Abby Gray

Hand-held Doctors and Mobile Premium Payments: How Technology Can Improve Insurance for the Poor

Editor’s Note: Guest Writer Abby Gray shares her second article on microinsurance. You can read her first entry on microinsurance and gender here. A recent NextBillion special on this topic that included articles from Manuel Bueno and Martin Herrndorf.

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“Shagun” is a young woman living in a small village near Yavatmal, India. She makes and sells bread in her village, proudly contributing to her family’s income that is often less than $50 a month. One day she was feeling feverish, and wondered if she had malaria. The nearest doctor was two hours away by bus, and she would lose a day’s wages and have to pay for transportation to get there. Luckily, her neighbor, “Nalina,” had helped her enroll in a health insurance program a few months ago. Nalina was trained by a not-for-profit called CARE Foundation to be a Village Health Champion (VHC) who provides “healthcare at the village doorstep.” She has been trained to ask the right questions, and to record basic medical symptoms and vital statistics such as blood pressure, heart rate and temperature, and identify emergency symptoms. For routine diagnoses, Nalina can use a hand-held terminal with a built-in clinical decision support system to provide appropriate medical advice and order prescriptions. In Shagun’s case, Nalina liaised with a remote CARE doctor who recommended treatment through an SMS prescription. Over-the-counter drugs were dispensed by Nalina from her medical kit, and within a few days, Shagun was feeling better and back to making bread!

CARE’s rural health delivery and microinsurance scheme focuses on the provision of outpatient care in the village setting. Final testing of the technology, training of health workers and product design are being completed. The product will be piloted this fall, with a target outreach of 50 villages that have approximately 100,000 low-income residents by 2012.

Handheld device used by CARE Foundation in India.

ICT to increase outreach, reduce costs and improve client value

CARE’s tele-medicine and hand-held terminals represent the frontier of microinsurance: using technological innovation to offer higher quality services to remote clients while keeping costs low. Microinsurance, or insurance designed to serve low-income clients, has become a better-known poverty alleviation strategy in the last ten years. However, there is much to be done before poor people are well-protected. Only about three percent of the low-income people in the world’s 100 poorest countries benefit from microinsurance, leaving approximately two billion vulnerable to economic shocks. If microinsurance is to reach these two billion people, technology will be key.

Why technology?

Access to information technology in the global south is increasing at astonishing rates. Subscriptions for mobile phones in developing countries have grown from a few hundred million at the beginning of the century to three billion in 2008, and in Africa there are on average 40 mobile phone subscribers per hundred people (Lloyds 2009). Falling prices of mobile broadband and the increasing availability of 3G, the new generation of wireless technologies, are expected to improve internet access considerably in coming years.

Furthermore, the “global digital divide” could potentially have a silver lining, as developing countries can “leapfrog” obsolete phases of technology and jump directly to new advancements. These advancements, such as satellite data, Global Positioning Systems (GPS) and point of sale terminals, have the power to improve microinsurance in a variety of ways.

According to the World Resources Institute, “Technology does two key things that help drive the development of financial services: it cuts costs, and bridges physical distance.” These two issues – high operating costs and clients that are spread out and difficult to access – represent two of the biggest barriers to microinsurance development. The Microinsurance Innovation Facility’s partners are testing a variety of technological solutions to overcome both of these challenges.

Bringing Additional Value to Clients

Like Shagun, poor people often live in remote locations, making it difficult for them to access microinsurance. Microinsurers are experimenting with new technological innovations to bridge these distances. Point-of-sale devices are an example of one of these solutions – they allow customers to enroll and make premium payments remotely, saving both time and money. Mobile phones can also be used to improve access: in Kenya, British American Insurance (Britak) has recently launched a new personal accident insurance product that features enrolment and premium payment via cell phones.

Health microinsurance also presents unique opportunities for technological innovation to increase client value. The tele-medicine aspect of CARE’s product is another valuable offering, since many poor clients live in areas where physicians are scarce. Technology also plays a key role in health insurance schemes that offer “cashless” claims. This type of coverage allows clients to access medical care without having to pay any money up front, which can be of life-saving value for extremely poor clients who have little access to capital. Well-designed software to manage data that can help the liaison between the insurer and the health care provider and better identify clients and store their information is crucial to making health insurance product work.

Back Office Efficiency

In order to be sustainable, a microinsurance scheme must minimize operational costs. Insurance requires a large number of policyholders in order to reach economies of scale. It can involve costly claims verification processes, cumbersome data management, and a high volume of transactions due to regular premium payments. When this model is translated to a micro scale, maintaining a good ratio of operating costs to premium payments becomes difficult. According to Richard Leftley, CEO of Microensure, “If 50% of a poor client’s premium goes toward administrative costs, claims payouts are meager and client value plummets. If you had a dollar to invest in your microinsurance scheme, I’d strongly recommend spending it on back office efficiency.”

Here, too, Facility grantees are working to find cost-effective solutions, often tailored to specific institutions’ needs. One of the issues insurers face is the lack of uniformity in the technology that delivery channels use to register clients information. In Peru, La Positiva, a local insurance company, is collaborating with local water associations to combine premium payments with monthly water bills. According to Lourdes del Carpio, manager of the agricultural insurance segment for the company, adapting to the delivery channels’ information systems is a challenge. “Some water associations have software that allows us to manage the information on each farmer and print the receipt…but some don’t use any software besides Excel sheets. Others prepare their receipts manually.” La Positiva is exploring technological solutions to the challenge: “We’re trying to bring uniformity, evaluating the possibility of using electronic points of sale to aggregate information on clients.” Though back-office solutions lack the glamour of other technological advancements, the further development of affordable management information systems (MIS) will be critical for the future of the microinsurance industry.

Reducing Fraud

Another way to reduce costs is by reducing fraudulent claims. In India, the number one milk-producing country worldwide, insured cattle are identified using ear tags. Unfortunately, some farmers send the severed, tagged portion of the ear for proof of a claim even if the animal has not died. Re-tagging is frequently used to substitute insured animals with sick or dying animals. Also, the tags often get separated from the ear or become unreadable due to harsh weather. To pre-empt fraudulent claims, Iffco-Tokio General Insurance Co. has received a Facility grant to implement a Radio Frequency Identification Device (RFID) in Kerala and Gujarat. The RFID device is a micro-chip implanted beneath the animal’s skin that wirelessly transmits its identification number, which is linked to the date of birth, coverage and claims information, and veterinary history. The chip cannot be manipulated, and is effective even under rugged conditions.

Iffko Tokio recognizes that the biggest challenge to the viability of the scheme is the high cost of the RFID chip – a common challenge for innovative technological solutions. If cost can be lowered, this, along with the reduced number of fraudulent claims can lead to lower premiums, making the product more accessible to low income farmers.

The Future of Technology and Microinsurance

According to Pranav Prashad, a Grant Officer at the Facility, “Players in the microinsurance field need to cut costs and they recognize that technology is the solution, but given the current scale of operations, they aren’t sure how much to invest and in which technologies.” To help assess which strategies work and which don’t, the Facility will offer one final call for proposals for Innovation Grants in fall 2010, supported by Zurich Financial Services, with the theme of “Scale and Efficiency”. This round will focus on projects that are using technology to make microinsurance more affordable and accessible to low-income clients.

Ten years ago, it would have been difficult to imagine that a poor Indian woman would file a claim and receive a medical diagnosis electronically from her rural home. The next ten years will undoubtedly bring new and equally unexpected technological developments – developments with the power to bring the security of microinsurance coverage to the two billion people who need it most.