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  • February 2016
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Unicorns, zombie insurers and microinsurance: Life insurance and innovation in distribution

A bright new future awaits

In Brief
This article explores the opportunity to revolutionise financial services for mass emerging markets through microinsurance.  
The theme of this year’s conference was “The Fourth Industrial Revolution”, and according to van Coller, the latest “disruptive banker” to come out of Africa, “If you think regulations will protect you forever, you are (eventually) going to be a zombie bank”. 

In this sound bite van Coller is referring to protection from new technological innovations, which are providing increasingly competitive value propositions in the world of finance and hence could pose a real threat to more traditional financial institutions.

Though zombies and unicorns might make for a great social media headline, nicely connecting the dots between technology, financial inclusion and the need to innovate within the fourth industrial revolution, a different kind of revolution excites me today: the opportunity to revolutionise financial services for mass emerging markets through microinsurance. 

What still seems beyond the horizon for many large, established financial services companies is proving within reach for technology startups, innovators and disruptors alike. Indeed, today’s Microinsurance 2.0 and its related financial services are taking off in ways insurers have seldom seen. 

Although relatively low-cost life insurance with associated low sums assured has been around for many years in Africa, penetration rates for these products remain low, especially outside of South Africa. When retailers started selling low-cost policies, it opened new market segments, but distribution changed again, very rapidly, when mobile phone network operators (MNOs) started offering free cover and the ability for consumers to purchase insurance through their mobiles. In India alone, a single MNO, Telenor, claims to have enrolled more than 17 million policyholders in a matter of months, with policyholders paying daily premiums as low as USD 0.05 via their mobile wallets. Both of these practices – daily premium collection and super low premiums – are foreign to and highly disruptive for traditional providers of risk protection. 

Recognising the risk of becoming “zombie insurers,” insurers and reinsurers are today sharpening their focus on this new mass emerging market segment, a market that has proven particularly difficult to crack. AXA Group, for one, recently announced an increase in its shareholding in MicroEnsure, a recognised leader in microinsurance, to 46%. Insurers and reinsurers are also investing in private equity funds such as LeapFrog Investments, which seeks to develop financial services for the mass emerging markets of Africa, South Asia and Southeast Asia, and backing new entities such as Inclusivity Solutions, which seeks to develop and deliver digital insurance solutions for emerging markets. Opportunities to create the first “unicorn*” in this nascent and fast-growing financial inclusion space abound.

Entrepreneurs today working in the insurance space are thriving on microinsurance’s principal challenge; that is, figuring out how to make money from insurance products with premiums of less than US$1 a month. Actuaries traditionally have not been involved in pricing and valuing microinsurance products, and will need to come to terms with the contours of its differences. 

This market requires a completely new sense of risk assessment and risk management: fewer underwriting controls, new distribution methods, products with few (if any) exclusions, and the ability to insure risks that might previously have been considered uninsurable. Even more challenging for actuaries in this growing space is the lack of data for pricing basis development. Microinsurance is a high-growth market that is changing fast, though, especially as some ventures begin to scale. 

The skill sets actuaries offer are of immense value, providing much-needed analytics, financial management and modeling capabilities. Actuaries also tend to be the ones charged with assessing and managing the interesting new opportunities and challenges being posed by this market – opportunities such as the potential for scaling, big data and the role of new technologies. It is reassuring to know that actuaries are well equipped to deal with these challenges. The actuarial control cycle, which seeks to apply actuarial science to real-world business problems, has as much application in this innovative space as it does for more traditional lines of business. 

As financial services are being disrupted at an unprecedented pace and scale, particularly in emerging markets, every aspect of insurance in developed markets is being challenged by innovative ideas and technological advancements. Bright young entrepreneurs and experienced visionaries are all champing at the bit to exploit the potential of large, untapped markets, utilising enormous computing power in very small devices. The time for actuarial involvement has never been greater.

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Meet the Authors & Experts

Andre Dreyer
André Dreyer
Vice President, Ventures and Acquisitions, RGAX


to learn more about microinsurance and product development Contact RGA  to learn more about microinsurance and product development.

Additional Resources

* In the U.S. investment and venture capital industry, the term “unicorn” denotes a start-up company – originally and often software-focused, but as of 2016 more inclusive of other sectors – for which valuation has exceeded the somewhat arbitrary value of $1 billion.(Wikipedia)

First submitted to the Microinsurance Network community blog: