Speaker: Rangam Bir – Transformational Business Leader and Board Member of The Malaysian Insurance Institute
Financial inclusion is the availability and equality of opportunities to access financial services. It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, lending, equity, and insurance products.
Contrary to popular belief, technology alone cannot solve the financial inclusion problem. For instance, in Indonesia, 75% of the population owns a mobile phone. But less than a fraction of the population has credit cards, and only half of them have bank accounts. This is a challenge that needs to be addressed.
And the pandemic has only exacerbated the financial inclusion problem because, in its aftermath, there are:
- rising inequality and poverty
- increasing inflation
- supply chain disruption (limited supplies push up the prices for technology and personal mobility)
- rising interest rates
- increase in gig economy workers and changes in the structure of employment
As a result, less money is being spent on people’s insurance protection needs. But the silver lining is that COVID-19 has also led to the digitalization of financial services, providing the much-needed opportunity and tools to address the financial inclusion challenge.
COVID-19’s Impact on Financial Inclusion
- In 2021, the average income of people in the bottom 40% of the global income distribution was 6.7% lower than pre-pandemic projections.
- The global poverty rate increased from 7.8% to 9.1%, with 97 million more people living on less than $1.90 a day and 163 million more living on less than $5.50.
- Globally, three to four years of progress towards ending extreme poverty are estimated to have been lost.
- The effects on small and medium-sized enterprises (SMEs), especially those in the informal sector and those led by women, have been particularly severe.
The Rise of the Gig Economy
A survey of HR leaders found that about one-third of the organizations will be replacing 30% of their full-time employees with contingent workers. And with gig economy workers falling outside the realm of traditional employment, they face significant challenges in:
- Access to traditional financial services without solid credit histories and stable incomes
- Access to credit and supplementary facilities
- Insurance, health, and pension protection
2025 Financial Inclusion Trends
- The rapid expansion of integrated digital financial services beyond payments.
- Strategic investments to reduce the digital divide.
- Digital identity, data & security to drive financial empowerment.
- Infrastructure investments into national digital stacks for balanced and equitable benefit transfers.
- Focus on transparency to protect the interests of financially vulnerable customers.
- Expansion of financial literacy, education, and consumer protection.
Shared principles for an inclusive financial system
- Inclusive by design – Make sure there’s maximum insurance coverage for people and businesses, giving everyone equal opportunities.
- Integrated system – To leverage the full force of the financial system, use an open architecture and achieve interoperability with open APIs and standards.
- Digitally led and economically sustainable – Use technology to enable innovation for sustainable economic development.
Inclusive by design for the customer
- Create products relevant to the customers; don’t retrofit existing high-margin, complex products. Think in terms of propositions, not insurance products. Forget the traditional KPIs.
- Think customer value, sustainability, risk margins, and pricing over absolute revenue growth, profit margins, and average ticket size.
- Redesign the entire proposition, from access, product, advice, packaging, and pricing to underwriting and service. Offer easy, convenient, remote, and real-time access to insurance products. Provide relevant and no-frills insurance propositions.
- Know that retrofitting traditional insurance products does not serve customers with affordability and non-regular income concerns. Reverse-engineer premiums rather than fixing the premium and asking the customers to pay for it. Ask the customers to decide their own premiums and tailor insurance product offerings accordingly.
- Offer simple, relevant, targeted products that are not gimmicky and superfluous to address customer needs. Deliver a frictionless, transparent customer experience with low-cost transactions to build trust.
- Take advantage of ecosystems and partnerships because they enable customer propositions that can generate and bring about greater value for money. Leverage data, analytics, and automated recommendations to help customers make informed decisions in an integrated rather than segregated manner.
Cutting the cloth according to size
Learn to focus on:
- Building the segment of One – Individual insurance solutions & individual risk-based dynamic pricing
- Flexible, adjustable, and customizable-over-lifetime policies
- Offering commitment flexibility – Pay As You Earn
- Leveraging Big Data/Artificial Intelligence (AI)/Machine Learning (ML) for real-time risk profiling, underwriting, and pricing
- Providing automated and event-triggered benefit settlements
- Regulatory partnerships and engagement to drive change
Simple advice empowers the customer
- Financially vulnerable customers have the greatest need for simple advice on financial planning.
- Lack of access to advice is a big barrier to financial empowerment.
- As digital finance has expanded, the democratic availability of reliable and trustworthy advice has receded.
- Disintermediation doesn’t have to mean “No Advice.”
- Simple financial advice regarding the appropriate level of savings, debt, protection, and retirement can be delivered by leveraging a broad spectrum of digital technologies.
Thus, financial inclusion is a 2 billion opportunity because 2 billion people need to be served globally. And digital financial services can provide low-income households access to affordable and convenient tools for economic empowerment. But, beyond the cool technology, it requires real solutions – the thought process, mindset, etc. Technology is merely an enabler.