Insurance Insights : Closing the Protection Gap: How Inclusive Insurance Builds Financial Resilience

Amandine Motte joined Barents Reinsurance S.A. in July 2023 and serves as Chief Executive Officer.

Since 2020, Amandine is a member of the Board of Directors of the association of Luxembourg Insurers (ACA).

Prior to joining Barents Re, Amandine was the General Manager and CFO of CNA Hardy’s Luxembourg subsidiary (“CICE”). She also served as Board member of CICE and was a member of the leadership team at CNA Hardy.

Insurance is often described as a safety net—a way to protect individuals, businesses, and societies from unexpected financial shocks. When a family faces a medical emergency, or a farmer loses crops due to drought, insurance can provide the funds needed to recover. Yet, according to the Microinsurance Network’s 2024 Landscape of Microinsurance, for approximately 3 billion people worldwide, this safety net does not exist. The result is what experts call the protection gap, the difference between the coverage people need and the coverage they actually have.

This gap is not just a technical issue; it has real consequences for economic stability and social well-being. To try and address it, inclusive insurance has emerged as one of tools that can help manage risks in a more effective and efficient way. Inclusive insurance focuses on making insurance accessible and affordable for those who are often excluded from traditional markets—such as low-income households, small businesses, and farmers. This article explains these concepts in clear terms and explores why they matter for everyone, not just insurers.

What Is the Protection Gap?

The protection gap refers to the shortfall between the amount of insurance coverage that would be economically necessary and the amount that is actually purchased. For example, if a flood causes $1 million in damage but only $400,000 is insured, the remaining $600,000 is part of the protection gap.

Protection gap will usually be higher in developing countries. A hurricane impacting both Haiti and Florida will most likely cause more damages in Florida but Americans will be better insured compared to Haitians.

Protection gaps exist in many areas:

• Life and health insurance: Families without coverage face severe financial hardship when illness or death occurs. It can for example impact the ability of children continuing to go to school as they will need to work to financially support the family.
• Property insurance: Homes and businesses in disaster-prone areas often lack adequate coverage.
• Emerging risks: Climate change and Cybersecurity threats create new risks that are often uninsured.

Why Does This Gap Exist?

Several factors contribute to protection gaps. One major issue is cost, as insurance premiums can be prohibitively expensive for low-income households. Availability also plays a role, since in some regions insurance products are either very limited or completely absent. In addition, awareness is often lacking; many people do not fully understand how insurance works or why it is important. Finally, trust can be a significant barrier, as past negative experiences or a lack of transparency from providers may discourage individuals from purchasing insurance. The consequences are serious. When people are uninsured, they may have to sell assets, take on debt, or rely on government aid after a crisis. At a national level, large protection gaps can slow economic recovery and increase poverty.

What Is Inclusive Insurance?

Inclusive insurance refers to solutions specifically designed for individuals and groups who are typically excluded from traditional insurance markets. This includes low-income individuals and families, smallholder farmers, micro, small, and medium-sized enterprises (MSMEs), as well as migrant workers and employees in the informal sector. By addressing their unique needs and circumstances, inclusive insurance aims to provide financial protection and resilience to those who are most vulnerable. Inclusive insurance aims to overcome barriers such as cost, complexity, and lack of trust. It is often referred to as insurance back-to-basics, or back to its core values, as it tries to be as simple as possible. Key characteristics include:

• Affordable premiums: Prices adapted to the disposable incomes of the target population.
• Simple products: Easy-to-understand terms and conditions with limited/no exclusions.
• Relevant coverage: Protection for risks that matter most to vulnerable groups, such as health, agriculture, or natural disasters.
• Accessible distribution: Using mobile phones, local agents, local banks, or community organisations to reach remote areas.

Inclusive insurance is not charity. It is a sustainable business that combines social impact with financial viability. By serving underserved markets, insurers can contribute to economic resilience while expanding their customer base.

For example, Pioneer Insurance, a traditional insurance company in the Philippines, moved into inclusive insurance as a strategic experiment to reach low-income customers underserved by traditional products, but it quickly evolved into a deliberate business line. Starting with small, pilot products co-designed with community organizations and microfinance partners, they learned to simplify policy wording, shorten claims processes, and price using granular, behavioural data rather than legacy actuarial tables. It now represents over 10% of their business, proving the business case for inclusive insurance.

Why Does Closing the Protection Gap Matter?

Reducing the protection gap benefits individuals, communities, and economies:

1. Financial security for vulnerable families: Insurance helps families avoid falling into poverty after a crisis.
2. Economic stability for small and medium enterprises (SMEs): Businesses can recover faster, preserving jobs and income.
3. Climate resilience against major disasters: Insurance supports adaptation to climate risks by enabling quick recovery after disasters.
4. Economic and social development goals: Financial protection encourages investment in education, health, and entrepreneurship.

Studies show that every euro spent on risk prevention and insurance can save several euros in recovery costs. This makes insurance a key component of sustainable economic development.

Global Trends and Opportunities

Several trends are shaping the future of inclusive insurance. Digital technology is playing a key role, as mobile platforms and apps make it easier to distribute insurance products and collect premiums efficiently. Public-private partnerships are also gaining importance, with governments and insurers collaborating to provide coverage for disasters and social protection programs. Another significant development is parametric insurance, which pays out based on pre-agreed triggers—such as rainfall levels—rather than actual losses. This approach is particularly useful for agricultural insurance and climate-related risks. Finally, regulatory support is strengthening, as supervisors and international bodies create frameworks that encourage the growth and sustainability of inclusive insurance. Despite these advances, challenges remain. Emerging markets account for most of the global protection gap, especially in life and health insurance.

Strategies to Accelerate Progress

While we have seen an increase in the number of people covered throughout the years, there still r mains around 90% of the target population uninsured, according to the 2024 Landscape. To close the protection gap and mainstream inclusive insurance, stakeholders need to:

1. Innovate products: Develop parametric and bundled solutions tailored to local needs.
2. Leverage technology: Use mobile apps and AI to reduce costs and enhance transparency.
3. Strengthen regulation: Create enabling environments for microinsurance and digital distribution.
4. Promote financial literacy: Educate consumers on the value and affordability of insurance.
5. Foster partnerships: Align efforts across insurers, governments, and development agencies to scale impact.

Le regard de l’expert

The protection gap is a global challenge with serious social and economic consequences. Inclusive insurance offers a way to close this gap by making coverage accessible and affordable for those who need it most. Achieving this goal requires innovation, collaboration, and education. By understanding these concepts, stakeholders can contribute to a more resilient and equitable future.

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