NextBillion - A WDI Publication

Working in insurance throughout my professional career so far, much of it in emerging markets across Asia and Africa, I have realized that the insurance industry has largely failed the people who need it most. Across low- and middle-income countries (LMICs), billions of people face constant exposure to health shocks, climate risks and income volatility, yet they generally remain excluded from the financial safety net provided by formal insurance. In most LMICs, insurance penetration — measured by calculating total premiums collected as a percentage of the country’s gross domestic product — is around 1% of GDP, compared to a global average of approximately 7%. This gap is not just a commercial oversight: It points to a structural problem that deepens vulnerability, slows recovery from shocks and exacerbates poverty.

In response to this gap, policymakers, donors and insurers have increasingly turned to what is often referred to as “inclusive insurance” — i.e., products designed to reach low- and middle-income populations that traditional insurance models have struggled to serve.

However, in practical terms, inclusive insurance is too often approached as a scaled down or charitable version of traditional insurance meant for very poor populations. In reality, it represents a fundamentally different business model with distinct product design, processes, distribution and economics.

Without recognising this distinction, well-meaning initiatives will continue to underperform, donor-funded pilots will continue to fade, and insurance will remain distant and often irrelevant to non-consumers in emerging markets.

Inclusive insurance is Not ‘Traditional Insurance Downsized for the Poor’

One of the most persistent misconceptions in the insurance industry is that inclusive insurance is simply a subset of traditional insurance. Insurers who do not regularly deal with inclusive insurance may simply refer to it as “small ticket business”: often an NGO-style business with lower premiums and smaller sums insured. For these clients, insurers might slap images of a farmer or cab driver on marketing materials, translate the policy into the local language and consider the job done. This thinking is deeply flawed.

Conventional insurance in emerging countries generally replicates existing practices from developed markets, focusing on low-frequency, high-severity risks faced by a niche, relatively wealthy clientele. It assumes formal employment, stable incomes, proper documentation, financial literacy and patience for complex processes. The typical conventional insurance policyholder can absorb small losses and only insures themselves for big ones.

For inclusive insurance targeted at excluded populations, the risk profile is almost the inverse. In my experience, these are households earning between $4 and $30 a day, which face frequent, low severity risks, such as a short-term hospital stay, a stolen mobile phone or motorbike, the loss of cattle, or a deficient crop yield. Individually, these events may seem insignificant, but their impact on a vulnerable household can be devastating. The loss of assets or a week without income can push affected households into debt and a long-term cycle of economic struggle. When viewed cumulatively at the community or national level, these events can hamper economic growth by gradually sapping the health, wealth and productivity of workers and consumers.

Trying to retrofit legacy products, processes and models into this context almost always leads to a mismatch. Conventional insurance business models often feature products, processes and pricing models that have barely evolved in decades. This insurance is typically viewed as unaffordable, unavailable and inaccessible for buyers outside its mainstream target market, and it does little to address the immediate and everyday uncertainty they experience. What is needed instead are purpose-built monoline products that focus on one clearly understood risk at a time, delivered through “lean” processes and supported by technology to enable large-scale adoption. For example, such a product might cover the risk of death, and be delivered via an app or even a text message, requiring just a simple yes/no click to opt-in.

But importantly, inclusive insurance is not charity or corporate social responsibility by another name. I have seen numerous NGO-run, subsidised schemes that provided short-lived relief only to disappear once external funding ended, leaving behind no trust, no infrastructure and no habit of insurance use. Viewed as a business in itself and done properly, inclusive insurance is a commercial proposition that relies on scale, data and the law of large numbers to drive accurate pricing.

A different business requiring a different approach

Inclusive insurance is not just a product challenge; it is an entirely different business model, often operating within informal economies, low literacy environments and complex cultural contexts. Understanding these operating contexts is one of the key ingredients to successfully building a scalable and profitable inclusive insurance business.

Several myths persist when it comes to providing inclusive insurance in LMICs. One is that insurance’s complexity as a product requires it to be (aggressively) sold rather than (voluntarily) bought. Another is that it’s always about the price: the lower the price, the higher the take-up. And another is that distribution alone drives success, and other components of delivery are not essential.

The shifting landscape in these markets has made each of these beliefs outdated.

Nowadays, people in emerging markets engage confidently with digital services. Mobile money, e-commerce platforms, and ride-hailing and social media apps have achieved mass adoption among users with limited formal education. For example, a recent GSMA report states that there are now over 2 billion registered mobile money accounts worldwide, with usage growing for payments, savings, transfers and more. One reason for this uptake is that the providers of these services made their products and processes accessible to the target market rather than expecting consumers to self-educate. A similar approach can be applied to insurance. I have reviewed successful non-insurance digital financial products in LMICs and found four common themes: These products are easy, relevant and fulfilling, and they offer good value for the money. When we applied these themes in our inclusive insurance work at MicroEnsure, my colleagues and I were able to scale insurance to first-time buyers in the same emerging markets that had adopted non-insurance digital services, without the need for aggressive sales tactics.

Customers’ perception and insurers’ processes around claims are a point where the difference between traditional insurance and inclusive insurance becomes most visible. In inclusive insurance, price is often less important to customers than the reliability and ease of the claims process. As a result, for insurers, claims are not merely a loss or at best a cost to be contained: They are a way to build trust. A timely and transparent payout, especially in a community setting where people have limited experience with insurance, can quickly inspire awareness and trust. One positive claims experience, as I have seen in my experience marketing inclusive insurance, can generate dozens of new customers through word-of-mouth, and providers can further amplify this by promoting claim stories on social media. In this context, high-volume, low-value claims serve as a growth engine.

Finally, insurers whose distribution approaches ignore end-to-end delivery often struggle — even when working with large consumer brands to facilitate greater reach. This sort of partnership has been successfully leveraged in traditional insurance, for instance, when mainstream insurers partner with banks to sell policies to their wealthy customers, with the bank — a financial “supermarket” — viewed as the distributor, and minimal sales tactics and follow-up required by the insurer. It is also a common feature of inclusive insurance, as seen when insurers partner with telecom operators to offer products to their millions of subscribers. But in this sort of partnership, when done correctly, the telecom operator is not a distribution channel but a delivery partner. Delivery goes beyond distribution: Effective delivery requires continuous collaboration for customised products and user journeys, data analytics and insights, joint education and awareness campaigns, multiple distribution channels, and clear post-sale engagement. This matters because misunderstanding the difference between delivery and distribution is the most common reason why insurers fail to scale their partnerships with telecom operators. If an insurance provider signs a partnership with a telecom operator and views it as a passive distribution channel rather than an ongoing, joint effort to provide end-to-end delivery, it will likely struggle to get meaningful sales.

Technology as an enabler to scale

For inclusive insurance, technology can be the single most important enabler because it fundamentally alters the economics of scale. Telecoms, digital platforms and mobile money ecosystems, each serving tens of millions of users, offer strong infrastructure for insurance enrollment, premium collection and communication. The post-COVID acceleration of technology adoption has only reinforced this shift, making digitalisation the foundation for large scale adoption.

More importantly, technology — especially emerging technologies like AI or blockchain — enables new and unconventional forms of insurance interventions. On-demand insurance, usage-based pricing and parametric triggers turn insurance into a tangible, dynamic and timely service. For the largest and fastest-growing buyers group, digitally-native youth represented by Millennials and Gen Z, this creates the opportunity to reposition insurance from an uncertain “if” to a practical “when.”

Yet despite these innovations, inclusive insurance in emerging markets cannot scale in isolation. Collaboration with insurers in developed markets is essential, as they have more experience and knowledge in the sector. But too often, Western insurers approach emerging markets with a replication mindset, exporting their usual products, models and assumptions, regardless of whether they fit the local contexts. The result is poor uptake, low scale and eventual withdrawal — along with a missed opportunity to treat insurance inclusion as a long-term commercial business venture.

Opportunities for synergies are strong. Micro-insurer licences with small capital requirements in many jurisdictions provide an entry point for experimentation and learning. Partnerships with local players offer mature firms contextual insight. And the global reinsurers that play a key role in providing the underwriting capacity for inclusive insurance gain access to diversified risk pools and invaluable data about underserved populations. These partnerships also enable capital from developed markets to bridge the gap that LMIC-based insurers face between short-term pilots and sustainable scale over the mid- to long-term.

The opportunity, therefore, is mutual: Emerging markets insurers gain attention, technical expertise and capital, while their partners in developed markets gain better insights, growth, diversification and relevance in a changing global risk landscape.

Turning lessons into action

Inclusive insurance is not a niche, nor is it a temporary experiment. It represents the future of insurance in a world where billions confront climate volatility, health shocks and income insecurity. I have seen multiple models and products work in different markets, and multiple successful pilots. The challenge now is to connect these efforts, align incentives and scale them with intent. If we do, inclusive insurance can move from the margins to the mainstream, strengthening households, markets and economies in the process.

Progress will depend on three shifts:

• First, recognise inclusive insurance as a significant opportunity requiring a unique approach;
• Second, use technology to reduce friction and build trust rather than merely digitising old processes; and
• Third, foster genuine collaboration between emerging and developed markets to co-create solutions, rather than simply replicating solutions because they worked in a different context.

For entrepreneurs and insurers, this means starting small, learning fast and scaling patiently. For policymakers, it entails viewing insurance as an item of infrastructure, and embedding it into broader social protection and resilience frameworks. Finally, for global insurers and investors, it means engaging with emerging markets as partners in innovation.

Rehan Butt is the Founder and CEO of Instaful Solutions.

Photo credit: PeopleImages