A report from the Microinsurance Network reveals that inclusive insurance is making strides, but challenges remain in terms of scale and reach. The report finds that 330 million individuals are covered globally by inclusive insurance products, including health, agriculture, and property insurance. However, despite these advancements, there is still an 88.5% protection gap—only 11.5% of the potential market is currently insured. The report highlights that new product innovations, especially in health and agricultural insurance, are needed to extend coverage to millions of unprotected people.
Moreover, digital tools and mobile-based platforms have played a critical role in scaling inclusive insurance in developing countries, particularly in rural areas. These tools make it easier for underserved populations to access financial products through mobile wallets, reducing operational costs for insurers. Despite this progress, affordability, financial literacy, and weak infrastructure continue to hinder greater adoption.
Landscape of Climate Risk Insurance Solutions for MSMEs in V20 Countries
The 2024 report by the V20 Sustainable Insurance Facility and UNEP focuses on the vulnerability of MSMEs (Micro, Small, and Medium Enterprises) in V20 countries to climate-related risks. The report underscores that MSMEs represent 70% of employment and 40% of GDP in V20 economies, but less than 15% of MSMEs are insured against climate risks. The lack of protection exposes these businesses to significant losses from natural disasters such as floods and droughts.
The report advocates for the development of climate-smart insurance solutions, tailored to MSMEs’ specific needs. Such insurance could play a pivotal role in building climate resilience by providing financial protection and reducing liabilities for both businesses and governments. In addition, it stresses the importance of public-private partnerships and collaboration with financial institutions to enhance the capacity of MSMEs to manage climate-related risks.
The Landscape of Microinsurance: Bridging Gaps, Building Futures
This 2023 report by the Microinsurance Network provides a comprehensive overview of the microinsurance industry, covering 1,040 products offered by 294 insurers across Africa, Asia, and Latin America. Microinsurance has shown immense potential in protecting low-income populations, particularly in regions with weak social safety nets. By providing affordable health, life, and agricultural insurance, these products offer a buffer against financial shocks.
One of the key findings is the critical role of technology in enabling the expansion of microinsurance. Mobile insurance products have been particularly successful in reaching rural populations who otherwise lack access to traditional financial services. The report, however, highlights the trust deficit that continues to limit uptake, with many potential policyholders unaware of the benefits of insurance or suspicious of insurers due to past experiences.
Dealing with Basis Risk: Minimizing Pitfalls of Parametric Insurance
Parametric insurance has emerged as a popular tool for managing climate risk, as it provides pre-determined payouts based on triggers like rainfall or temperature levels, rather than requiring proof of actual loss. However, the 2023 report highlights the challenges associated with basis risk, where the insurance payout does not fully cover the actual losses suffered by policyholders. This mismatch can erode trust in the product and deter participation.
To minimize basis risk, the report recommends refining the triggers used in parametric insurance and adopting hybrid models that combine traditional insurance with parametric triggers. Additionally, educating consumers about how parametric insurance works can mitigate dissatisfaction when payouts fall short of expectations.
Women, Insurance, Risk Management, and the Path to Financial Empowerment
A 2024 report by the World Bank highlights the gender disparities in access to financial services, particularly in insurance. Women in developing countries face unique challenges in accessing risk management tools, often due to their roles in informal labor or unpaid care work. The report underscores that inclusive insurance products tailored to women’s specific risks—such as maternal health, small business ventures, and household resilience—are essential for financial empowerment.
The report also points to successful case studies, such as gender-focused microinsurance products in Bangladesh and Kenya, where targeted financial literacy programs have helped increase women’s participation in insurance schemes. These programs have shown that educating women about the benefits of insurance and offering flexible premium payments are critical to increasing coverage.
Lessons from Index-Based Livestock Insurance (IBLI) in the Horn of Africa
The Index-Based Livestock Insurance (IBLI) program, implemented in East Africa, has proven effective in protecting pastoralists from climate risks. The program uses satellite data to measure pasture conditions, triggering payouts during periods of drought when vegetation is scarce. The 2024 report on IBLI and the associated DRIVE initiative outlines how these insurance schemes have helped stabilize the livelihoods of herders by reducing the need for emergency aid during droughts.
The report also highlights the success of digital platforms in facilitating these insurance schemes, reducing administrative costs and improving payout efficiency. By 2024, the IBLI program had expanded to cover more regions, providing critical financial security to thousands of households dependent on livestock for their livelihood.
Creating Innovation Ecosystems through Multi-Stakeholder Practices
The A2ii (Access to Insurance Initiative) 2024 report discusses how multi-stakeholder collaborations can foster innovation in inclusive insurance. Through case studies of four inclusive insurance labs, the report showcases how cooperation between regulators, insurers, and non-governmental organizations (NGOs) can lead to the development of products tailored to low-income populations. For instance, one lab in Ghana worked on creating health insurance products for informal sector workers, successfully increasing enrolment by 30%.
The report emphasizes the importance of ecosystem approaches to innovation, where all stakeholders, from regulators to community groups, play a role in identifying the needs of underserved populations and developing appropriate insurance solutions.
The Business Case for Co-operative and Mutual Models in Inclusive Insurance
Co-operatives and mutual insurance models, where policyholders are also owners, offer a community-based approach to insurance. A 2024 report shows that these models have been particularly successful in rural areas, where traditional insurers have struggled to gain trust and traction. By involving local communities in the governance of insurance schemes, these models build trust and ensure that products are tailored to the specific needs of their members.
The report highlights that mutual insurance models, as seen in parts of Latin America and Africa, have been effective in delivering both health and agricultural insurance. These models also support financial literacy and community empowerment, as members are directly involved in decision-making.
Financial Resilience Towards Climate Adaptation
The UNEP 2024 report on financial resilience focuses on how insurance can be integrated into climate adaptation strategies. It discusses how climate risk insurance can help low-income communities adapt to climate change by providing financial buffers against disasters such as floods and hurricanes. The report recommends that insurance solutions be paired with broader climate adaptation efforts, including infrastructure investments and disaster preparedness programs.
The report also stresses the need for international support, as many developing nations lack the financial resources to implement large-scale climate risk insurance programs. Public-private partnerships and international financing are crucial to making these programs viable and scalable.
