As is the case with most developing countries, increasing the uptake of insurance in the Pacific is a significant challenge, due to a limited understanding of the value proposition of insurance.

With over 80% of the adult working population in the Pacific operating in the informal sector and insurance providers primarily focused on corporate clients and high-net-worth individuals, the options to get access to appropriate and affordable insurance for people with a low income are limited, but this is changing. UNCDF’s Pacific Financial Inclusion Programme (PFIP) has been working with insurance providers in the Pacific to develop innovative insurance products that now have provided thousands of pacific islanders with insurance coverage.

In Fiji, the bundled microinsurance product from FijiCare and BIMA's low cost mobile microinsurance have radically changed the insurance landscape. Insurance coverage has grown from 12% in of the adult population in 2015 to 19% in 2017. Moreover, with almost 120,000 additional customers that FijiCare has onboarded earlier this year, this is about to surpass 40% of the adult population.

This month, #UNCDFExpertsChat spoke with Mr Michael Carr, PFIP’s Regional Inclusive Insurance Specialist to learn how insurance is making new inroads in the Pacific region and discuss its potential to increase the resilience in communities and businesses that are at the forefront of the impact of climate change. Michael has almost 30 years of experience in financial services, insurance and international development work. He has worked in over a dozen of countries and holds qualifications in Business Management, Economics, Development Studies, Financial Services and is a Fellow of the UK's Chartered Insurance Institute.

#UNCDFExpertsChat: How does PFIP assist innovation in the insurance sector?

Michael Carr: The insurance providers we work with are typically from the private sector. Although many have corporate social responsibility objectives, they have investors and boards to answer to and are ultimately driven by a profit motive. PFIP provides technical assistance and grants to help these insurers to reengineer their operating models and launch new insurance products and services. Our grants fund investments in new technologies that help providers adopt new business processes to reach consumer segments that are currently underserved, including those in the informal economic sector. In summary, PFIP’s support ‘de-risks’ these sorts of investments in innovation. It raises the probability of innovations being successful and encourages providers to try new things, supply new products, serve new customers, and use new distribution channels. All these things can boost financial inclusion and get more people in the formal financial sector and protected.

#UNCDFExpertsChat: What are the key lessons learned from PFIP’s implementations in the insurance space so far?

Michael Carr: We have learned a lot on what works well and should be replicated in future projects. Some examples are from the Fiji industry consortium bundled microinsurance project. We found out that getting a range of insurance companies to agree on common policy wording, one distribution model, and business processes that all could sign up to, was basically not working and too difficult to do. Different insurers have legacy systems and business processes. They have variable risk appetites and capacities to take on new types of risks. Some solutions that were operationally and financially feasible for some insurers, were not accepted by others. For that reason we changed the approach and started working with those individual insurance companies that have the most appetite for innovation.

When looking at what worked well, reaching insurer agreement and support on the approach and content of a national insurance awareness campaign, proved easy to achieve, and all insurers got behind the awareness campaign, which proved to be highly effective.

Another key lesson to remember is that microinsurance can make an important difference to the fulfilment of a country’s National Financial Inclusion Plan.

#UNCDFExpertsChat: What are the limitations of microinsurance

Michael Carr: The stated G20 goal is to put an additional 400 million people under insurance protection globally, of which 100 million constitute the microinsurance target. A challenging goal. It’s acknowledged that microinsurance can help to ensure that vulnerable populations are better able to deal with the financial consequences of some natural disasters for example. However, the reality is that most private sector insurance companies are not interested in microinsurance, either because they cannot see a viable business model, they lack the necessary expertise and experience, or the opportunity costs put a spanner in the wheel as they have better commercial opportunities to invest in. Microinsurance cannot be a panacea for all risks and for many development challenges. It has value but also has limitations. There are some risks that are simply too difficult or expensive to deal with using microinsurance and this is where other types of risk transfer mechanisms and financing solutions are better suited to handle these.

#UNCDFExpertsChat: How do you see new technologies impacting the insurance sector?

Michael Carr: There’s a lot of potential to improve things by using new technologies, platforms and applications. There are still many untapped opportunities to use the promise of ‘insurtech’, ‘opstech’ and ‘regtech’, to use the current buzzwords, and to better digitally connect customers, intermediaries, insurers, supervisors and others in the insurance industry ecosystem.

Arguably parts of the insurance sector are conservative by nature. A regulated sector, shaped by industry incumbents with legacy systems and procedures for its sales and administration is now being challenged to embrace digitally based solutions. Increasingly we are seeing providers moving to use new technologies and applications that allow more agile business models to emerge. We’ll see more deployments of digital based insurance products, services and delivery channels. PFIP will be part of that journey and work with providers to reduce the risks associated with this type of development work. In fact, to help stimulate these sorts of changes PFIP will be organizing a FinTech Challenge together with our colleagues from Malaysia. We are aiming to promote creative solutions that can tackle customer ‘pain points’ and other barriers that exist. We’re hoping to see new solutions emerging that allow insurance providers to process information more easily and cost effectively, that allow customer enrollments to take place more quickly, insurance policies to be issued faster and claims to be processed and paid more speedily. Gradually more insurers are recognizing that they need to change the connection they have with their customers from a transactional based one, based on a more engaging that delivers improved service and better value.

#UNCDFExpertsChat: What plans exist for scaling up microinsurance in the region?

Michael Carr: PFIP has partnered with FijiCare Insurance on a plan to scale up its bundled microinsurance product regionally. We have presented insurance companies with new approaches to scaling insurance and met with regulators. There are a number of tools that can be used, for example regulatory dispensations, use of ‘no-objection’ letters, proportionate application of regulations, and in the case of Fiji we are in the process of creating a regulatory sandbox. It’s expected that FijiCare’s regional scale up will start in Vanuatu as FijiCare already has a subsidiary company there. PFIP will also support country assessments and roll out plans to take the insurance into other countries.

Together with our colleagues from UNDP we are also in the process to support our insurance stakeholders to develop parametric or index-based insurance schemes. Under conventional insurance assessing this loss can be a costly process, which becomes unfeasible when working with a large number of smallholder farmers. A solution to this is weather index-based insurance. Under this type of insurance, the loss depends on an objective measured parameter (for example rainfall or windspeeds) recorded during an agreed time.

#UNCDFExpertsChat: What can we look forward to in the future of insurance sector?

Michael Carr: The future is positive. We can expect more Pacific Islanders being protected for the first time in their lives in the years ahead. Within the remaining period of the programme we’ll continue to work with insurance regulators, insurance providers and others who are interested in deepening insurance markets.

We’re also keen to share our expertise within the wider UNCDF community, as we believe that many of the approaches and solutions that we have worked on during these years in the Pacific are equally applicable in the other regions where UNCDF works.

About PFIP

PFIP is a Pacific-wide programme that has helped over 2 million low-income Pacific islanders gain access to financial services and financial education. It achieves these results by funding innovation in financial services and delivery channels, supporting policy and regulatory initiatives, and empowering consumers.

PFIP operates from the UNDP Pacific Office in Suva, Fiji and has offices in Papua New Guinea, Samoa and Solomon Islands. It is jointly administered by the UN Capital Development Fund (UNCDF) and the United Nations Development Programme (UNDP) and receives funding from the Australian Government, the European Union and the New Zealand Government.