Successful Microinsurance Starts With Having the Right Mindset
If the headlines are to be believed in 2016, it appears that microinsurance has made it into the mainstream: Blue Marble, a insurance venture incubator announced at Davos in 2015, launched its first venture. AXA went public with their MicroEnsure investment and is consolidating its emerging customer segment at the group level. Swiss Re launched the first Natural Catastrophe business interruption in Guatemala with their partner MiCRO, a company created to bridge the divide between the world’s insurance markets and the most vulnerable, low-income people.
Given all this, one would assume that the business case for serving the more than two billion low-income people with insurance has been proven beyond reasonable doubt. The fact is… it has not, at least not universally. There are shining examples of how microinsurance is working well: for instance, our Caregiver hospital-cash microinsurance that we launched with Microfund for Women (MFW) in Jordan in 2010 and have since replicated in other countries to reach more than 1,500,000 clients. But as in everything, sometimes you win, sometimes you learn and there are a number of learning cases in the landscape. The problem isn’t with the proposition itself. It’s with perspective.
Unlike traditional insurance, which we know is successful because it is a sustainable and critically, profitable business, microinsurance can only be successful if it is sustainable, profitable AND has high social impact. That’s the real challenge of microinsurance: to make products for people, not for insurers. Instead of insurers aiming to payout as few claims as possible, financial institutions offering microinsurance want to ensure as many genuine claims as possible are being paid and that clients receive the payout simply and quickly. Product designers must also be able to strike a clever balance between an affordable premium and meaningful benefit level. Ultimately, as we have seen in the microinsurance programs Women’s World Banking has worked on, a successful product has to avoid two extremes. On one end we have clients who do not understand the product and therefore do not buy or use it at all, and the second, unsustainability because pricing is not appropriate, operations are too heavy or fraud cases are not circumvented.
To achieve a sustainable business model for microinsurance, the first economic challenge is bridging the gap between the upfront investment, profitability and scale potential later on. New players are very nervous to make mistakes as there are still few successful schemes and little historical data on expected returns. As a consequence, they tend to fall into an even more conservative approach.
The second challenge is minimizing operational costs, an area where technology can help. It can help enroll more clients and pay claims more quickly through digital channels. There is increasing evidence that mobile channels can support client acquisition, many challenges remain including literacy and network coverage, particularly in remote areas. . The situation in Africa illustrates the point that technology is not the panacea, at least not yet: of the 61.9m people covered by microinsurance, MNOs distribute 13% of all policies, collect 1% of the total premium and pay 0.4% of the total claim volume.
The third challenge is reputational: To be able to scale, you need credibility, especially among a population that is unfamiliar with insurance. That only comes from paying claims quickly from day one while keeping your costs and loss ratio under control. This is why a client-centric view together with a long-term investment is required. If done right, a microinsurance scheme can be sustainable within the first two to three years, but scaling comes from outstanding customer experience so that investment costs are only recovered after five to seven years. This requires a long-term perspective.
While it appears that the business case for microinsurance is clear given all the products that have come to market, it will only come when a long-term perspective is taken. Key features such as low margins and client protection make it very different from traditional insurance so expectations must adjust with these differences. Nevertheless, the beauty with microinsurance is that, everyone can win… the insurer, the financial institution but most importantly, the client. New players to this space, as well as their shareholders must adopt a long-term perspective to make this a viable proposition.
|Microfund for Women, Jordan
96% women clients
|Al Amana, Morocco
45% women clients
|Finance Trust Bank, Uganda
50% women clients
|Lead Foundation, Egypt
88% women clients
|Product Name||Afitna||Tayssir Al Amana||TrustCare Hospital + Cash||Hemaya|
|Product Highlight||Hospitalization coverage for family members and life insurance for client and spouse||Ambulance benefit for the clients||Hospitalization coverage for clients||Hospitalization and life insurance coverage for clients|
|Launch Date||2006 for Life coverage, 2010 for client hospital cash, November 2015 for family coverage||2012 for client coverage, January 2015 for family||February 2016||November 2015|
as of December 2016
Of which 290,000 under the family policy
Of which 1,124,000 under the family policy
|3,000 (pilot phase)||115,000|
|No. of claims||39,271 + since 2006, 96% by women
Of which 3,576 claimed under the new family policy
|43,000 since 2012, 49% by women
Of which 31,000 claimed since the new family policy launch
|80 since February 2016 (pilot), 71% by women||1800 since November 2015, 92% by women|