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06.04.2020 | Andrea Camargo | Consumer Protection, Covid-19

Covid-19: A new impetus to enable access to insurance for the most vulnerable

The coronavirus pandemic presents an opportunity for all stakeholders involved in promoting access to insurance to be more empathetic with those who usually lack financial resilience and to realise the urgent need to narrow the insurance gap to make them more resilient. This crisis should provide the insurance industry and supervisors with the impetus to enable and promote innovation to unlock access to valuable insurance products for those who need them the most and build trust in a responsible insurance market.  

The importance of financial resilience 

On different levels, all of us are feeling how fragile and vulnerable we are, and how little control we have over our own financial resilience. For instance, BFA Global supported by Metlife Foundation conducted a survey exploring the impact of Covid-19 on financial lives in seven countries and found that 50% of the respondents do not have emergency funds to support them through the crisis. Our own experience is an important tool to galvanise and launch urgent action. This experience provides us with a different lens to understand the needs and the sense of urgency required to build the resilience of those who are already vulnerable and who, unfortunately, will be disproportionately affected by this crisis. 

Particularly in emerging markets, small and micro-entrepreneurs, low-income households, informal and independent workers, women and smallholder farmers, with poor access to safety nets and health care are more likely to be hit hard directly and indirectly by the Covid-19 pandemic. 

Particularly in emerging markets, small and micro-entrepreneurs, low-income households, informal and independent workers, women, and smallholder farmers with poor access to safety nets and health care are more likely to be hit hard, directly and indirectly, by the Covid-19 pandemic. For all of them, even a temporary disruption to cash flow caused by national lockdowns and social distancing measures will be catastrophic in the short, mid and long term. Appropriate risk management tools are now crucial. However, paradoxically, those who will suffer the most are the ones who generally do not trust insurance and who are more likely to be uninsured or underinsured. In that context, the groups, as mentioned above, will be forced to activate risk coping mechanisms that generally have an adverse impact on their wellbeing and livelihood conditions. The effects of this for emerging countries will be most likely devastating; they will probably see a reversal of the recent significant progress that has been made over the last two decades in terms of poverty alleviation, economic growth and prosperity. 

Against this grim background, it has been uplifting to see how governments, regulators, supervisors, the insurance industry and other stakeholders have mobilised efforts to make insurance accessible despite these complex conditions and to ensure that consumers are treated fairly and with compassion in this difficult time. In less than a month, we have witnessed the creation of innovative tailored insurance products in countries such as IndiaPakistan and Malaysiathe set-up of Covid-19 information platforms or protocols for consumers by the insurance industry; the introduction of Covid-19 tracker features for risk managers to assess their property exposure; the commitment of important resources to support the Covid-19 response and research on infectious diseases and pandemics by the insurance sectorthe support by risk managers of state-backed pandemic pools to plug coverage gaps; and very importantly, the adoption of innovative regulatory and supervisory approaches to ensure that insurance markets are robust and the fair treatment of consumers. 

Opportunities for key supervisory responses 

Specifically, in the context of inclusive insurance, this crisis is an important opportunity for insurance supervisors to:  

  1. Make sure that those who are and who are not yet insured, have trust in insurance and the insurance sector. This is the moment when current consumers should perceive that insurance works and when future consumers should be convinced that insurance is worth trying. So far, supervisory responses have aimed to build trust in insurance and the insurance sector by mainly addressing the following concerns:  
    • business discontinuity of insurers and financial instability of the insurance sector;  

    • lack of understanding of insurance and policy cover;  

    • vulnerability of consumers to fraud and insurance scams;   

    • delays in claims’ processing;  

    • rejections of claims by insurers relying on exemptions;  

    • difficulties for consumers to keep up with monthly premiums;  

    • the impossibility of face-to-face outreach and therefore increased use of digitalisation; 

    • increased cyber risks because of increased use of digitalisation; and  

    • limited offer of products providing valuable coverages.  

  2. Enable the regulatory and supervisory environment to welcome innovation so valuable products are offered in the market. In times of emergency, innovations blossom. In a question of weeks, we have seen new products being designed, hackathons launched to build innovative solutions, hubs to test models, etc. At times like these, people realise the need for insurance and demand can surge. Indeed, this has started happening in countries like Thailand. Also, it is important to draw lessons from past experiences. For instance, in the aftermath of the SARS epidemic, there was a spike in critical illness policy sales in Asia. In this context, supervisors need to explore how to encourage the testing of innovative approaches and products in contained environments, for instance, through the adoption of sandbox approaches or innovations hubs, and smooth registration and product approval processes.
       
  3. Be aware of potential future practices in the market that can lead to new grounds of exclusion. It is important to consider that after the Covid-19 crisis, insurers might be willing to integrate more exclusions and increase premiums for certain segments of the population and certain coverages. In that context, supervisors jointly with the insurance sector might want to explore how to ensure that valuable insurance products are available under appropriate conditions to avoid the exclusion of segments of the population. This crisis should galvanise access to insurance and not the opposite.
     
  4. Unlock opportunities for digitalisation: Digitalisation has proved to be a key enabler of product distribution, consumer care, and the business continuity of insurers but also of supervisors, in this time of social distancing. Therefore, it is the time to adopt proportionate approaches that aim to remove regulatory and supervisory obstacles to unlock the responsible use of digitalisation.  

We are currently living through a teachable moment without precedent. The Covid-19 pandemic is raising awareness about the need for protection in several aspects of our lives. Currently, the measures that are being adopted to confront the crisis are mainly focused on emergency management and response. The attention over the mid and long term will be on recovery and on how to build resilience. Risk management and access to insurance will be predominant topics for the time to come. Insurance is a key piece of the puzzle when it comes to better managing covariant risks through integrated risk management approaches. Therefore, stakeholders who are involved in and genuinely interested in promoting access to insurance should seize this moment to encourage structural changes, build unprecedented partnerships, unlock innovations and adopt proportionate regulatory and supervisory approaches to build the resilience and increase coverage of the most vulnerable populations.