Mobile insurance as a source of innovation

The use of mobile in insurance is usually related to the self service capabilities insurers can deploy for agents and for upper income groups such as quote, bind, issue, claims and printing, all for which a smartphone is a better device than just a simple mobile. One trend we have recognized is that mobile technology is being used in emerging markets to innovate as a means of distribution and collection, especially to low income consumers through microinsurance products, as there is usually 70 per cent mobile penetration but insurance penetration is below 5 per cent. Mobile operators benefit as well, as they are able to turn ‘pay as you go’ customers into annual subscription contracts. Microinsurance aims to the base of the pyramid (BoP) population and has the potential to play a very important social and economic role by breaking the vicious circle of poverty and vulnerability that affects the low income segments of the population. It can also help local economies by redirecting funds to be invested into high-return/high risk assets, that otherwise would be allocated in low return investments or even kept without investing. For many insurers it is also the opportunity to position its brand in a population that eventually will demand more insurance products. While in 2006 only 78M of risks were covered under microinsurance products in Asia, Africa and Latin America, by 2011 this number was over 500M! Latin America representing 10% while Asia had near 400M risks covered. The potential market for Latin America is estimated in 360M of people, with Mexico and Brazil concentrating around 55% of this market. A usual misconception is that emerging markets are behind most mature markets in terms of internet and mobile usage. You might be surprised to know that Latin America for example:

• Had 231M internet users in December 2011 (10% of the world internet population);
• Had 145M Facebook users in April 2012 (18% of worldwide Facebook users), and
• Had +500M mobile connections as from March 2010 (86% of the Latin American population)

As for smartphones, clearly of more interest for deploying self service capabilities for agents and upper income consumers:

• Brazil has more smartphone users than France or Germany
• Brazil and Mexico together have more smartphone users than Australia has inhabitants
• Argentina smartphone penetration (24%) is better than in Germany
• 26% of Mexican smartphone users have made a purchase on their mobile
• 45% Brazilian smartphone users have purchased on their computer after researching on their mobile
• 82% of Argentinean smartphone users have researched a product/service on their mobile

The microinsurance market matches almost perfectly with the conditions for innovation as it is an under-served, untapped market that presents fragmentation and it is a high cost to serve market under the present business model for traditional insurance companies. Mobile is just one of the technologies available that could help insurers serve the low income market with a profitable model. Microinsurance strategies require an innovative approach in areas such as product, rates, distribution, claims and collection and it is a shared view among industry leaders that such innovative approach could afterwards be used in their incumbent markets.