ClydeCo-Resilience-Inclusive Insurance Report

ClydeCo-Resilience-Inclusive Insurance Report

Closing the protection gap through inclusive insurance

Contents

03

07

11

Building resilience is a work in progress

What is inclusive insurance?

Creating new markets

17

25

33

Three critical success factors

New landscape means new laws

How can inclusive insurance reach its full potential?

1

Welcome

NIGEL BROOK PARTNER, CLYDE & CO

Building resilience to natural and man- made perils is at the heart of why insurance exists and one of the reasons we launched a campaign earlier this year to help further that purpose and explore ways to help close the protection gap. Our paper earlier this year looked at the part parametric (or index) insurance plays in building resilience. It focused on the ability of parametric insurance to provide cover to whole communities and regions, often in association with governments or NGOs. Natural disasters are only one of many risks that people face and parametric insurance can only ever be one part of the insurance mix. In this paper we look broadly at the challenge of providing insurance cover to those in developing and emerging markets who are under or uninsured against a range of both extreme and everyday misfortunes. With insurance cover, ill health, unemployment, flood, fire or theft are unfortunate and distressing, but can be recovered from. Without insurance, or other risk mitigation strategies, these perils can deeply and profoundly impact people’s lives and reduce their ability to bounce back. What’s more, where insurance penetration is low, long term economic growth, development and social cohesion can be impacted. In this paper we explore the circumstances under which insurance could successfully penetrate uninsured markets and help to bridge the global protection gap; offering

so called ‘inclusive insurance’ to a much wider audience. In a digitally connected global economy we are rapidly expanding beyond a traditional “microinsurance” silo in emerging markets. The signs are positive for a rapid uptick in insurance penetration in emerging economies due to a combination of factors including: a global shift from low to middle incomes, technological developments driving incremental costs down and governments increasingly recognising the benefits of protecting their emergent middle classes. In putting this report together we spoke to leaders in this rapidly changing area and to colleagues across Clyde & Co’s global network to understand the landscape and the challenges as well as the regulatory and legal environments. We are most grateful for the time and insights offered by Paula Pagniez of Willis Towers Watson , Garance Wattez-Richard and Quentin Gisserot of AXA’s Emerging Customers , Sarah Schneider-Olié of Allianz SE , Fiona Stewart and Peter Wrede of the World Bank , Hannah Grant of the A2ii , and Ana Gonzalez Pelaez of the Cambridge Institute for Sustainability Leadership . Many thanks also to the UK’s Department for International Development , Cenfri and the InsuResilience Global Partnership for assisting in our research. If you would like to hear more about our global resilience campaign then please go to clydeco.com/resilience for more information.

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Building resilience is a work in progress

Misfortunes affect us all; whether ill health, accident, theft, unemployment, or other personal troubles. In the same way, no one is entirely immune from the negative consequences of weather-related or man- made perils such as very strong winds, flooding, drought, earthquake, terrorism, or catastrophic accidents. What does vary, however, is people’s ability to bounce back from unforeseen events. Generally speaking those living in emerging markets are less able to recover from setbacks that impact their longer term prosperity and broader economic development. One of the reasons for this is that four billion people – over half of the world’s population - are currently not served or are underserved by insurance markets. Many of these people might earn an income (though perhaps not on a regular or full time basis) and possess assets, yet they may have limited or zero access to insurance. With

no form of supportive infrastructure, those with little disposable income could be one crop failure or family illness away from slipping back into deprivation. These “uninsured” populations are not without risk management tools. They may have access to other means of support and societal networks to protect them and their families from adverse events. Or, they may cope with setbacks by borrowing from friends or family, selling assets, reducing food consumption, cutting healthcare expenses, or taking children out of school and putting them to work. 1 But having to resort to these methods can undermine resilience and hamper economic progress for the individual and their community. Those with no coping strategies – or who have exhausted them – may simply sink back into poverty.

1 https://www.iif.com/system/files/inclusiveinsurancept2.pdf

Building resilience is a work in progress

RESILIENCE THROUGH INSURANCE IS AN INTERNATIONAL PRIORITY

SUPPORT AND MOMENTUM IS BUILDING

The social benefits of insurance are incontestable. Insurance serves as an important ratchet to economic progress, preventing short-term setbacks from undermining broader development gains. Insurance can also be a gateway to financial inclusion. With insurance protection, many marginal consumers will have better access to savings, loans and transactional services if their health and livelihood are protected; providing the security needed to invest for a better future. Recognising the value of insurance in fostering resilience to climate risk in developing countries, in 2015 G7 leaders announced an ambitious plan: We will aim to increase by up to 400 million the number of people in the most vulnerable developing countries who have the negative impact of climate change related hazards by 2020 and support the development of early warning systems in the most vulnerable countries. 2 access to direct or indirect insurance coverage against

In 2016, insurance industry leaders came together under the auspices of the Insurance Development Forum (IDF) , with the aim of optimising and extending the use of insurance and its related risk management capabilities to build greater global resilience. Following that, the UK’s Department for International Development announced the creation of a new Centre for Global Disaster Protection in London to bring together leading thinkers from the development, humanitarian, science and finance communities, government, civil society and the private sector. Later that year the InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions was launched at the UN Climate Conference COP23 in Bonn, bringing together G20 countries in partnership with the V20 nations (those most vulnerable to climate change), as well as civil society, international organisations, the private sector, and academia. The InsuResilience Investment Fund is an initiative created by KfW, the German Development Bank, on behalf of the German Ministry for Economic Cooperation and Development (BMZ) with the objective of contributing to adaptation to climate change by improving access to and the use of insurance in developing countries. Together, these initiatives are fostering the international cross-pollination of the ideas needed to encourage greater risk management and risk transfer capabilities in emerging economies.

2 Leaders Declaration, G7 Summit, 7 – 8 June 2015

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THE CHALLENGE OF PENETRATING EMERGING MARKETS

–– Prevalence of informal or self-employment. Policyholders not in formal work are harder to reach using the usual aggregators – such as employers. –– Many un-banked policyholders. Customers without access to banking can lack an effective means of paying premiums or receiving settlements. –– Lack of historical >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44

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