Inclusive Insurance in the Central and Eastern Europe and the Transcaucasian (CEET) region - Challenges and Opportunities

Appropriate risk management including insurance plays a key role in economic development. Insurance solutions addressing the specific needs of low-income consumers, as well as micro- and small and medium-sized enterprises, have the potential to promote resilience and support sustainable growth in terms of income and well-being. Analysing market barriers and opportunities, and determining what should be done to support market development, were the goals of a digital conference on inclusive insurance in the CEET* region that concluded on 2 September 2021.

*According to the IAIS classification: Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Israel, Kazakhstan, Kosovo, Kyrgyzstan, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Tajikistan, Turkey, Turkmenistan, Ukraine, Uzbekistan

The concept of microinsurance, or inclusive insurance as it is more frequently called, has attracted increasing interest, especially in developing countries in Latin America, Asia and Africa. However, inclusive insurance is still in its infancy in the 31 countries of the CEET region and not a top priority for key stakeholders including the insurance industry and supervisory authorities. The insurance markets in the region are highly diverse in terms of their size, concentration, and level of maturity­ - the insurance penetration ranges from 0.75% in Armenia to 5% in Slovenia. Overall, insurance penetration in the region is estimated to be three times lower than the European Union average.

Market characteristics

The CEET insurance industry is dominated by the non-life sector. Life insurance plays a less significant role and is still fairly undeveloped, excepting a few EU jurisdictions. Motor insurance remains the main business segment in CEET, accounting for 53.4% of the non-life insurance premiums. Taken together, the top five markets in the region account for about three-quarters of the regional non-life business (Based on the a2ii report on the Inclusive Insurance Regulatory Landscape in the CEET Region). None of the 31 countries in the CEET region has a specific inclusive insurance regulation or an established definition for microinsurance/inclusive insurance.

However, products intended to address the needs of low-income markets are available in 11 countries, with agriculture being available in eight countries (See Figure 1). This is particularly interesting, since microinsurance is usually dominated by credit life. With nearly 40%, insurance agents make up the largest share of the regional gross written premium volume. Web-based distribution (internet) only accounts for 2%.

Type of inclusive insurance/microinsurance and number of jurisdictions

Source: Report on the Inclusive Insurance Regulatory Landscape in the CEET - 2021

Developing a national financial inclusion strategy is an important step for inclusive insurance. Examples from the Philippines and Zambia show that a joint effort on the part of the insurance industry, donors and supervisors can accelerate market development. However, according to the study, of the 31 countries in the region, only three (Albania, Kazakhstan and Lithuania) plan to develop or have already sought to develop a strategy for an inclusive insurance market , while another 10 have developed NFIS.

Agriculture and climate risks play a key role

Managing climate risks is becoming increasingly important, since agricultural income still plays an important role for many countries in the region. The agricultural sector accounts for over 12% of the total export in Northern Macedonia and over 19% in Serbia. In both countries, nearly one out of six jobs is in the agricultural sector. However, there is no established “insurance culture” and one of the main barriers to its development is the ex-post direct compensation from government sources, based on political priorities. Government payment losses are inferior compared to the efficiency, speed and cheaper service offered by insurance. At the same time, insurers in the region still reach for the low-hanging fruits. However, experts agree that subsidising agricultural insurance would help to improve its affordability.

Furthermore, according to the chairman of the Georgian Insurance Association, qualified claims management and reliable data remain a key challenge in the provision of agricultural insurance solutions. A reliable enabling regulatory environment, together with corresponding education, would be an important step toward market development. In light of the small size of many countries in the region, reaching scale while simultaneously reducing costs remains a major challenge. Harmonising regulations, as well as the development of insurance pools and even multinational approaches, would make it possible to sell the same product across different countries to achieve scale.

The challenge of making insurance digital and understandable

The recent pandemic has boosted digitalisation in all areas, including distribution, claims management, and customer engagement. However, insurance remains a product that needs to be explained and is still difficult to understand, especially for those who were never insured before. The digital transformation of inclusive insurance requires a holistic approach, which includes having the right products that create value for the customer, taking the consumer perspective into account when creating digital applications to make them easy to use, a “digital-friendly” approach to regulation, availability of data, and investing in education. The results of a survey conducted in Bulgaria clearly show that higher levels of insurance literacy result in higher trust in and use of insurance. The language used must be tailored to the target audience, which could also be part of consumer protection regulations, as an example from South Africa shows.

The way forward

Inclusive insurance could be a win-win situation for consumers, the insurance industry, government, and societies in the CEET region, while creating resilience and sustainable economic growth at the same time. Raising insurance awareness and eventually establishing an insurance culture is key. Insurance for the low-income and under-served is still in its infancy in the region, but some insurers as well as supervisory authorities have shown interest in exploring opportunities for market development further. Regulators have to take on the task of being dynamic and open for innovation but also prudent when designing a regulatory environment for inclusive insurance. Given the growing number of severe natural disasters, governments should acknowledge the role of the insurance industry in terms of providing efficient risk management tools and invest in PPPs as well as international collaborations. Digitalisation has the potential to increase affordability, which is still one of the key criteria for insurance take-up. But most importantly, insurance needs to be tailored to the customer’s needs in order to create value.

The interest in this conference exceeded the organisers’ expectations, clearly showing that inclusive insurance is also an important topic for the CEET countries. This has encouraged the organisers to support further discussions on inclusive insurance in the region in the future.

About the event

The 2021 Conference on Inclusive Insurance in the CEET Region was hosted by the Munich Re Foundation, the Access to Insurance Initiative (a2ii), the International Association of Insurance Supervisors (IAIS), the Microinsurance Network and the Insurance Supervisory Agency of Slovenia (AZN). 188 participants from 44 countries attended the conference.

14 September 2021 - Dirk Reinhard, Vice Chair, Munich Re Foundation; Klime Poposki, Associate Professor, University of St. Kliment Ohridski, N. Macedonia