Microinsurance is a fast-emerging ﬁnancial service taking advantage of current low insurance penetration rates and the increasing need to protect consumers from ﬁnancial shocks.If appropriately designed and administered, microinsurance could not only play a signiﬁcant role in reducing the vulnerability of low-income households to economic stressors, but it could also be a proﬁtable market segment for commercial insurance providers.
The microinsurance market is signiﬁcant and growing. The rapid expansion of the market can be attributed to the culmination of several factors, including rising disposable incomes, innovations in mobile and insurance technology, and an enabling regulatory environment. The Microinsurance Landscape Studies report that more than 500 million microinsurance policies have been sold in the past decade. While this growth is encouraging, it still leaves a large portion of the estimated 4 billion consumers globally that make up the potential market unserved.
The following trends are currently shaping the microinsurance market:
1) Increasing mobile connectivity and insurance technology are changing the insurance value chain
The use of relatively low-cost mobile channels plays a huge role in addressing the high acquisition costs associated with microinsurance, and oﬀers the potential to reach poorer and more remote clients. In the last ﬁve years, mobile microinsurance intermediaries have been able to scale and reach tens of millions of consumers within a relatively short period. Microinsurance intermediaries typically partner with mobile network operators (MNOs) to oﬀer (free or paid) products to the MNO subscriber base. Beyond marketing and sales, these intermediaries facilitate various processes ranging from product development and premium collection, to claims administration, payments and client servicing. In some jurisdictions, these intermediaries may be licensed risk carriers oﬀering their own products to consumers.
Furthermore, recent advancements in insurance technology are transforming the insurance industry and giving rise to a new wave of insurance models – such as peer-to peer and on-demand oﬀerings – that provide consumers access to ﬂexible products and an end-to-end digital experience. As more products become available digitally, buying microinsurance policies might become more popular, even for individuals in higher income segments. Indeed, these newer insurtech innovations could pave the way for more targeted product development, further enable scale and mass outreach, improve cost eﬃciencies and claims turnaround times, and enhance the overall viability of microinsurance.
- See also: Solving the Microinsurance Puzzle