Exploring the potential of remittance-linked insurance products to improve the resilience of households in sub-Saharan Africa (SSA) 

Remittances are particularly important on the continent and serve as a lifeline to many households. Yet insurance products that enable the sustained flow of remittances or the resilience of senders and receivers remain unexplored in SSA.  Both remittance senders and receivers face unexpected risk events that have negative effects on their livelihoods: 

• Sender risk events: Senders may no longer being able to send remittances when they are faced with unexpected risk events such as death, disability, accident or illness. Exposure to risk events is exacerbated by the fact that many migrants work in the informal sector and are unable to access basic safety nets. Senders also face income shocks when remittance receivers face a risk event that has a large financial implication and requires senders to send additional money to receivers to cover the financial cost of the risk event. These types of events are unplanned and therefore put additional financial strain on remittance senders. 

• Receiver risk events: Remittance receivers face shocks to their disposable income due to health, life, asset or business-related risks, which in turn negatively affect their ability to maintain their livelihoods. When this happens, receivers require greater support from remittance senders. Additionally, receivers also face reduced income if senders face shocks and are unable to send money to them. This could be shocks to the sender such as health or business risks, but also more severe risk events like disability or death.  

However, both senders and receivers often do not employ appropriate coping mechanisms to manage these risk events. Distributing insurance through remittance service providers (RSPs), e.g. remittance-linked insurance products, has the potential to build resilience by unlocking greater formal remittance flows to SSA, as well as by increasing insurance uptake to help close the risk protection gap. Transferring risk to an insurer will enable the continued flow of remittances despite senders facing a risk event. Consequently, the welfare of the remittance receivers, who are often highly dependent on remittances for their livelihoods, is protected by ensuring that remittance flows are sustained despite risk events faced by senders. Insurance can also help to smooth the financial burden on senders when remittance receivers incur a shock and require senders to help tide them over. 

This note outlines why remittance-linked insurance products are important, what forms they could take, the business case for such products and the regulatory challenges that still need to be overcome to enable the introduction of such products on the continent.  

Despite significant need and opportunity for remittance-linked insurance products, remittance-linked insurance products remain limited globally, and mostly unexplored in SSA. This is due to four major challenges: partnership complexity, regulatory uncertainty, grey areas and barriers.

From engagement with insurers and RSPs, regulatory uncertainties and concerns have been cited as the key barrier to unlocking remittance-linked insurance products. Thus, in addition to the report, the linked regulatory feasibility assessments unpack the key regulatory considerations in four different corridors. The assessments also highlight the viability of introducing remittance-linked insurance products in each corridor.

Disclaimer: The regulatory assessments conducted for the purposes of this research do not constitute formal legal opinions. Rather, the purpose of the regulatory assessments was to identify potential regulatory barriers and grey areas to implementing remittance-linked insurance products in these corridors.

This work forms part of the Risk, Remittances and Integrity programme, a partnership between FSD Africa and Cenfri.