People have been migrating for thousands of years, sharing ideas, knowledge and skills. It is what defines our world and is a key element that enables societies to progress. According to figures from the World Bank, there are some 281 million international migrants in the world today, some 30 million of whom are refugees fleeing persecution and war.
For many migrants, the goal is to find work that will provide them with enough finances to provide their families with healthcare and education. As a result, these workers are heavily dependent on the remittance service providers (RSPs), allowing them to send proportions of their wages to their families back home.
In 2021, remittances to low- and middle-income countries (LMIC) reached US$589 billion, a figure larger than foreign direct investment and official aid. As Dilip Ratha, Lead Economist, Migration and Remittances and Head of KNOMAD points out, such figures mean remittances can no longer be ignored as small change.
Remittance are thus pivotal for the financial inclusion and resilience of migrant families, contributing to the reduction in debt burden and inequality, as well as to their income generation. Any disruption to remittance flows, then, has a direct impact on migrant families, and their ability to buy food, pay bills, or even afford healthcare and education. Left vulnerable to financial shocks, these families are more at risk of falling into poverty.
To avoid such outcomes and to help build the resilience of both remittance senders and receivers, migrant workers need access to a financial safety net, such as those offered by insurance, pensions and other financial services. With potential premiums estimated at between USD 7-67 billion per year – and as a tangible way for insurers to deliver financial solutions towards achieving a number of the United Nations Sustainable Development Goals – migrant insurance products are surely a win-win for all.
Home and away
One of the most pressing issues concerning international migrants today is around their financial resilience and ability to access social protection services, both in their home countries and their countries of employment. Insurance, such as life and health policies, can contribute as a financial tool to complement social protection offered to the migrants, but insurers must design policies that meet the needs of the migrant. In other words, insurers need to align their products along a migrant’s client journey, addressing the different circumstances that can impact migrants’ ability to send money home, as well as determine what issues can prevent their family members from receiving and optimally utilising such funds.
These issues can vary, from death, injury and illness, climate change (for example, flooding or wildfires preventing access to banks or mobile money services), and global events such as pandemics. Factors that can depreciate currency value – such as exchange rates and weak oil prices – also need to be taken into consideration.
The impact of COVID-19 in particular highlighted the fragility of remittance availability and financial services for migrants and emphasised how essential digital RSPs are.
While host countries provided their national citizens with financial support, such as furlough schemes, loans and grants, migrant workers were not so fortunate. With lockdowns and loss of employment, travel bans and a reduction in cash handling, migrants faced a loss of income and restricted access to RSPs. As a result, limited funds were sent to their families back home.
To create a sustainable global economy, situations like this simply cannot keep happening. The most vulnerable need to be protected from financial shock and have the financial backing preventing them from slipping into poverty over and over again.
As Ratha said during the World Bank Seminar Migration and Development Resilience: COVID-19 Crisis Through Migration Lens, “We cannot underestimate the importance of people working. When they are not looked after, it becomes a global problem.”
A connected approach
The financial resilience ecosystem for migrants consists of a host of interventions from both the public and private sectors. While international conventions around migrant social security ensure several initiatives, less than 3 in 100 migrants from low-income countries are covered through such policies, necessitating complementary initiatives through the private sector. One way to help close this risk protection gap is by distributing insurance products through digital RSPs. These remittance-linked insurance policies are generally health-focused, providing claims pay-outs to migrants in the event of injury or illness.
As was discussed during the MiN’s Expert Forum “Unlocking Insurance through Remittances”, remittance-linked insurance can be bundled with existing RSP products and presented as a value-add service, which in turn helps encourage uptake of digital remittance channels, allowing migrants to make easier, more reliable and safer transactions. And there are incentives for RSPs as well, such as increased transaction numbers, as highlighted during the 2020 ICII.
To ensure insurance uptake, insurers also need to approach migrants as a customer segment, from knowing their locations and risk levels, to understanding any challenges and barriers associated with product deployment. From an insurer point of view, the widespread use of RSPs means insurers already have an established customer base to market products to. However, issues with system integrations between insurers and RSPs, not to mention the frequently limited access that migrants have to financial services such as bank accounts, can limit the scope and outreach. Furthermore, there is also the issue of high transaction costs, which currently stand at 6.4% – double the SDG target of 3%. Such expenses mean migrants have little to spend on additional services, so products – such as insurance – need to be both beneficial and valuable.
Beyond government initiatives, there are private sector initiatives that contribute to the agenda of migrant financial resilience. Products, such as Remitcare for example – which provides pay-outs for hospitalisation and death – is proving a popular choice for migrants in Ghana. Developed by Allianz Life Ghana and distributed through PayAngel, policy purchases passed the 1,000 mark within the first eight months of launch. AXA’s Hello Protect product is another example of a successful remittance-linked insurance product. Set up by platform provider Democrance, with the support of inclusive finance NGO ADA, Hello Protect is distributed through Hello Paisa, a digital remittance provider set up for migrant workers in the Gulf. By using Hello Paisa, workers can remit money to their home countries in the Middle East, Africa and Asia, and have access to the Hello Protect insurance product, which provides cover for accidental death, hospitalisation and permanent disablement.
The Democrance system itself has been called a ‘game changer’, in that it uses technology to integrate back-end processes, which enable mobile network operators and remittance houses to connect to the Democrance platform so they can offer value-add services, such as insurance.
Future of migrant financial resilience
A coordinated approach across insurance, digital finance and remittance platforms would encapsulate the financial resilience dream for migrants, as it would unlock the potential of migrant insurance and pensions – the latter of which is currently estimated to offer a USD 3-5 trillion potential asset creation in 20 years.
Despite these impressive figures, only 3% of migrants have access to such ‘high-impact’ financial services – a point highlighted in the paper Scaling the Next Frontier in Migrant Money: The case of insurance and pensions by the United Nations Capital Development Fund (UNCDF).
UNCDF aims to contribute to the financial resilience of migrants and their families by facilitating the design and development of migrant-centric, gender-responsive, scalable, and commercially viable insurance and pension products and services, delivered through alignment of the migrant money ecosystem. To identify strategic priorities for leveraging its potential, UNCDF has consulted a wide array of global stakeholders to chart a course for developing the migrant insurance and pension ecosystem. In the paper “Migrant insurance and pension: Gazing through the future“, UNCDF provides emerging narratives for designing and developing migrant insurance and pensions for migrants and their families.
It goes without saying that by delivering greater access to financial services, such as insurance and pensions, both migrant workers and insurers will reap the rewards. However, since pensions are in particular considered a long-term investment, the sustainability of such initiatives will need to be thoroughly reviewed to ensure true longevity.
Could there be a business case for schemes that operate without any links to tax-funded mechanisms – similar in form to those currently being undertaken by insurtech Rewired?
There is no denying that in the bigger picture, pensions offer the potential to foster a risk management culture, improve the industry’s reputation, and create a tangible impact on peoples’ lives. With the number of migrant workers continuing to rise, perhaps pensions and insurance should be considered as a combined effort – one that helps secure the resilience of migrant workers both now and in the future.