management strategies.
It is thanks to this ability to provide country climate risk assessments that the GRMA has been approved as a key resource for the Global Shield Against Climate Risks, a joint venture by the G7 and V20. Officially launched at COP27, the Global Shield aims to build on the foundations of the Climate and Disaster Risk Finance and Insurance framework, helping climate-vulnerable communities handle climate risks more efficiently, as well as securing pre-arranged financing before disasters strike to encourage swift recovery.
Coordinated through the Global Shield Financing Facility, which has been set up by The World Bank, the financing element of the Global Shield – to which Germany and the United Kingdom have already pledged USD 20 million – will be used by the United Nations World Food Programme to deliver financial cover to 23 countries over the next two years, the first seven of which have been earmarked as Bangladesh, Costa Rica, Fiji, Ghana, Pakistan, the Philippines and Senegal.
Rethinking insurance
As our discoveries and overviews of best practice initiatives have revealed over the past year, to succeed insurance needs to adapt and evolve away from the constraints of traditional insurance into a service that is affordable, accessible, relevant and of value. From offering tangible benefits outside of the claims cycle, such as health screenings or weather warnings, to increasing access and transparency, it is possible to deliver inclusive insurance if you have the right data to hand.
In today’s climate, where risks and perils are evolving on a daily basis, collaborations such as those seen through public-private partnerships (PPP), are proving key to delivering such designs, a point covered in great detail during the International Conference on Inclusive Insurance.
Technology and data are, of course, significant elements in enabling cost-effective, efficient, targeted insurance and ongoing advances made will certainly continue to impact the design and delivery of inclusive insurance products moving forward. From the rise and roll-out of parametric solutions to enhancing better data understanding, there is a lot that technology can offer – when it is used correctly and to its full potential.
As we head into the New Year, we aim to continue driving forward the inclusive insurance agenda, and with our Network of experts and practitioners around the world sharing their own knowledge and experiences, we hope to continue delivering our vision of closing the people protection gap.