Just One Tool In The Toolbox: How We Can And Must Design Integrated Insurance Solutions To Build Resilience

Author: Craig Churchill, ILO.

On March 12th, e-MFP was pleased to launch the European Microfinance Award (EMA) 2025 on ‘Building Resilience through Inclusive Insurance’. This is the 16th edition of the Award, which was launched in 2005 by the Luxembourg Ministry of Foreign and European Affairs, Defence, Development Cooperation and Foreign Trade, and which is jointly organised by the Ministry, e-MFP, and the Inclusive Finance Network Luxembourg (InFiNe.lu), in cooperation with the European Investment Bank. This year, e-MFP is also delighted to welcome as a strategic partner our friends at Microinsurance Network (MiN).

In this 5th piece in a series of blogs that we’ll be running throughout the year on this topic, Craig Churchill, head of ILO’s Impact Insurance Facility, argues that driving insurance uptake must be secondary to its real purpose – building resilience – and that this can really only be achieved with a holistic approach, leaning on integrated solutions that bundle insurance with other products.

 Farmers participating in the National Agriculture Insurance Scheme in Rwanda meet with representatives from the insurer Radiant Yacu.

When I first heard that the theme for this year’s European Microfinance Award was insurance, I must admit that I had mixed feelings.

One the plus side, I have been working on this topic since the last century, so it is nice that is finally getting some recognition. Often insurance is an afterthought, only surfacing in the financial inclusion conversation once discussions about savings and credit have been exhausted. So for insurance to be the focus of this prestigious award, it somehow validates the work that the International Labour Organization has been doing on inclusive insurance over the years.

My enthusiasm was tempered somewhat, however, because I would have preferred for the emphasis to be on the first half of the award title – building resilience. This is really the objective, isn’t it? The development community is talking about insurance not because we want more low-income households to be paying premiums, but because we want them to be better protected. Insurance can certainly contribute to this agenda but so do other financial and non-financial services.

I think the real excitement, and impact, occurs when we bring together a toolbox of services to solve specific problems. The European Microfinance Award did that in 2019 when it looked at how the financial inclusion community was innovating to help solve the climate change crisis. It did it again in 2021 when it considered how financial service providers (FSPs) could contribute to improved health outcomes. In both cases it was clear that insurance can play an important role, but it is just one tool in the toolbox.

So while I am keen to be talking about insurance, and to learn about the exciting innovations that are occurring across the globe, I am even keener to understand how they are building resilience and reducing the vulnerability of the working poor. To do so, I believe FSPs need to take a holistic view of their clients’ risk management needs and design a package of financial and non-financial services that can address those needs appropriately. Based on some work that the ILO has been undertaking in recent years, I want to highlight a few of the lessons that we have been learning.

Anchoring The Solution On Savings

The starting point with any effort to provide protection is to ensure clients are enrolled in the relevant social security schemes. Then financial services can fill in any gaps around what is provided by the government. We often see this with national health insurance schemes that cover much of the treatment costs, and then inclusive insurance being used to provide per diem benefits through a hospital cash product, or to cover co-pay costs or pharmaceuticals.

To fill these gaps, FSPs could offer the various elements – savings, insurance, emergency loans and financial education – as separate, standalone elements. Alternatively, they could explore ways of integrating them to provide a more comprehensive risk management solution. This approach may facilitate marketing and administration for the FSP, while providing solutions that enable low-income households to rely on low and medium stress coping mechanisms.

Building integrated solutions relies on using savings as an anchor, which has three main advantages over credit as the entry point. First, most people need savings and hence savings-linked products can appeal to a wider pool of clients, not just the subset of people who borrow money. Second, savings products typically have a longer duration, providing a platform for FSPs to offer more permanent protection and build customer loyalty. If loans were the anchor, what would happen when the loan term ends if the client is not ready to re-enrol immediately? Third, taking a loan is risky for borrowers to begin with, so it is incongruent to think that a risk-management solution could be built on a risk-taking activity.

Hence, combining products that allow households to turn assets or equity into cash may be an appealing solution. For example, rather than drawing down on a contractual savings account during a time of need, people may prefer to borrow using their accumulated savings as collateral. Bundling an emergency loan product with a contractual savings account allows clients to cover small expenses and smooth consumption, although these need to be managed carefully to avoid over-indebtedness.

Where Does Insurance Fit In?

Insurance then fits into the discussion to cover risks resulting in large expenses that cannot easily be covered out of savings and emergency loans. The death of a breadwinner certainly falls into this category, as do major disruptions to livelihoods, perhaps caused by droughts or floods, fire or theft. The business model for stand-alone inclusive insurance products can be challenging, which is why insurance is often bundled with another financial service – with loans, savings accounts or payments. As mentioned above, in the interests of building resilience, linking insurance to savings is likely to be the most impactful.

Focus group discussion held in Abidjan, Côte d’Ivoire, with potential inclusive insurance clients, as part of the Impact Insurance Facility’s training on 'Market Research for Inclusive Insurance.'

But bundling insurance comes with its own challenges that need to be addressed. Since people are often not seeking out insurance but rather are getting it along with their savings account (or their loan, or their agricultural inputs, or their cell phone minutes), they may forget that they have it. So when insurance is bundled, extra effort is required to ensure that the persons covered (or their beneficiaries) know what is covered and know how to claim.

Design Considerations For Integrated Solutions

The process of providing integrated risk management support to low-income households, small businesses and the working poor is not easy. The following are some design considerations that FSPs need to keep in mind when offering such solutions:

• Mix and match. Financial institutions should complement what is available from the government and from social service providers with financial services that manage risks. The starting point is to enrol in whatever government programmes are available and targeted at the population in question.

• Savings partnerships. Not all financial institutions are permitted to mobilise deposits. For example, to offer integrated risk management solutions, microcredit NGOs will need to partner with organizations that can take savings, like banks or mobile network operators (MNOs). When considering prospective partners, it is essential to assess the levels of service that they are willing and able to provide. If the process of making deposits is not seamless, then it will be difficult for low-income households to amass any significant sums. Plus, if the partnership results in a negative customer experience, the FSP that is the face of the savings solution to the customer will suffer the consequences.

• Carrots and sticks. It is quite natural that the preparation for risk management does not always get the most attention in a household’s financial planning. To ensure that the preparation activities are sufficiently emphasized, it is important to offer a heavy dose of incentives to reward good behaviours of making regular deposits and signing up for insurance. Similarly, to prevent the use of funds for purposes other than risk management, early withdrawal penalties may also be in order.

• Staff implications. The introduction of new services might significantly impact the job descriptions and workload of frontline staff. If staff perceive this as extra work without sufficient compensation, it will be doomed to fail. Similarly, if staff incentives are tied to loans without any key performance indicators for savings and insurance, then the field staff will naturally focus their attention on the lending activities at the expense of effective risk management solutions.

• Digital solutions. The business case for small deposits and small-ticket insurance policies can be challenging in an all-cash economy. But the emergence of mobile money and the digitization of back-end processes create new opportunities to reach scale in a cost-efficient manner. Digital technology can be leveraged to educate clients about the integrated solutions, enable cross-selling through direct sales to customers, facilitate payments and reduce transaction costs.

The financial inclusion community should be laser-focused on developing and testing solutions that build the resilience of low-income households, smallholder farmers, microentrepreneurs and the like. By combining savings, credit and insurance, along with relevant non-financial services, FSPs can offer solutions that reduce the vulnerability of their clients. And if their clients are more resilient, they will be as well.

Photos: ILO

About the Author:

Craig Churchill is chief of the Social Finance Programme and the team leader of ILO's Impact Insurance Facility. He has more than two decades of microfinance experience in both developed and developing countries. In his current position he focuses on the potential of financial services and policies to achieve social objectives. He serves on the governing board of the Access to Insurance Initiative and was the founding chair of the Microinsurance Network.