How Can Scaling Inclusive Insurance Close Protection Gaps?

Protection gaps have emerged as a new buzzword among insurance stakeholders and even global policy makers—but what are they? A common way of looking at the concept is the gap between economic losses and insured losses. But another way to view protection gaps, which we argue is the most relevant way, is looking at the number of people that lack adequate protection, a number as high as half the global population. Indeed, behind the numbers there is a family that faces financial ruin when the main breadwinner dies, a farmer that is forced to pull his children out of school following a drought, or a woman who loses her income—and often her dignity—if her shop catches fire. Protection gaps are not just about the value of economic losses, but the people who face these losses.

Protection gaps are not just about the value of economic losses, but the people who face these losses.

If people (and their livelihoods) are at the core of development efforts, why aren’t we doing more to protect them? Inclusive insurance has long promised resilience for people living with low incomes and facing exposure to climate, health, and livelihood shocks. Yet markets have struggled to bridge the gap between promise and scale. CGAP’s recent work begins by naming the core frictions that have come in the way of scaling insurance for all, along the supply and demand of insurance, and the enabling environment. At the center is a single defining challenge: economic viability. For inclusive insurance to be both customer-centric and scalable, incentives across the system must be aligned.  

CGAP has identified actionable pathways that address this core viability challenge across supply, demand, and the enabling environment, pinpointing what it would take for inclusive insurance to truly build resilience for all those who need it most. 

Reconciling supply and demand through customer-centric solutions

CGAP’s analysis highlights three mutually reinforcing barriers:  

• Suitability is foundational: current products often fail to match clients’ risk profiles and cashflow realities.  
• Affordability is the binding constraint: premium levels, payment schedules, and liquidity gaps—exacerbated by climate and other covariate shocks that raise pricing or limit coverage—suppress uptake even when the value proposition is clear.  
• Channels are a choke point: reaching customers through trusted touchpoints at the right moments is as much a design challenge as a logistics one.  

Together, these factors shape both supply and demand—and must be solved in concert. To address these challenges, CGAP has defined and is actively testing four pathways. 

• Anticipatory action and disaster risk reduction: Front-loading risk management—through anticipatory action and investments in risk reduction that lower expected losses—helps preserve insurability and reduces the cost of coverage. This links parametric or forecast-based mechanisms with practical measures that reduce vulnerability, yielding better client outcomes and improved economics.  
• Premium-financing mechanisms: Tackling affordability head-on through flexible payment schedules, savings or credit product bundles, partner-funded insurance premiums (where organizations pay on behalf of end beneficiaries to support business and development goals), and pay-as-you-go models to drive uptake sustainably.
• Distribution: Testing networks that have the capacity to reach scale—including enhancing public- private partnerships and working with government networks that already reach low-income customers—and investing in trust, disclosure, and claims experience to convert access into adoption.
• Reinsurance facilities: Using risk pooling and structured risk transfer to lower costs and stabilize portfolios, under the assumption that appropriately designed (re)insurance facilities, coupled with strong data and product discipline, can extend the frontier of insurability. 

But solutions design cannot work in isolation if the broader enabling environment is not favorable. CGAP has also identified policy and regulatory pathways to align incentives of government and regulators with those of private insurers. 

From policy gaps to a measurable enabling environment

Insurance remains underrepresented in major development and financial inclusion agendas, limiting its ability to contribute to resilience, livelihoods, and recovery. Elevating insurance within these frameworks — and measuring its impact — is critical to ensure it is systematically considered in national planning, policy design, and market development. CGAP’s starting point is converting a set of overlooked or under-specified global frameworks into four policy pathways.

• Sustainable development goals (SDGs): Advocate through multilateral organizations for explicit and measurable insurance-related indicators beyond the single existing reference. Clear indicators would allow national planners to track how insurance contributes to resilience and livelihoods (e.g., climate and disaster protection) and help justify policy attention and investment.
• National financial inclusion strategies (NFIS): Update global guidance (by standard-setters and multilateral organizations) so governments can integrate inclusive insurance more concretely, with defined targets, coordination across agencies, and accountability for delivery. This matters because NFIS shape financial inclusion priorities and funding, and insurance often lags without practical guidance.
• Financial health: Clarify through research and measurement frameworks how insurance contributes to financial health outcomes, such as shock absorption, reduced distress sales, and faster recovery.  
• Global Findex: Encourage Findex to deepen its understanding of insurance coverage, moving beyond a single question to indicators on usage, claims experience, and product types. Better data would enable cross-country learning and support evidence-based policy and market development. 

From regulatory uncertainty to supervisory learning and market discipline

Regulators face a balancing act – enable innovation while safeguarding consumers, and do so in markets with scarce data. CGAP’s initial analysis highlights four regulatory topics that make-or-break inclusive insurance.

• Proportional supervisory approaches: Special licenses, “test-and-learn” spaces, and proportionate regimes are essential to allow new models to prove value without compromising consumer protection.
• Distribution and partnerships: Rules that responsibly open alternative channels—digital agents, cooperatives, and MFIs—are central to scale.
• Product design and quality: Streamlined approvals, proportionate know-your-customer (KYC) requirements, and clear value-for-money expectations can speed up market entry while maintaining client value.
• Data metrics and collection: Robust, standardized reporting is foundational for supervisors to identify market gaps, monitor client outcomes, and calibrate proportionate rules. It is also central to guiding the industry toward developing affordable, suitable products delivered through the right channels. In order to advance the regulatory agenda, CGAP now convenes the Access to Insurance Initiative (A2ii) and is holding supervisory “learning circles” together with A2ii. These are structured engagements that surface country-level insights and provide a forum for supervisors to exchange insights and share results across markets. 

Towards resilience through inclusive insurance

For CGAP, fostering resilience through inclusive insurance means refusing to accept the false choices that have constrained inclusive insurance. It is not “subsidy or sustainability,” “innovation or consumer protection,” or “policy or market.” The pathways proposed above across solutions, policy, and regulation advance an integrated agenda that aligns industry incentives with customer needs through targeted policy and regulatory interventions, while enabling solutions that are both affordable and scalable.

For CGAP, fostering resilience through inclusive insurance means refusing to accept the false choices that have constrained inclusive insurance.

Closing protection gaps requires a risk architecture where inclusive insurance is a core pillar of financial inclusion—not an afterthought. Funders and governments should adopt CGAP’s pathways, supervisors should rally under the Cape Town Declaration, and insurers and distributors should bring to market products that pay reliably and fast for the shocks people actually face.

Doing this will not just insure people—it will enable them to invest, work, and live with dignity, turning today’s protection gaps into tomorrow’s resilience success stories. If we stay evidence-led and partnership-driven, inclusive insurance can move from episodic pilots to resilient systems, so that when shocks hit, people don’t fall further behind—they bounce back faster.