Financial Inclusion

Last Updated: 9/4/2024
There are numerous differing definitions of financial inclusion.1 For example, financial inclusion has been defined as being concerned with “effective access to finance. It seeks to ensure universal availability to … affordable and adequate basic financial services, namely, credit, savings, insurance and payment services.”2 But other definitions include not only access to formal financial institutions but also the use, cost, and quality of financial services.3 Usually, discussions of financial inclusion center on vulnerable and marginalized populations traditionally excluded from the formal financial system.   

A study by the Federal Deposit Insurance Corporation (FDIC) found that 4.5% of Americans are unbanked, meaning they do not have a formal relationship with a mainstream financial institution, such as holding a checking account, savings account, or credit product.4 While this rate is the lowest recorded since the FDIC began the biennial survey in 2009, the survey reveals significant inequities. Unbanked rates were higher among lower-income households, less-educated households, Black households, Hispanic households, working-age households with a disability, and single-mother households. Only 81.5% of U.S. households are considered “fully banked.” 

The objective of financial inclusion efforts is to ensure that everyone, regardless of their economic status, has access to basic financial tools and services at a reasonable cost.  

Financial inclusion, in the realm of insurance, emphasizes access to insurance products for lower-income individuals and families. Financial inclusion in insurance ensures that all individuals have access to a safety net that would protect them and their families from financial shocks such as illness, accidents, or natural disasters. Some hurdles to insurance access may include regulatory barriers, lack of identification documents, distance to service providers, and cultural or social factors.  

There are many benefits to a more inclusive financial system, including poverty reduction, economic development, and improved overall well-being. When individuals have access to financial services, they can better manage their finances, plan for the future, and participate more actively in financial activities. Financial inclusion in insurance is an important part of creating an inclusive and equitable society. 

Financial inclusion and insurance have profound implications for individuals, businesses, and economies. Studies have shown that access to financial services and insurance products can lead to increased savings, improved access to credit, higher levels of investment and entrepreneurship, better health outcomes, and greater resilience to economic shocks. Furthermore, by promoting financial stability and reducing vulnerability to poverty, financial inclusion contributes to sustainable economic growth, social development, and poverty alleviation efforts. 

1 Pesqué-Cela et al., 2021, “Defining and Measuring Financial Inclusion: A Systematic Review and Confirmatory Factor Analysis,” Journal of International Development, 33, 316-341 (doi: 10.1002/jidf.36524).

2 J. Queralt, 2016, “A Human Right to Financial Inclusion,” in H.P Gaisbaur, G. Schweiger, and C. Sedmak, Eds., Ethical Issues in Poverty Alleviation (Switzerland: Springer), 77-92.

3 Op. cit., Pesqué-Cela et al., 2021.

4 Federal Deposit Insurance Corporation (FDIC) (2022), 2021 FDIC National Survey of Unbanked and Underbanked Households.

The NAIC is committed to closing the protection gap, particularly for underrepresented and minority communities, and addressing barriers to insurance access. In 2021, the Special (EX) Committee on Race and Insurance was formed and took up the charge to identify issues related to: 1) race, diversity, and inclusion within the insurance sector; 2) race, diversity, and inclusion in access to the insurance sector and insurance products; and 3) practices within the insurance sector that potentially disadvantage people of color and/or historically underrepresented groups. 

Currently, the Center for Insurance Policy & Research (CIPR) is undertaking a study of financial inclusion focusing on insurance. The CIPR concluded a nationally representative survey of 3,500 Americans and is in the process of analyzing the data. The CIPR is also leveraging relationships with other interested parties to better inform state insurance regulators and other stakeholders about financial inclusion issues. 

Additional Resources:  
World Bank Group, Financial Inclusion. 
International Association of Insurance Supervisors (IAIS), Financial Inclusion.