Rethinking Insurance for the Emerging Markets
25 November, 2025 | Current General Guest articles
Insurance, a well-established and time-tested risk transfer tool, remains a distant prospect for several emerging and frontier markets. Despite being among the most exposed to climate, health and economic shocks, individuals, businesses and even states in emerging markets often lack access to meaningful insurance coverage. This protection gap is not just a statistic but the source of deep and systemic vulnerability and must be addressed with understanding of the different dynamics of these markets.
Let’s try and unpack this complex issue and build a case for scalable inclusive insurance in emerging markets.
The Problem of high risk, low insurance
In many emerging economies, insurance penetration is painfully low such as 0.4% in Nigeria, 0.6% in Egypt and 0.7% in Pakistan to name a few. This is not just an inconvenience but a deep-rooted structural problem. When a flood submerges properties and infrastructure, when a drought destroys crops or when an income source vanishes, uninsured people are forced to fall back on themselves or informal communal support mechanism marked with strong family or tribal support systems. Those systems are in a way informal risk-sharing tools and have merit but often lack the scale, capital and speed to respond to escalating risks such as those brought by climate-driven catastrophes or health-related crisis.
On a macro level, the lack of formal insurance and the resulting protection gap limit the state’s ability to manage risk proactively. This ex-post approach places significant fiscal pressure on governments and ultimately slows economic growth. A case-in-point is Pakistan Floods 2022 which caused total damages of over $14.9 billion and total economic losses of around $15.2 billion. The country challenged with fiscal pressures, has a small non-life insurance market of roughly $850 million and almost non-existent disaster risk insurance, is relying on own resources and donors support to rehabilitate tens of million population and rebuild the damaged infrastructure.
Western models may not always translate
It is natural to look to mature Western markets for lessons. After all, those markets offer decades of experience and best practices, regulation, capital and innovation. Yet, trying to directly transplant their models into emerging markets often fails to address the core issue i.e. the different context.
Take Pakistan, for instance. Despite mandatory requirement of third-party liability motor insurance, the overall motor insurance penetration remains under 3%. One may term it as an enforcement problem but another view is that over 97% of motorists are effectively ‘rejecting’ a model of insurance that may feel alien, expensive or overly complex to them. This is not just a failure of enforcement but a bigger problem of product mismatch to the market.
The challenge, therefore, is not simply scaling existing insurance models but rethinking what ‘insurance’ means for these societies.
Reimagining insurance for emerging markets
Our argument is that in order to democratise insurance in emerging markets, we need a shift in approach and redefine the traditional concepts. That means shedding traditional mindsets, constructing new business models, redoing products, simplifying processes and redefining success or what we call ‘Inclusive Digital Insurance’. Two powerful tools help do this:
First is an ‘Insurance Inclusion’ mindset. This is not just a buzz phrase but a philosophy. Inclusion means starting from the perspective of those who have never or rarely interacted with formal insurance. When over 95% of a population lacks prior insurance experience, you cannot build on legacy models alone. You need to design from the ground up.
Second is, of course, the use of technology including frontier technologies. Looking at other industries around us, we learn that technology can actually help democratise a product or service in one lifetime. In our Inclusive Digital Insurance model, technology is not deployed as an enabler but forms the basis of market-creating innovation. By reengineering every step be that product, processes, distribution, payment, servicing, claims and engagement, we can reach more people and more efficiently, keep costs low and build trust.
Armed with the core concept of Inclusive Digital Insurance, let’s now understand how best it can be applied to expand the size of insurance in a particular emerging or frontier market.
Four socioeconomic tiers, four different approaches
Let’s break down a typical emerging market into four income segments. These segments must be viewed from the lens of emerging countries where per capita income often ranges between $1,000 to $2,000. Each requires a different strategy, approach and design.
Above per capita income or those making over $32 per day: They would loosely resemble a typical customer in developed markets. The infrastructure for traditional insurance exists here and incumbents are often already serving them nearly effectively. For these customers, technology improves experience such as telematics for motor, self-serving claims portals, AI-driven customer bots and so on. The use of technology is mostly about convenience and improved experience.
Middle mass or those making $8–32 per day: This is the largest and most critical segment for unlocking scale and presents an interesting challenge: Too poor to be sold conventional offerings and too rich to be ignored! This demographic now being fast dominated by digitally savvy Gen Z and needs commercially viable insurance that is just-enough, readily available, easy, relevant and frictionless – somehow the way they use other services like hailing a cab, online shopping, ordering a pizza or paying utility bills. This buyers’ group is really the face of ‘post’ post-COVID digitalisation in a typical emerging market and take technology for granted to simplify enrolment, premium (and claim) payment, servicing and claims.
Lower income segment or those roughly making $2–8 per day: Here, a hybrid model is required which is a blend of commercialisation and subsidies. A promising design is a ‘freemium’ model where a basic level of protection is offered at no cost to establish trust and awareness followed by paid cover continuation or upgrades. Digital tools keep overheads minimal ensuring most of the premium goes to coverage cost instead of administration and overheads.
Bottom of the pyramid segment or those making under $2 a day: For this segment, insurance must be viewed as infrastructure and public safety net as opposed to a retail offering. Risk protection in health, climate shocks or income loss should be state-backed and potentially free until people move out of extreme poverty. Too often, development programmes push regressive subsidy insurance schemes hoping that the community will be able to pay premium after certain number of years but we are yet to see meaningful success in that.
Emerging markets present strong opportunity
This is not only social initiative but a strategic opportunity as these markets offer significant commercial potential. There is a compelling business case for established insurers, reinsurers and brokers especially those from Western markets to engage with emerging markets.
Many emerging markets now have micro-insurer licensing regimes requiring surprisingly modest paid-up capital, as low as $30,000 in certain markets. This opens the door for lean and mission-driven players to pilot inclusive models. Naturally, this is easier said than done as the real challenge lies in building appropriate business models and executing them well. Without rethinking how to reach these populations or simply replicating Western models, the industry risks perpetuating low penetration and unserved customers.
Conclusion
The insurance industry stands at a crossroads. If we stick to the established models from the matured markets, we risk perpetuating exclusion, vulnerability and limited reach. But if we embrace a new mindset marked with inclusion and technology for scale, we can redefine what insurance means in the emerging markets.
Rehan Butt
Rehan Butt is the founder & CEO of Instaful Solutions and works on democratising insurance in emerging markets by engaging with private, public and development sectors. His LinkedIn profile.
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