Why Specialty Insurance Uptake is Low in Emerging Markets—and How to Fix It
- Resilient Frontiers
- Mar 20
- 6 min read
Updated: Mar 28
In recent years, emerging markets have become increasingly exposed to a wide range of complex risks—political instability, terrorism, natural disasters, and economic volatility, to name a few. These risks threaten businesses, infrastructure, and livelihoods, making the case for insurance stronger than ever. Specialty insurance, which provides protection for these unique and high-risk exposures, could be a lifeline for businesses and governments in emerging markets.
Yet, despite the rising threat landscape and the clear need for risk mitigation, the uptake of insurance—and particularly specialty insurance—remains frustratingly low in many emerging markets.
Why is this the case? What structural, cultural, and market barriers are preventing broader adoption of these critical risk management tools? This post explores the key reasons behind low insurance penetration in emerging markets and considers how the insurance industry can adapt to close this protection gap.
1. Lack of Awareness and Understanding
One of the biggest barriers to specialty insurance adoption in emerging markets is simply a lack of understanding. Specialty insurance products—covering risks like terrorism, sabotage, political violence, and natural catastrophes—are complex and not well understood by business owners and decision-makers in emerging markets.
Low Awareness of Specialty Insurance Products
Many businesses are either unaware that such coverage exists or unclear on how it works. Even when products are available, they are often not explained in simple, relatable terms. This leads to a perception that insurance is only for large corporations or highly developed markets.
Complex Policy Language
Insurance contracts are often written in highly technical language, which makes them difficult for local businesses to understand. This complexity discourages uptake, as potential buyers are unsure of what’s covered, how to file claims, and whether they will actually be compensated in the event of a loss.
Limited Local Expertise
In many emerging markets, the insurance industry lacks local expertise in specialty insurance. Without sufficient knowledge and training, brokers and agents struggle to explain the value of specialty coverage and match clients with the right products.
👉 Solution: Insurers need to invest in market education, simplifying policy language and increasing local expertise through targeted training programs.
2. Trust Deficit and Market Maturity Issues
Trust in financial institutions is often low in emerging markets. Past issues with claims disputes, denied payouts, and even cases of insurer insolvency have left many businesses and individuals skeptical of the value of insurance.
Lower-Rated Carriers and Non-Payment of Claims
A key contributor to this trust issue is the presence of lower-rated insurance carriers—as measured by financial rating agencies such as S&P (Standard & Poor's), Moody's, and AM Best. These carriers often have weaker balance sheets, lower capital reserves, and higher exposure to market volatility, which increases the risk of default or delayed claim payments.
Lower-rated carriers often offer cheaper premiums, which makes them more attractive to cost-sensitive buyers in emerging markets. However, the trade-off is a higher likelihood of claims disputes or non-payment.
Lower-rated carriers may:
Lack the financial strength to settle large claims promptly.
Contest part of a claim or fail to pay altogether due to liquidity issues.
Apply higher policy exclusions or complex claims processes to reduce payouts.
For example, an insurer rated B+ by S&P or AM Best might offer premiums 20–30% lower than an insurer rated A or A+. However, in the event of a large loss—such as a political violence event or sabotage—businesses insured by a B+ carrier may face delays or partial settlements, whereas an A-rated carrier would be better positioned to honor the full claim.
This creates a damaging cycle:
Businesses opt for cheaper coverage due to budget constraints.
Claims disputes or underpayment erode confidence in the insurance market.
Over time, businesses perceive insurance as unreliable and opt out of coverage altogether.
👉 Solution: Stronger regulatory oversight, increased minimum capital requirements, and more transparent financial disclosure from insurers could help restore trust. Encouraging partnerships with highly rated global carriers may also increase confidence in specialty insurance products.
Market Fragmentation
The insurance market in many emerging markets is also fragmented, with local insurers lacking the technical expertise and financial backing to handle complex specialty risks. This weakens confidence in the market and drives businesses toward informal risk management strategies instead of structured insurance solutions.
👉 Solution: Stronger regulatory oversight, capital requirements, and more transparent claims handling could help restore trust in the market. Encouraging partnerships with highly rated global carriers may also improve market confidence and increase penetration.
3. High Costs, Perceived Lack of Value, and the Alternative of Loans
Specialty insurance is inherently expensive due to the nature of the risks it covers. Terrorism, political violence, and natural catastrophes are difficult to predict and can cause significant financial losses. In emerging markets, where political and economic instability increases underwriting uncertainty, insurers often charge even higher premiums to compensate for the risk.
Premium Costs vs. Perceived Value
For small and medium-sized enterprises (SMEs), these premiums are often prohibitively high. Even when coverage is affordable, insureds may struggle to see the value if they’ve never experienced a direct loss or successful claim. When businesses do make a claim, slow or contested payouts further reinforce the perception that insurance is not worth the cost.
Relying on Loans Instead of Insurance
As a result of these high costs and perceived low value, many businesses turn to bank loans to cover losses instead of investing in insurance. On the surface, this might seem like a reasonable financial strategy—but in reality, relying on loans is often more costly and disruptive.
Factor | Insurance Policy | Bank Loan |
Premium/Interest Rate | Predictable premium payments | High interest rates, especially in unstable markets |
Payment Terms | Fixed, budgeted annually | Lump-sum repayment with interest |
Claims Settlement/Approval | Insurer pays loss if covered | Loan approval not guaranteed, may require collateral |
Cash Flow Impact | No immediate liquidity hit | Large, sudden cash outflow for repayment |
Impact on Credit | No impact | Increased debt burden and potential credit downgrade |
Risk Transfer | Risk transferred to insurer | Full financial liability remains with business |
Why Insurance is More Efficient Than a Loan
Cost Certainty – Insurance premiums are fixed and predictable, whereas loans carry interest rate risk and repayment pressure.
Balance Sheet Protection – Insurance shifts the financial burden of a loss to the insurer, protecting the company’s working capital and credit position.
Liquidity Preservation – A large loan repayment can drain liquidity and restrict operational flexibility, whereas insurance payouts provide cash directly to cover the loss.
Access to Capital – After suffering a large loss, a business may struggle to secure favorable loan terms due to weakened credit standing—whereas an insurance payout maintains liquidity without increasing debt.
👉 Solution: Insurers need to develop more affordable specialty products, such as parametric insurance and microinsurance, while educating businesses on the financial benefits of insurance over loans.
4. Data and Risk Modelling Challenges
Accurate risk assessment and pricing depend heavily on data—but in many emerging markets, reliable historical data is scarce or inconsistent. Political violence, terrorism, and sabotage events are often underreported or misclassified, making it difficult for underwriters to accurately model risks.
Without sufficient data, insurers face higher uncertainty, leading to conservative underwriting and higher premiums. This creates a vicious cycle:
Higher costs reduce uptake.
Limited claims data reduces underwriting accuracy.
Increased uncertainty leads to higher pricing.
👉 Solution: Insurers should leverage AI, satellite data, and social media monitoring to improve data collection and risk modelling in emerging markets.
5. Political and Economic Instability
Political instability creates additional uncertainty for insurers and insureds alike. In markets prone to regime changes, coups, and civil unrest, insurers may be hesitant to offer specialty coverage, or they may impose stringent terms and high deductibles.
👉 Solution: Insurers can improve uptake by offering flexible payment options and multi-currency settlements to reduce the impact of local currency instability.
Closing the Gap: How the Insurance Industry Can Respond
Despite these challenges, there is significant potential for growth in specialty insurance in emerging markets. The need for risk transfer solutions is undeniable—and the following strategies could help close the gap:
✅ Education and outreach to build trust and understanding.
✅ Affordable, tailored products like parametric insurance and microinsurance.
✅ Leveraging AI and big data to improve risk modelling.
✅ Partnerships with trusted global carriers to increase confidence.
✅ Flexible payment options to reduce the impact of currency instability.
By addressing these barriers, insurers can tap into an underserved but growing market—while providing businesses and governments with the protection they need to navigate an uncertain world.
What’s your take on the future of specialty insurance in emerging markets? Share your thoughts in the comments or reach out to explore how we can build resilience together.
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