Technology and innovation: tools to help close the protection gap in microinsurance markets

Technology continues to transform insurance in developed and emerging markets alike. The dramatic increase in the volume, granularity and timeliness of data – plus the ability to share and analyse it – have opened up opportunities for the insurance sector to serve its customers better, faster and more comprehensively.

As examples, the use of satellite data and other platforms to facilitate parametric (index-based) insurance is transforming the mechanics, deployment and risk-management role of insurance globally. Satellite technology allows for a more effective means of gathering data on certain types of risks that affect individuals in both emerging and developed markets. In addition, the proliferation of mobile phones allows insurers to connect directly with a greater number of new market participants, reaching previously uninsured or under-insured populations, and thereby enhancing resilience.

But technology is only a tool. It does not transform unaffordable or ill-suited insurance products into attractive, highly sort-after insurance products. And technology can only be used where it is available; where customers have the means, knowledge and confidence to use it, and where its use is compatible with existing laws and regulations.

For those most at risk in emerging markets, technology can help develop and deliver insurance solutions to close the global protection gap. This paper follows the publication of a similar paper last year by the IDF on the use of technology in connection with sovereign and sub-sovereign risks. In the preparation of that paper, we recognised that there were some unique issues surrounding the use of technology and micro-insurance which deserved separate examination.

By micro-insurance, we mean insurance products which are suitable for individuals or households making between USD$2.00-$20.00 per day on a purchasing power parity basis.

Accordingly, this paper seeks to address this market segment, i.e., the lower end of the economic spectrum, while also including the important emerging middle class in many markets. It also seeks to highlight and discuss the issues that will help determine success or failure in addressing this market, including the role of the public sector and of laws and regulations in supporting the development of tech-enabled solutions. Throughout this document, we will illustrate various challenges faced in adopting existing law and regulation, or regulatory architecture to emergent technologies, while including examples of innovative regulatory responses.