Like many of her peers, Deborah often has her eyes glued to her mobile phone. When she’s not chatting to her family, following friends on Facebook or placing orders for her small business, Deborah is also using her phone to check her bank account details and pay her electricity bill. In this way, she sounds like many young adults from New York, London or Tokyo. But Deborah is from Lagos, Nigeria, and is just one of the millions of low-income residents from developing countries who are merging digital technology into their daily lives.
The package of digital services continues to expand and is not just suited to high-end consumers. Digital financial services, in particular, are becoming more pervasive and targeting people across the income spectrum, giving them access to mobile banking, credit, remittances and insurance.
Microinsurance, or insurance for the low income and mass market, specifically, is a fast-emerging financial service taking advantage of low current penetration rates and the increasing need to protect emerging consumers from financial shocks. Since 2007 microinsurance grew from 78 million clients to more than 263 million worldwide as at 20131. The growth is encouraging, but it is still a small portion of the 1.5 billion to 3 billion unserved and underserved consumers that make up the potential market (Swiss Re & Lloyds).
Reaching these emerging consumers can be particularly challenging. They may live in rural areas, often lack understanding of insurance, and see insurance products as too complex or expensive. These barriers create a need for innovation, particularly in the design and distribution of products.
Technology is playing an ever-greater role in innovative distribution, with the value of mobile being trumpeted broadly for processes ranging from payments and payouts to sales and distribution, administration, and client servicing. As a result, millions of consumers are now accessing insurance through mobile channels.
Digital microinsurance (DMI), which leverages digital channels such as mobile to improve outreach and delivery of insurance products for previously underserved populations, not only protects emerging consumers from devastating risks, but it can also be a key enabler of financial inclusion and market development. In our experience of researching, advising and implementing digital insurance models across 40 countries, we have found:
- Driving growth in savings. One bank In Ghana claimed a 19% increase in savings as a result of a ‘free’ educational insurance policy that linked the level of insurance with the level of savings. A mobile operator in Pakistan found a similar experience with its mobile money account – customers valued the ‘free’ insurance so much that they changed their behaviour and saved more through a formal savings instrument.
- Driving growth in mobile money. When launching a mobile money insurance product with MTN in Ghana, a world first, we found that 40% of customers that bought the product were new to mobile money2. Thus insurance can help drive digital financial inclusion.
- Creating an insurance book. Fifty-five percent of customers who opted in for a free product in Ghana went on to purchase a voluntary paid product3. Reportedly this figure is even higher now. A retailer that offered a similar model reported a 26% uptake. This is phenomenal for the insurance market, where response rates are typically in the region of 2% to 16%.
- Increasing spending on airtime. Another loyalty model that linked insurance to the level of airtime usage drove an increase of prepaid ARPU (average revenue per user, a widely used indicator by mobile operators) by 33%,with other models claiming an uplift of 15% or more.
- Reducing churn of mobile money and GSM customers. Two mobile operators have claimed that their embedded insurance products were highly successful in reducing churn of their customers.
- Managing risk of lending to individuals, agricultural farmers, and small, medium and micro enterprises (SMMEs). While credit life has admittedly been widely abused, portfolio insurance cover (index or otherwise) can be used to mitigate the risk of weather or life events and extend productive lending without adding the complexity of a voluntary insurance product.
- Improving spending on health and likely positive health outcomes. Research in India showed that introducing cashless visits to community health workers led to more frequent visits, which meant illnesses were diagnosed earlier and managed at less cost.
As the above examples show, insurance can been used to address the challenges of other financial and non-financial products. While it is still early days for these models, the promise of using insurance to drive broader benefits is truly exciting.