As disposable incomes rise in Asia’s developing nations, microinsurance has expanded and diversified, with product lines now including health (hospital cash), term life, personal accident and credit life.
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.
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.