NB Financial Health
Why Insurers are Partnering with Telcos to Bring Microinsurance to the BoP: CGAP report explores the status of this young industry
Growth in microinsurance in the past year has come mostly in Africa and mainly in low-income countries, according to a recent report on the status of this young industry. The products are small-scale insurance policies reliant on mobile phones for some combination of sign-up, payment and administration purposes, and in the past several years providers have been experimenting to learn what works and why.
Released in January, the Consultative Group to Assist the Poor (CGAP) report found 84 products on offer, more than triple the amount when the last state-of-the-industry report was compiled (in 2012 by the GSM Association)
Within that growth story, the emerging trends include:
- a move to low-income countries from the middle-income ones in which it was first tried;
- more uptake in Africa as opposed to low-income countries elsewhere;
- the bundling of these products with others in promotional packages;
- a tendency for the three types of service providers – insurers, mobile network operators and specialist administrators – to combine forces through mergers, acquisitions or strategic investments.
For most of those 84 products there are typically those same three actors behind the scenes. Insurers were initially interested in linking up with telcos in search of a direct route to more customers, hoping to use mobile networks as a way to keep in touch with customers and improve collections. Mobile-network operators like the product as a service to attract customers and, once those users are accustomed to it, a way to keep them from leaving for a competitor’s service. A small handful of administrators have emerged to meet demand — specialist companies that could be for-profit ventures or non-profit. They design policies, process claims, and train mobile-phone employees to sell the service. In many cases they are also creating demand, in promoting the product to potential partners through some emerging industry standards.
Although these are private ventures that don’t regularly disclose comprehensive data on sales, anecdotal evidence suggests that the success rates of new ventures is uneven, but the ones that hit big tend to make an impact. In Ghana in 2011, for example, the mobile-network operator Tigo collaborated with the local insurer Vanguard Life on a basic policy – those who used a minimum amount of network credit would get free insurance, with the choice to upgrade coverage at extra cost. A year later 1 million people had signed up, which was more than the number of customers in the entire conventional insurance industry in the country.
In the past three years pilot projects in key African markets such this one – as well as in Kenya, Senegal and Tanzania – have proven successful. Overall 54 percent of products available were found in sub-Saharan Africa in the recent CGAP study, compared with 23 percent in South Asia and 20 percent in East Asia and the Pacific. Early experiments in mobile microinsurance came from India and South Africa, but did not last.
In these collaborations, the mobile phone is used to help insurers collect premiums – customers get automatic reminders, and in almost all cases can pay using their phones, typically through a mobile money account or deducting pre-paid air time. The phone is also commonly used for customers to sign up, although in some cases the process later includes physical documentation or a visit to an office.
At the ownership level, many projects are initiated thanks to the promotional efforts of the administrative companies, such as Microensure, or Bima, owned by the Swedish investment firm Kinnevik. However the CGAP report found that it is increasingly the telcos that are most enthusiastic. African countries are highly competitive for telcos, with customers who are price-sensitive and often extremely responsive to special offers, such as reduced talk time at certain hours. Many carry multiple phone chips and track airtime rates on an hour-by-hour basis in search of the best rate. As these types of customers consider price more important than using one network, a free product linked to continuous phone usage like mobile microinsurance is a powerful customer-retention tool for telcos, which is why they sometimes offer the service for free, or use the “freemium’’ model, which provides a basic level of coverage at no cost and the ability to upgrade from there, like Tigo’s Ghanaian offering.
Among the major trends highlighted in the CGAP report is that of integration among the main players. Kinnevik, in addition to owning Bima, also owns Tigo, for example. Vodacom in South Africa has purchased small insurers in the country, the report noted. However, the report found that ownership isn’t required to establish long-term alliances, citing the example of a joint venture between MicroEnsure and Telenor, the telco based in Norway and operating there as well as in multiple developing countries. But the trend of consolidation is notable because the number of practitioners is quite small, with a handful of players envisioning, establishing and administrating most of what’s available.
For more information, check out the CGAP report.
Matt Mossman is an emerging-markets political risk consultant based in Washington, D.C.