NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, July 2, 2015

According to insights provided by Mondato, the general rule of thumb is that when something appears too good to be true, it very likely is. Imagine that you were unfamiliar with the concept of insurance. A stranger at your door promises that if you pay 1000 shillings per month via your phone, if at some point you or someone in your family were to fall ill, the man’s company will pay up to 300 times that amount to cover the medical expenses. You would certainly be forgiven for being highly circumspect, at the very minimum.

Micro-insurance is an important support for financial inclusion, serving as it does to cushion financially vulnerable individuals and families against unexpected shocks and major life events. As the GSMA 2014 State of the Industry Report noted, one in four families in India who experience a medical emergency drop below the poverty line. Having access to a savings account may mean very little in the long run if a trip on the roadside results in it being drained by medical expenses. Micro-insurance also represents the most significant example of the leveraging of the mobile channel to provide base-of-the-pyramid (BOP) consumers with a non-bank financial product. Moreover, it potentially opens the door to increased access to other crucial services, such as healthcare. Like mobile money, mobile micro-insurance holds the potential to be genuinely transformative.

Free, Premium, or Freemium?

Some weeks ago Mondato Insight discussed various aspects of the role of trust in mobile finance and commerce. Aside from the ubiquity of mobile phones and the wide distribution networks possessed by mobile network operators (MNOs), trust in MNOs’ brands has also proved to be an important element in opening up un- and under-served markets to insurance providers. MNOs have played an important role in helping insurers understand the needs of the MNO’s customers, and help them to develop insurance products that meet them.

In 2014 CGAP surveyed the supply side of the market, and noted that one third of the 84 products in the survey were offered free of charge (though perhaps subject to a minimum of phone account activity). A further 16 went live by the year’s end. In addition there were a small number of “freemium” services whereby customers could pay to upgrade the level of insurance cover provided. And although mobile microinsurance has been around for many years, 12 of the 25 free/freemium products had been launched within the previous two years. This would appear to indicate that MNOs view this as an effective means of ensuring customer stickiness.

Tigo was one of the first MNOs to use insurance to drive loyalty. Unusually, not only did customers have to use a minimum amount of airtime to be eligible, the more airtime they used the greater was their level of cover. After 25 months 1/6 of Tigo Ghana’s customers were availing of the product, and 80% upgraded to the fremium additional cover when they became eligible. Millicom’s General Manager Mobile Financial Services, Greg Reeve, told Mondato Insight that Millicom sees insurance as being part of a comprehensive mobile financial services offering. He emphasized the importance of easy access to a quality agent network and flexible payment options, whether by airtime or mobile money. Additionally, “Customers who take financial services products tend to make more calls than other customers” and have less churn, which is clearly the commercial impetus behind these and similar financial service offerings.

A number of companies have sprung up in the niche between mobile operators and insurance providers. Of these, BIMA and MicroEnsure are the most prominent and successful. Both offer a whole suite of services, from product design to claims processing. BIMA worked with Tigo Ghana to develop the original product, and now partners with Tigo in a number of markets.