Page 23 - The Insurance Times October 2024

Bridging the Protection

Gap: Strategies to Reach

the Bottom of the

Pyramid in Inclusive

Dr. Rakesh Agarwal
Insurance Editor, The Insurance Times

Secretary General
Risk Management Assocation of India

As global attention increasingly shifts towards financial inclusion, insurance coverage for low-
income populations, often referred to as the "bottom of the pyramid" (BoP), has become a central
issue. Despite strides in inclusive financial services, a significant protection gap still exists for
vulnerable communities in developing countries.

A s global attention increasingly shifts towards fi- for low-income populations is affordability. Many of these

individuals live on daily or fluctuating incomes, making it
nancial inclusion, insurance coverage for low-
income populations, often referred to as the difficult to afford traditional insurance premiums, which are
"bottom of the pyramid" (BoP), has become a typically structured for middle- or high-income markets. As
central issue. Despite strides in inclusive financial services, a result, insurance often remains out of reach for those who
a significant protection gap still exists for vulnerable com- need it most. Even microinsurance products, designed spe-
munities in developing countries. Millions of people remain cifically for low-income users, can be seen as too costly if
without access to adequate insurance protection, leaving premiums are not matched with the financial realities of the
them highly susceptible to financial shocks such as health market.
crises, natural disasters, and income loss.
2. Financial Literacy
This blog investigates the structural barriers preventing low- Low levels of financial literacy also limit the uptake of insur-
income populations from accessing insurance, explores suc- ance in vulnerable communities. Many BoP individuals do
cessful case studies from developing nations, and offers not fully understand how insurance works, including the
policy recommendations for scaling microinsurance to bridge benefits it offers or the mechanics of filing claims. In addi-
the protection gap by 2024. tion, misconceptions and mistrust toward financial institu-
tions, often rooted in past negative experiences, further
Understanding the Protection Gap prevent potential clients from engaging with insurance pro-
The insurance protection gap refers to the difference be- viders.
tween the total amount of insurance coverage available and
the amount that is economically necessary to cover poten- 3. Access to Financial Infrastructure
tial risks. For BoP populations, this gap is particularly pro- In many developing countries, formal financial services, in-
nounced due to a variety of structural barriers, ranging from cluding insurance, are limited in rural and underserved ar-
affordability to financial literacy and regulatory hurdles. eas. The absence of local branches, agents, and other in-
frastructure makes it logistically challenging for insurance
1. Affordability companies to reach BoP populations. Furthermore, even in
One of the most significant barriers to insurance coverage regions with some infrastructure, traditional documentation

The Insurance Times October 2024 21