Product Distribution
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  • August 2018
  • 5 minutes

Solving the microinsurance puzzle: Life insurance, Japan and distribution innovation

Puzzle pieces
In Brief

InsurTech is enabling microinsurance to become a growth area for Asia’s insurers. In this second article in RGA’s 2018 series on digital innovation in Asia Insurance ReviewShoichi Yokota of RGA Japan discusses the latest developments.

Regulations governing microinsurance are also now either being developed or are already in place in several of the Asian nations with microinsurance markets, including the Philippines, Sri Lanka, Mongolia, Indonesia, Nepal, and Papua New Guinea. India, in fact, has had microinsurance regulation in place since 2005 and updated it in 2015, and China has had its own microinsurance programme since 2012.

Rise of microinsurance

The current interest in microinsurance is a substantial change from the view popularly held as recently as earlier this decade that its potential profitability was challenged. Most insurers considered the products too costly and risky to offer, as it is just as expensive to design, market, and administer microinsurance products as it is more traditional products.

Today, however, massive investments in Fintech and InsurTech are successfully cracking the microinsurance puzzle. This is increasingly enabling insurers to treat microinsurance as a viable business opportunity. New technologies, new platforms and new methodologies are transforming how lower-income and emerging middle class customers in developing countries can be targeted and information about them collected, enabling specific solutions to be developed that can meet their needs while overcoming the cost challenges inherent in product design, distribution, servicing, claims, and administration. 

Serving the market 

Over the past several years, mobile platforms have emerged as the retail distribution channel of choice for developing economies. In mid-2015, mobile in Asia surpassed all other devices (tablets, laptops, desktops) combined as the device of choice for internet access, and the share has grown ever since. As of May 2018, mobile accounts for more than two-thirds of internet access in Asia. Indeed, in several of these economies, cheaper mobile plans do not even include telephone service. 

In Asia, a growing percentage of microinsurance is distributed via mobile network operators (MNOs). From these mobile platforms, customers are solicited, products sold, premiums collected, and claims filed and paid. MNOs in Asia are currently estimated to provide insurance coverage to more than 40m individuals. It is far less costly and more efficient to market and distribute over mobile devices than face-to-face – especially to younger individuals, who are accustomed to managing the majority of their lives on their mobiles. 

Importance of mobile

Microinsurers have been leveraging mobile providers’ platforms to establish systems for insurance’s fundamental financial transactions – premium collection and claims payments. Premium-based plans enable premium payment via airtime, mobile money or cash. Mobile-based money transfer services enable users to arrange to send and receive payments at partner shops and via their mobile devices, have traction in developing Asian countries. Additional mobile models include loyalty microinsurance products, which are free to the customer and paid for by the MNO, and ‘freemium’ products, where users can opt for a basic product for free and then enrich it for a subscription fee. 

Aside from technological convenience, the significance of greater ability to collect premiums electronically is a plus for microinsurance operations.

Mobile, however, is not the only channel for microinsurance distribution in Asia. Banks, third parties, governments, and other providers are active as well. Indeed, in the Philippines, microinsurers distribute through pawn shops, mortuaries, and even motorcycle dealers. 

Ensuring literacy

Serving Asia’s microinsurance market means more than finding ways to reach and understand potential clients: it also means providing them with basic financial and insurance literacy. Even though lower-income individuals (microinsurance’s natural market) have well-documented insurance needs, both financial and insurance literacy are still low in many of Asia’s developing nations, especially in rural areas. Few of these individuals have bank accounts or use any aspect of the banking system, and their communities tend to be poorly banked or unbanked. 

Recent advances in AI and natural language processing (NLP) technologies are also enhancing the insurance space – not just in marketing, selling, and administration, but also in the ability to educate. Chatbots specialised for insurance that use sophisticated AI and NLP interfaces are enhancing how insurers can communicate with current and potential clients, whether to sell product, educate about coverage (or coverage options), or provide customer support, and can be done by both voice and text. This is enabling more effective and efficient processing of new business, claim requests, and other needs, and can be a potential boon for microinsurance. 

Enter new tech

Some InsurTech-focused chatbot developers are also looking at ways to utilise online messenger service money transfer capabilities for premium collection and claims payment. 

Interest is rising as well in some of the newest financial technologies such as blockchain and bitcoin. These are seen as having promise for reducing microinsurance transaction costs. One overseas payment system developed by a Japanese company, for example, sends payment in bitcoin to pre-paid mobile devices with available phone numbers, reducing the need for bank accounts, and another is using blockchain to enable citizens working outside their country to obtain health insurance cover. 

Product design

Innovative companies are developing easy-to-understand microinsurance products that provide cover and basic insurance education and also have simplified administration and servicing. Some microinsurance hospital products, for example, can pay insurance directly to hospitals, which is attractive for those who cannot afford to pay up front and then be reimbursed. 

Many microinsurers have also developed more collaborative hospital-insurer relationships. Some services enable hospitals to check their patients’ insurance policies first and transfer electronic medical records directly to the insurers. This kind of coordination between insurance companies and hospitals could simplify claim management procedures and reduce potential fraudulent claims.

In Japan, small-amount and short-term insurance (SSI) was legislated into existence in 2006. These products, which provide life insurance for one year or less and non-life for two years or less, are currently offered by approximately 100 companies, have been experiencing stable growth in recent years. 

The important thing to understand is that microinsurance products should not be cut-down versions of traditional products. Customer realities are different, and products need to be tailored appropriately to meet these needs. 

Understanding customer attributes

Developing countries are actively collecting and analysing data about their populations to design marketing strategies. Mobile phone records are currently a main provider of data such as call time and duration, contact numbers, and timing and amount of pre-payments made, which is being analysed in novel ways for microfinance to craft credit scores. If a similar approach were to be applied to microinsurance, it would require both technological advances and possible adjustments to relevant regulations.

Insurance can hedge a variety of risks, and can increasingly do so for a broadening range of markets. Local needs can vary substantially, especially among developing and emerging economies. The microinsurance (or inclusive insurance) market is entirely new, and needs to be built right, and the newest InsurTech capabilities are providing the tools and capabilities to do so. 

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Meet the Authors & Experts

Shoichi Yokota
Shoichi Yokota
Associate Director, Pricing, RGA Japan

Additional Resources

Reprinted with permission of The Asia Insurance Review (AIR)