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How to Help Microinsurance Spread

Microinsurance is an industry that keeps building momentum. Changes in the global economy have created an emerging middle class that has been underserved by traditional insurance models — and microinsurance offers a needed solution.

For people in developing countries, who in many cases live on just a few dollars a day, traditional insurance is too costly. Constrained finances and limited awareness act as a significant deterrent for purchasing traditional, risk-mitigating insurance products. However, when loss events like those stemming from Hurricane Maria or workplace injury occur, insurance is necessary to rebuild communities and individual lives. Considering that nearly 6.5 billion residents live in emerging and developing countries like Ghana, the Philippines and Vietnam, the scale of this opportunity exceeds virtually any other single opportunity in mature insurance markets.

Much of the (re)insurance market’s recent attention has centered on global natural-catastrophe losses, which have exceeded $500 billion since 2017. Many communities around the world were dramatically affected by these losses, forcing prominent insurers to understand the best way to serve those communities.

Why Micro Makes Sense

The increased buying power within these developing communities confirms there’s an opportunity for microinsurance to grow. A World Bank study found that, from 1985 to 2017, Vietnam’s per-capita GDP jumped by nearly 10 times from $230 to $2,343. Such gains encourage significant interest and investment specifically focused on microinsurance product development.

Allianz, for example, has doubled down on its commitment to the field by joining forces with FPT Group to build insurance products for Vietnam and purchasing micro insurer BIMA for $290 million. In addition, LeapFrog raised $400 million for microinsurance product development and distribution, proof that sophisticated parties believe in the value of microinsurance products.

For new markets where skepticism toward high-premium private products exists, microinsurance offers a low-cost option to mitigate risk and grow trust with corporate insurance brands. However, when viewed in the aggregate, there remains a mismatch between high-growth areas in terms of population and income — Latin America and the Caribbean, Asia and Oceania and Africa — and insurance penetration in these areas, which currently sits at only 7%.

See also: Microinsurance: A Huge Opportunity  

The challenge for investors and the insurers they support is simple: educating communities, developing relevant products and establishing trust in these products; all of which is typically expended before the first premium dollar is collected. The challenge is exaggerated by the high-volume, low-margin nature of individual products, which, in some communities, carry average microinsurance product annual premium of $14.

While the economics of microinsurance will continue to challenge penetration and premium capture, insurers can overcome significant hurdles related to education and distribution by presenting simplified and relevant products to prospective insurance customers, and developing and executing a distribution strategy through a multidisciplinary team.

How Insurers Can Solve the Microinsurance Quandary

Insurers can position themselves for success in the microinsurance market through a couple of different approaches.

Chief among those is to streamline their services. Microinsurance is a product of its time. Technology allows all kinds of consumer services to provide hyperpersonalized care, which means insurers need to offer products that are as simple and relevant as possible.

To accomplish this goal, insurers must keep the end user in mind during all phases of product creation. Companies need to understand what customers need, how they prioritize those needs, and where their gaps in coverage lie. By identifying these factors, insurers can offer products that clearly spell out the relevant advantages to customers. This clarity can help engage customers and increase the odds that consumers will purchase the coverage.

Customers don’t want to pay for coverages they don’t need. Insurers, therefore, must seize any opportunity to create granular products that are simple and affordable. Not only does this approach provide more useful products to buyers, but it also helps insurers limit how much information they must collect during underwriting.

Additionally, insurers should build cross-functional teams internally to assist with distribution. Getting the right insurance product to the right customer at the right moment takes a coordinated team of experts. Those who distribute these products need to understand the environments in which they sell and have a stake in the profitability of the product.

See also: Microinsurance and Insurtech  

These distribution partners must also learn to describe to consumers the differences among products. It is not enough to sell: Distributors must be educators who teach customers that insurance can be as trusted as the local brands they know and rely on. To do that, the distributors and the people they serve must be supported through association with charitable and regulatory organizations.

Finally, technology must be leveraged to effectively monitor and mobilize the distribution force and insureds alike. To that end, software developers must build and test features on the basis of real customer feedback and adapt quickly to optimize the products. When the back-end team gives distributors a product that people want, distributors can sell a product that brings clear and tangible benefit to the developing world.

Microinsurance will continue to grow as the needs of the global population continue to evolve. Everyone in the insurance industry, from distributors to developers, is responsible for overseeing the growth of this new niche. Only by collaborating to offer a relevant product will insurers successfully earn their share of this new and burgeoning market.

Microinsurance: A Huge Opportunity

Having worked in and around Asia for the past few years, I have seen microinsurance be a constant topic.

I always found the concept of microinsurance (and microfinance) very interesting. However, I didn’t fully understand it.

Fortunately, Peter Gross from MicroEnsure helped to give me more insights into this fascinating and extremely important concept.

The following article is based on my conversation with Peter.

Who Is Peter Gross?

Peter is currently the director of strategy with MicroEnsure. Peter started with MicroEnsure in 2010 as the general manager in Ghana. Previously, Peter had a variety of management roles in McMaster-Carr.

When I asked Peter about why he moved from a company like McMaster-Carr to MicroEnsure, his answer was simple: “I wanted to work in a social enterprise and use my business skills in a developing context.”

Peter’s wife is also in public health, working for the Centers for Disease Control and Prevention (CDC).

Having an alignment of interests and values is important for any partnership, personal ones included. Hence, moving to Ghana to help with both the protection and providing of care was an easy decision for the couple.

What Is Microinsurance?

One of the comments that stuck with me most during my conversation with Peter is on the definition of microinsurance. He explained that he is trying to get away from that term and refer to it more as “insurance for emerging customers.” The main reason is a desire to get away from the perception of “micro-price vs. micro-value.”

These types of products are specifically designed for an underserved population that typically can’t get access. That is the core of microinsurance.

For people in these markets, Peter said, “Good-quality insurance is very important because they face more day-to-day risks than you and I.…. They get really excited about insurance and the role it plays to protect them.”

Microinsurance is primarily bought in some of the fastest-growing areas of the world, including these six countries from Africa and four from Asia:

Source: https://www.theatlas.com/charts/BJOKD67VG

The blend of under-penetration plus fast growth shows a lot of opportunity for microinsurance in these areas, one which MicroEnsure is very aware of.

See also: A ‘Nudge’ Toward Microinsurance  

What Is MicroEnsure?

MicroEnsure is a specialist provider of insurance for customers in emerging markets and has registered more than 55 million customers in 10 different countries in Asia and Africa.

MicroEnsure designs, builds and operates their business by having products that are simple to understand and with distribution partners that can help to reach the masses. They don’t carry the risk themselves and partner with more than 70 different insurers. Their biggest shareholder is AXA, alongside Omidyar Network, IFC and South Africa’s Sanlam.

Because the majority of the consumers in these markets do not have any insurance, Peter indicated to me that the marketing strategies that they deploy help them to introduce an insurance solution and meet an untapped need.

An example of this was when Peter first moved to Ghana. The company partnered with Tigo Telecom to offer free life insurance. The process worked like this:

  1. Customer dials *123 to sign up
  2. The more the customer spends on telecom services, the more insurance the customer receives (up to a maximum of $500)

Simple, right?

Peter told me that they started seeing customer behavior changing, especially when customers started seeing claims paid. This caused these consumers to not only want to spend more on airtime with the telecom to get more life insurance, but to get coverage for other risks.

This helps to show what has made MicroEnsure so successful:

  • Identify a need
  • Introduce a solution
  • Make that solution readily available and accessible
  • Introduce more solutions
  • Make those solutions readily available and accessible
  • Repeat

What Else Does MicroEnsure Offer?

As with any market, the range of products available to consumers can vary.

Product development typically starts with life, personal accident and hospital. Policies to pay for funeral expenses and protection of property and crops are quite popular, too. Coverage for other risks, such as political violence, can also be marketed, depending on the country.

As more consumers have mobile phones, mobile device cover is trending upward, too.

If the product fulfills the need to the consumer and is simple to understand and easy to market/get access to, then it will be considered.

At the same time, Peter made clear to me that MicroEnsure needs to be extra careful in building its products. Because the risks their consumers face are higher, the risk exposure for them and their insurance partners are also higher. The company needs to ensure that they build in features that are both easy to understand and tougher to game. This can be a tough balance to meet, but one that needs to happen to ensure that they can continue to provide this valuable solution for their consumers.

What Role Does Technology Play?

Good technology is part of the key to MicroEnsure’s success. Peter shared that this is both from a distribution and operational perspective.

For distribution, products need to be able to be offered and distributed through the masses. Making an easy-to-purchase process over mobile or other e-platforms is critical. An application has to be not only simple to fill out but also easy to understand.

From an operational perspective, Peter explained that MicroEnsure needs to assume a lot of mistakes on the data input from the consumer. As such, they need to build in certain tolerances on imperfect data to make it clean. This is crucial, especially for the payment of claims.

Peter said MicroEnsure’s technology is fully API-enabled and can be easily plugged into their distribution partners, whether it be banks, telecoms or others. Their systems are modular, meaning partners can use various components, such as the policy administration system, claims system or messaging system, only as needed.

See also: Big New Role for Microinsurance  

Other Insurtechs to Watch in Microinsurance

I asked Peter who some of the other insurtechs in the space are to take a look at. He gave me three:

  1. BIMA, which just had an investment of $100 million from Allianz
  2. Ayo
  3. Acre Africa


This was a fascinating conversation with Peter, and I learned a lot from it.

I have a ton of admiration for the work Peter and MicroEnsure are doing. I’ve worked in mature markets as well as emerging ones (I would say Malaysia is right in the middle).

There are complexities in both types of markets.

What interested me the most from my conversation is the combination of being able to provide coverage for the un/underinsured, focusing on their specific needs and making them excited to be getting insurance.

I feel that insurance is a very important product, for all people. In places like the U.S., insurance can often be looked at by consumers as boring and an unnecessary evil (until they need it, of course).

Insurtech is helping to change that perception in the Western world and mature economies.

For those in emerging markets, insurtech helps with access and a level of coverage that many have never experienced before in their lives. Now that is something exciting and meaningful.

This article first appeared at Daily Fintech.