Micro-insurance -- Thinking innovatively in targeting the uninsured

On a recent trip to South Africa, I was interested to see some innovative ideas targeted at the uninsured, currently around 90% of the population. South Africa, along with other emerging economies, face many structural challenges impeding the broad adoption of insurance. Remote areas of the country have poor road and communication infrastructure. Almost two-thirds of the population have no bank account. Accessibility to financial services is low as is the understanding of the value of such offerings.In a bid to rectify this, the government put in place targets back in 2003 for the financial services industry. The banking sector had to introduce a low cost bank account, now in place, and the insurers had to commit to massively increasing accessibility to insurance. The low cost bank account, called Mzanzi, is standard debit-card based account attracting no service fees. The insurers have accepted the challenge and plan to increase current penetration rates by 180% over the next five or so years.

In my conversations with South African insurers, it’s clear that whilst committed to these targets, tapping into the previously uninsured market remains immensely challenging.The innovation is mostly occurring in the area of products and premium collection. Tying product requirements to the needs of the uninsured is a sure-fire way of garnering interest. House, motor policies have little relevance for those who own none of these assets. However, household contents policies, funeral policies and term life are of interest.

One of the constraints for insurers has been and still is the collection of premiums. With many people not having bank accounts, credit/debit payments or direct debits are just not possible. Mobile phones are being used in one or two cases to purchase insurance. Voucher cards, paid for by cash upfront, offering term life insurance can be bought at supermarkets and other consumer outlets.

Technology can play a role in supporting this small but growing market. Low-cost policy administration and claims systems can form the heart beat of such an operation supported by a flexible product configuration tool. There is little need for broker/agent or consumer portal technology. Products in these markets such as shack insurance, life insurance for a month, or crop insurance may seem unusual but can be supported through the use of modern packaged tools. One of the more unusual product characteristics is the method of premium collection. For example, premium paid upfront, or monthly, or paid via a mobile phone account (or other third party collector). This flexibility needs to be supported a modern product configuration tool.

In South Africa, as in some other emerging countries, tapping the previously uninsured is a government enforced social objective and this has focused insurer’s attention on this challenging area. Micro-insurance is unchartered territory and as such it’s not possible for insurers to look to established markets for best practices.Successful insurers in these markets will continue to innovate in areas of product design and premium collection and this analyst will be keeping an eye on how this market evolves.