Insurers must ensure their products, financial promises and its conditions are transparent and clearly understood by consumers, the Deputy Governor of the Reserve Bank of Fiji, Esala Masitabua, told a major international conference on insurance last month.

The Deputy Governor’s comments point to an ongoing challenge in insurance industries across the world, but one that is more acutely felt in developing markets like the Pacific Islands.

Mr. Masitabua was speaking at a pre-conference workshop leading up to the International Conference on Inclusive Insurance (ICII) in Kingston, Jamaica.

He highlighted Fiji’s first climate risk parametric micro-insurance product as an example of how Pacific countries are developing fit-for-purpose, self-help solutions to help communities cope with the adverse impacts of extreme weather events.

The product was developed and launched in 2021 by the UN Capital Development Fund’s (UNCDF) Pacific Insurance and Climate Adaptation Programme (PICAP), which is jointly implemented with the UN Development Programme and the UN University Institute for Environment and Human Security (UNU-EHS).

The Programme is supported by the Governments of Australia, New Zealand and Luxembourg. The Fiji component is additionally supported by the India-UN Development Partnership Fund, administered by the UN Office for South-South Cooperation.

Mr. Masitabua said: “In the ‘Programme of Many Firsts’, we (RBF) facilitated a product pilot and testing in our regulatory sandbox, assessed and approved product submission by two insurers offering the product, included modules on insurance, specifically parametric insurance, in our financial literacy training and awareness sessions, and lobbied Government for subsidy [in the form of] VAT exemption.”

The workshop, co-hosted by UNCDF, the Access to Insurance Initiative and Risk Shield Consultants, unpacked the ‘2022 Index insurance best practices for insurance regulators and practitioners in the Pacific Island countries’ study.

Index insurance is an emerging product type that insures policy holders against pre-determined trigger events – such as tropical cyclones or a minimum level of rainfall – instead of actual physical losses.

With no need for damage assessments and quick processing of pay-outs, index insurance is gaining prominence as an important disaster risk reduction financial tool among Pacific Small Island Developing States (PSIDS).

Workshop participants were separated into groups and asked to discuss key topics such as insurance claims settlement, distribution channels, marketing and premium subsidies.

Each group donned a different hat of an insurance regulator, insurance company or Ministry of Finance official, allowing them to engage more deeply with the content and discuss cross-cutting issues in an interactive manner. The underlying theme that emerged was ‘client understanding is very important to provide client value.’

Key ideas presented by the participants include:

Insurance literacy: There needs to be clear communication on basis risks – defined as the risk that insurance payouts do not fully cover the cost of the claim event - when providing index insurance coverage. Customers need to be made aware about what an “index” means and how payouts will be made when an index is triggered. Governments can also support general insurance literacy and raise awareness on index insurance.

Pricing: Governments can support index insurance products by providing premium subsidies and tax incentives for those that cannot afford it. Customers must be advised beforehand on what are the exact costs that are involved and if any costs must be paid to intermediaries.

Marketing: Appropriate training and guidance must be given to the marketing teams on index insurance products. It is vital to include contact details in the marketing materials for customers that have any queries, feedback, or complaints. Collecting feedback from the community is essential because it allows the community to become part of the development process and helps improve product offerings.

Distribution: Costs and partnership risks are key factors to consider when choosing distribution channels. Distribution channels refer to the methods insurance companies use to sell their products – for example, through licensed insurance agents. As an insurer, it is important to explore which distribution channels are active aggregators in the market, who are its prospective customers, how easy is it to work with the distribution channels and how many customers can the distributors handle.

There were discussions on the benefits and drawbacks of subsidies and how they tend to draw scepticism.

On this theme, participants heard from UNU-EHS researchers about a social protection project in Fiji, in collaboration with UNCDF, that provided insurance coverage to 274 social welfare recipients last year. The premiums on these products were subsidised by the Fijian Government, which has agreed to expand the scheme to cover an additional 2,000 beneficiaries in 2022/2023.

These discussions highlight the critical role targeted and consumer-responsive insurance products can play in protecting the most vulnerable against the ravages of extreme weather events.

You can access the full videos of the workshop on the ICII website and learn more about our programme on the UNCDF page.