The business of insurance is hard. Microinsurance has proven to be mostly impossible. Whilst promising exampleshave been documented of insurers achieving the impossible, sometimes even at scale, insurance cover for billions of excluded adults appears to be a long way down the road.
Reviewing our research to date we’ve attempted to identify the top reasons why this challenge appears insurmountable. We have, for now, settled on the following five:
- Inadequate knowledge of low-income customers.
- Inadequate access to these customers.
- Inappropriate products for non-“standard” risk needs.
- Customers are inexperienced users of formal risk management products.
- Insurers’ delivery costs are inappropriate for low-value premiums.
If digital technology is going to address the challenges in delivering microinsurance, it will need to address or remove one or more of these sticking points. To see if this is likely, we are reviewing current developments in the insurance technology space, mainly from emerging markets.
The image below provides an overview of some of the first 80 initiatives – commonly referred to as InsurTech – that we’ve identified in Latin America, Africa and Asia.
Our initial findings have been encouraging. We’ve seen advancements in product design, sales, policy administration, premium collection and claims settlement. These advancements are taking place across risk categories that have particularly impactful development outcomes, such as health (e.g. Jammi in Tanzania) and agriculture (e.g. Bluemarble ventures in Zimbabwe).
These technologies are speaking to the heart of challenges we’ve identified in our research to-date. Initiatives by Cignifi and Satsure in sub-Saharan Africa and India are using mobile call and satellite imagery data to better understand the risks customers face and to assess claims. New administration platform providers, such as Healthix, Claims Sync and DaveTail in Kenya, Tanzania and Colombia, seek to reduce the cost of policy initiation, servicing and claims settlement. Digital advisors such as SemaDoc and EasyPolicy assist customers, unfamiliar with insurance or health services, in identifying products and services that can manage their particular risk needs. Peer-to-peer insurance initiatives, such as Tongjubao in China, seek to redefine the delivery model altogether and remove some of the sticking points of traditional insurance.
We’ve attempted to group the technology used in these initiatives into categories that can assist us in understanding how they are likely to evolve over time. These six categories are discussed briefly below:
1. Insurance providers, mobile network operators (MNOs) or other aggregators and third-party service providers (TSPs) enter into strategic technology-enabled partnerships to take advantage of marketing, client acquisition and premium payments through an established brand – mostly through the mobile phone channel. For example, YuMobile in Kenya launched a loyalty-based insurance scheme (YuCover) with a renewable monthly life and disability cover based on the amount of airtime recharged each month. In Pakistan, Easypaisa provides monthly life insurance coverage to its mobile account holders based on the average monthly balance in their mobile accounts.
2. Insurers or TSPs use digital technology to offer insurance products or services online on digital platforms that take face-to-face or pen-to-paper elements out of the insurance provision and bring down delivery costs. At least five applications of technology are relevant in the inclusive insurance context:
- Digital contracting
- Digital payments
- Digital brokers
- Online servicing
- Online claims processing
For example, Dreamtekis from India provides software to microinsurers globally. Their services range from client management, underwriting and claims to reinsurance and accounting. ByteMoney from South Africa developed a PoS terminal and premium payment platform to enable insurance agents to accept funds, issue premiums and receipts, and better track their customers in rural areas in real time.
3. Digital data generation, communication and analytics are used to inform insurers about customer needs and behaviour patterns in the form of new data and analytics. This can be leveraged for product development and claims processing, amongst other uses, or to better tailor distribution and reduce churn. Various applications are relevant:
- Data generation: ”Big Data” collection through social media and phone interactions.
- Data communication: telematics, the Internet of Things (IoT), blockchain – real-time collection of data.
- Data analytics: smart analytics, AI, machine learning.
For example, India’s IFFCO-Tokio is using Radio Frequency Identification chips that are injected under the skin of an animal to decrease fraudulent claims and speed up the claims process for its livestock insurance policy. Yatis, also from India, is a car IoT device that allows users to connect their smartphone to cars to monitor driving behaviour. It also allows users to compare driving skills with friends.
4. Peer groups, such as owners of houses, cars and household items, team up to absorb each other’s risks, with everyone contributing money to insure the group members’ losses. This peer-to-peer insurance (P2P) system is enabled by digital technology as it connects the peer groups with each other, independent of the individuals’ location, on a digital platform or marketplace. In contrast to traditional insurance providers who rely on the typical information technology infrastructure, P2P insurers can build sleeker, less expensive and more customer-focused, data-driven insurance systems. For example, Riovic from South Africa, a P2P platform, acts as a marketplace connecting those seeking insurance with investors who are willing to share the risk of a payout in exchange for returns in the form of premiums.
5. Index-based insurance (IBI) is used to protect against shared rather than individual risks, such as weather fluctuations, disease outbreaks or price loss. IBI offers policyholders a pay-out based on the external indicator, which triggers a payment to all insured clients within a geographically defined space. Technology enables the system to collect the indicator’s data in a systematic and detailed way and transmits the data to the insurer. Smart contracting based on blockchain can be applied to automate and streamline the pay-out process to save costs. For example, Kilimo Salama in Kenya allows farmers to insure inputs purchased at participating agricultural dealers. Rain levels are monitored using satellite data and automated weather stations and in the event of excess rain or drought, funds are automatically paid into the farmer’s M-PESA account.
6. Demand-based insurance is triggered by an action of the customer and relies on sophisticated risk-modelling technology. It covers asset insurance products, which would not be possible to cover individually under traditional inclusive insurance approaches.
- Usage-based insurance has found its application so far mainly in the motor vehicle space. Telematics technology enables the insurer to monitor how far a car owner drives in a certain time period (‘pay as you drive’) and his or her driving behaviour (‘pay how you drive’) and is hence able to price premiums solely according to the use of the car. For example, Hollard in South Africa uses a satellite-tracking device attached to the car to precisely measure the kilometres driven and prices the premiums accordingly.
- On-demand insurance products are delivered mostly on a mobile and underwritten in seconds by the insurer at the convenience of a customer. The unbundling of insurance policies into specific risk protection has applications in fields like travel and transport (being insured whilst riding in a taxi), health (being insured whilst playing a game of football), or the shared economy (being insured when borrowing your neighbour’s car for an hour in the evening). Digital technology transmits the insurance request in real-time via an app or platform, which facilitates premium pricing, payment and pay-out in a streamlined process. Although we have not seen this being applied in emerging markets yet, Trov will allow users in the US to buy insurance for specific products, for a specific amount of time. When a customer inputs a certain product (a television, appliance, phone etc.), Trov generates all the metadata necessary to insure that item from the make and model within seconds from a smartphone. This platform will launch in 2017.
Most of the initiatives we have identified to-date are new, some as new as a few months, whilst others have already halted operations. None of these initiatives, however, with the exception of technology-enabled partnerships created by the likes of Bima and MicroEnsure, have made substantial inroads in the markets they serve. As we continue to understand these technologies better through a series of case studies, we will continue to evolve our understanding of the potential they hold.
If you are interested in contributing your thoughts to this study or if you know of digital technology initiatives that we’ve missed, please contact email@example.com.