In rural areas of Ghana, where the lack of roads, bridges and reliable electricity poses major barriers to commerce, insurance deals are still being closed. A product called mi-Life, which uses the SMS-based MTN Mobile Money network, allows customers to buy insurance from MTN Ghana and manage policies on their phones. Mobile technology has created an unprecedented opportunity to provide medical help, legal aid and financial services in low-income and rural areas, and combined with microinsurance, has major implications for insurers worldwide. The potential market is huge—between 1.5 billion and 3 billion policies, according to Lloyd's. To succeed in microinsurance, though, organizations must find nontraditional partners and creative ways to distribute products.
Microinsurance provides protection with low premiums and coverage amounts, and supports high-volume sales, typically through emerging distribution channels. It covers the unique risks facing low-income households and others previously excluded, and can serve as an effective business model for a range of short-term, commodity-based products, which may explain why 33 of the top 50 global carriers now offer microinsurance.
Even in remote locations, consumers need affordable life, health care, funeral, property, agriculture, livestock and catastrophe insurance. One illness can throw a whole family, including children and grandchildren, into poverty. Funeral costs can exceed a family's yearly income. In addition to the protection that microinsurance affords, it enables people to take the calculated risks necessary to begin building wealth.
Moving into a market with minimal financial literacy means products must be based on easily understood concepts with clear choices. Premiums must also remain small, with clear-but-flexible payment schedules. Bundling microinsurance products also is crucial to reducing servicing costs and overall risk. Above all, products should be customized to meet unique market needs, such as political unrest insurance for areas beset by protests or looting.
Innovative Partnerships and Technology
Reaching billions of rural consumers poses major challenges, requiring local partners with established relationships. A variety of microfinance institutions already serve as local partners, but there are other options, such as supermarkets and utility companies. In Colombia, life, accident and other policies are sold through electricity provider Codensa, for example, and in South Africa, funeral insurance is sold at retailer Shoprite.
In some cases, a partner's product can be a distribution channel. In India, personal accident coverage is sold on bags of fertilizer, for example. Such innovative approaches also can help insurers serve broader markets with short-term products for car rentals, travel and cell phones.
Technology is crucial to creating highly-efficient products and claims-handling processes. In addition to doing business over mobile devices, insurers also can take advantage of weather indexes for underwriting crop insurance, RFID tags for insuring mobile property, such as cattle, and biometric identification for providing health insurance to the illiterate. A new product from U.S.-based MetroMile uses motor vehicle telematics to price premiums based on the number of miles driven. Each of these innovations can help bring insurance costs into the affordable range.
Insurance operations also should explore nontraditional ways to administer microinsurance. Software-as-a-Service and Business-Process-as-a-Service are enabling the rapid launch and cost-effective incubation of new products with low up-front costs. Agile product introduction tools and highly configurable systems also make it easier for organizations to take on new partners and channels.
Staying Competitive in a New Market
Microcredit was the first microfinance product to gain worldwide recognition, but the first movers were not banks. Consequently, mobile network operators and other innovators already are leaving banks behind and it won't be long before insurance providers are in the same predicament. The microinsurance market presents tremendous potential. The social benefits are compelling, and for insurers, benefits include profit, increased geographic reach, product innovation and an improved reputation. For North American insurers, it is also an opportunity to develop business practices and efficiencies to reach underserved markets at home. The change in mindset caused by reaching those most in need will result in a competitive edge not only in this new market, but in the insurance industry as a whole.
Erica Salinas is a project and change manager with CSC.
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