Putting the S back into ESG – why inclusive insurance is a win-win for all

22 April, 2022

This article is shared with the kind permission of The Insurer.

The Microinsurance Network, an international non-profit organisation with a mission to extend the reach of insurance protection as a means of poverty alleviation, celebrates its 20th birthday this year. We spoke to Katharine Pulvermacher, the network’s executive director, to find out why she believes engaging with the organisation is a win-win for insurers.

Within the (re)insurance sector, the most common measurement of the lack of insurance cover across many parts of the world is the protection gap, typically calculated in dollar terms through the disparity between insured and economic losses in a given year.

At the Microinsurance Network, a different approach is taken.

“We specifically focus on a people protection gap – the number of people on the planet who have no access to any form of risk management or insurance services, or only limited access,” Pulvermacher explains.

The network’s annual research, which covers 35 countries based on voluntary responses from insurers, suggests that at most, one in five people on the planet have access to insurance.

Of the remaining 80 percent, the majority are in the “emerging consumer” category earning between $2 and $20 per day.

While this represents a large market to tap for insurers, Pulvermacher highlights that those at the bottom end of the range are vulnerable to falling back into poverty in the event of loss.

Poverty alleviation

The Microinsurance Network was essentially founded in Geneva 20 years ago through a set of working groups seeking to address the lack of risk cover in developing countries.

It was incorporated in Luxembourg as a non-profit organisation a decade ago, with Pulvermacher taking charge in 2017.

“I grew up in South Africa, which is where my passion to contribute to poverty alleviation began. Apartheid and racial inequality was abhorrent in itself, and economic and social inequality has proved far more enduring. Running the Microinsurance Network has given me a wonderful opportunity to have some influence in creating positive actions to address the social and economic change we all need.”

A development economist by background, she believes her non-insurance background has proved invaluable in the role.

“A diversified approach is important when looking to address these challenges,” she explains.

Making markets happen

Like most non-profit organisations, the network faces budget constraints and as such adopts a regional focus on Africa, Latin America and the Caribbean and emerging Asia.

The purpose of the organisation is to improve uptake of responsible insurance that meets the needs of low-income households and small businesses around the world.

“We are agnostic about the type of risk – our focus is on the end customer and whether they are protected. That means we have a large range of stakeholders on the supply chain side, including insurers, reinsurers, industry associations and distribution partners.

“On the enabling side we have insurance supervisors from a number of countries, we have impact investment funds, foundations both corporate and otherwise, universities, think tanks and actuarial consultancies.”

Pulvermacher says this broad church comes together on the understanding there is a need to make markets happen.

“We want to drive the development of insurance markets that are customer centric and sustainable in every way, both in a business sense as well as being environmentally and socially responsible.”

Rising engagement

During her tenure Pulvermacher says there have been signs of increasing engagement from the (re)insurance sector.

“There are definitely more insurers entering the space. In the Global South we have seen new entrants to the market driven by the awareness that this is a whole set of customers whose needs have never been addressed,” she says.

She adds that it is critical that products and services are carefully designed so that they meet the needs of customers – by doing so she believes scale will be reached as there will be demand for products.

But the leaders of the pack remain far ahead of the median, and there remain thousands of insurers across the world who have not engaged.

“We’d like to see far more insurers from the Global North getting their feet wet,” she says. “It is important for their own sustainability – it doesn’t make sense to only do business with 20 percent of the world’s population.”

Putting the S back in ESG

One of Pulvermacher’s goals is to explore how insurers can integrate financial inclusion efforts into their ESG reporting – a move that could further enhance industry engagement.

“We would love to engage with more insurers in a meaningful way to help embed sustainability into their ESG strategies – this will be a benefit rather than a cost to them.”

For carriers looking to offer products that provide cover to small businesses and households she cautioned that the focus should not be on immediate returns. One of the key messages is to put the S back into ESG.

“There has been a lot of focus on the E, but it cannot be at the exclusion of the S,” she said.

“Sustainability and ESG criteria are becoming increasingly important for investors and consumers – it is in the interest of insurers to be involved. We would love for more insurers to engage with us. By engaging with us, we can help them and they can help us.”

For those insurers who do engage, Pulvermacher believes meeting customer needs is the key to success.

“The key is to focus on the customer and recognise that risk is complex and is increasingly compounded. We live in a volatile and uncertain world that is constantly changing.”