Mobile Micro-Insurance within Developing Nations
By Jason Kohn, Contributing Columnist
When we think of cutting-edge technology, we tend to imagine likely applications in the most advanced markets. But today, mobile communication is leveling the playing field for innovation, to the point where we can find some of the most interesting technology innovations happening in the developing world.
The introduction of wireless connectivity into rural and low-income communities with unique needs is creating all sorts of fascinating new applications. Case in point: mobile micro-insurance.
Making Microinsurance a Viable Option
Low-income individuals and families need to insure their property, lives, and health against loss or disaster just like anyone else. Indeed, people with a low-income may have an even greater need to manage risk, as they are in a more precarious financial position to begin with.
Micro-insurance can address this need by making low-premium, low-value insurance available in poor and developing economies. But, there has been one problem: high transaction costs. As Camilo Tellez explained in the recent paper for the GSM Association (GSMA) “Emerging Practices in Mobile Microinsurance”:
“The cost of selling and underwriting insurance and of administering a claim does not decrease in proportion to the value of the policy. Using traditional channels and processes, insurance companies simply cannot write policies with values below a certain floor without pricing them unrealistically.”
The solution: mobile networks. By taking advantage of mobile sales channels and working with mobile banking systems that allow individuals to make and receive payments via their cell phones, insurers can achieve the scale and efficiency necessary to make microinsurance economically viable. As Tellez explains:
MNOs [mobile network operators] have large physical and virtual networks with the potential to reach significant numbers of clients, including the unbanked, at low cost…. MNOs control a range of communication channels that can support the promotion and sales of and enrolment in insurance policies. They can also allow insurers to handle routine customer enquiries and account management. Finally, they can be used to streamline claims handling, which is one of the most important parts of the value chain to client.
Tellez also suggests that, by working with mobile operators, insurers can also take advantage of MNOs’ large and mature distribution networks of airtime dealers and mobile money agents to sell and explain insurance products, and help process claims.
Microinsurance in Action
The GSMA paper includes a number of examples of innovative microinsurance programs operating today. One program delivered in a partnership between Holland Insurance, MTN Ghana, MicroEnsure, and MFS Africa uses the MTN mobile banking system to let users in Ghana buy life insurance, initiate claims, and make premium payments from their phones.
Another uses the M-PESA mobile banking system, in a partnership between UAP Insurance and the Syngenta Foundation for Sustainable Agriculture (SFSA). In this program, farmers in Kenya can insure their crops against drought or excess rain, and receive payouts via their M-PESA accounts.
A recent paper by Lloyd’s 360 Risk Insight illustrates an example of mobile microinsurance for health and hospital coverage.
…One insurer in Eastern Europe is developing an SMS-based fast claims handling procedure in health insurance, which works as follows: a doctor who verifies a claim sends a text message to a server, with codes for the patient and the required treatment. The automated response to the physician includes an authorisation to withdraw the insurance payment from an ATM. The system is designed to provide cash in case of a medical emergency to the patient as fast as possible, leaving the claims handling paperwork for later. Similar solutions can be internet-based, sending money to a mobile phone, or directly to a healthcare provider.
The Upside Market Opportunity
Just how big is the market for these kinds of services? Lloyd’s 360 Risk Insight suggests that microinsurance, which already covers 135 million people, still serves just 5 percent of the addressable market. With the scale afforded by mobile networks and distribution channels and the Internet, the analyst estimates potential market for microinsurance in developing economies is between 1.5 and 3 billion policies.
Clearly, this is a huge untapped market and a tremendous business opportunity for both insurers and mobile network operators.
As Madhu Vazirani of Accenture Research recently told Anthony O’Donnell of Insurance & Technology, “In fast-growing economies today’s low-income customers may soon become tomorrow’s premium prospects. Products such as microinsurance, which seem at first glance to offer modest financial returns, may in the long run prove to be important contributors within the carrier’s broad portfolio.”