Importance of Insurance in Financial Inclusion

Uninsured risk has devastating consequences on future generations and constraints their entrepreneurial potential. However, in many developing countries, the insurance industry is not yet fulfilling its potential. 

Policy makers need to understand the insurance needs of low-income households and ensure that policies facilitate the market-based provision of microinsurance. They can engage the insurance industry and other actors—such as unregulated insurers and networks—in a dialogue on microinsurance and involve them in educating the market and promoting microinsurance.

Government can consider treating microinsurance products differently than commercial products for tax purposes. Increasingly, central banks and finance ministries have become engaged in promoting financial literacy, as low levels of information and trust are probably the biggest barrier to uptake of insurance among low-income populations