Protection gap widens in emerging markets despite strong appetite

The protection gap between consumers in emerging markets and those in developed markets has increased due to uncertainty in the financial markets amidst COVID-19, finds a new report by  EY’s Global Insurance Group.

EY conducted a survey of 4,200 consumers in seven countries across Africa, Asia, North America and South America to explore this growing protection gap and offer insights into how the pandemic has impacted consumers’ financial risks, vulnerabilities and needs when it comes to insurance product preferences.

The research found that financial vulnerability and health-related concerns are more prevalent among young consumers in emerging market countries, driving an increased appetite for purchasing insurance protection.

According to the survey, emerging markets consumers experienced more financial impact from the COVID-19 pandemic compared to those in developed markets.

78 percent of consumers in emerging markets had to dip into their savings, 61 percent lost income and 54 percent had to skip certain bills or payments. This compared to 33 percent, 30 percent and 22 percent of consumers in developed markets, respectively.

Additionally, in emerging markets, where vaccination rates are considerably lower than developed markets, concerns about losing a loved one and financial well-being were notably higher.

The report noted that the demographic breakdown in each market played a role in the way COVID-19 impacted financial stability. It noted that consumers in emerging markets are younger (75 percent are under the age of 44 and only 3 percent are retired) and lack both a comfortable financial cushion and certain insurance coverages.

For example, only 10 percent have $100k or more in investable assets (versus 37 percent for developed markets), and 56 percent of homeowners have coverage for their home (versus 88 percent in developed markets).

Fayaz Jaffer (pictured), EY Americas Insurance product innovation leader, said: “Insurers have an important role to play in protecting those that need it most. They must start by building trust through personal connection and empathy to deeply understand their client’s personal and financial goals. Connecting with customers on a human-level – especially across digital channels, which younger consumers prefer – is imperative to meet the evolving needs of their clients, improve financial well-being and build sustainable relationships long term.”

The report also highlighted emerging markets consumers showed stronger appetite for purchasing insurance products than developed markets.

Consumers in emerging and developed markets expressed interest in short-term protection products, like insurance that funds college education plans or pays for credit card bills in the event of a job loss, EY said. However, among all eight product offerings proposed in the latest survey, the appetite for purchasing a product was nearly twice as high among emerging markets consumers compared to those in developed markets.

Around 61 percent of respondents in emerging markets showed interest in purchasing life insurance, versus 22 percent in developed markets.

Consumers in emerging markets were 30 percent more likely to be interested in an insurance product that pays for hospitalisation expenses compared to those in developed markets. 88 percent of emerging markets consumers were interested in an insurance product that pays them three months of income if they lose their job, compared to 47 percent in developed markets.

Furthermore, as an alternative to purchasing insurance from traditional carriers, emerging markets consumers expressed interest in purchasing embedded insurance policies. 47 percent of consumers were most interested in purchasing insurance from a health care organisation/hospital chain, followed by a hospitality company (25 percent), large tech company (23 percent) and the federal government (21 percent). Additionally, over half (53 percent) of emerging markets consumers were willing to share personalised communication data with an insurance or financial company in exchange for help meeting their individual savings goals, compared to 25 percent in developed markets.

Corporate social responsibility played a significant role in purchasing decisions in emerging markets. The survey also highlighted that the pandemic, along with other events of the last year, has advanced consumer interest in corporate social responsibility (CSR) and raised expectations about how companies contribute to society.

At least 59 percent of consumers worldwide know their insurers’ CSR stance at least somewhat well, with consumers in emerging markets more aware of social commitments, it found. An average of 56 percent worldwide took at least some CSR-related action involving insurance or other financial products. Reputation is the most critical factor, with a quarter of respondents saying that they have chosen one insurance brand over another due to its CSR reputation.

Bernhard Klein Wassink, EY Global Insurance customer and growth offering leader, said: “Social responsibility and purpose continue to remain top of mind for consumers, so it’s important for insurers to demonstrate their commitment to these issues. Now more than ever, insurers should focus on bringing these issues to the forefront of their products and services to help with financial and social recovery efforts, especially for those who are most vulnerable in the uncertain environment.”

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