Microinsurance Innovations: What’s Next?

> Posted by Olivia Caverly, Microinsurance Network

Financial Inclusion 2020 Blog Series banner imageThe Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.

The microinsurance sector has grown rapidly over the past 10 years and is expected to double by 2020, producing coverage for over 1 billion people. With it, this significant growth brings new and exciting innovations in products addressing health, agricultural, and property insurance, as well as new business models that find unique delivery methods to be sustainable.

Endowment Products Assist People to Finance Their Old Age

As life expectancy continues to rise globally, endowment products, which pay a lump sum upon maturity or death, are becoming more relevant. People need to find ways of financing their old age. Historically, standard endowment products have had limited uptake because of their lack of value compared to other saving options, mainly due to the high commissions that agents are paid. However, a new wave of products combining savings and insurance are becoming popular.

These new endowment products are more appealing to low-income clients because they counter the notion that investing the money is in “vain” when the insured event doesn’t happen. They do this by combining insurance with savings over time. Grameen Shakti, SBI Life Insurance’s product, for example, bundles a term life product that is the same price regardless of the age or gender of the policy holder, with a cash benefit on survival of the pre-determined policy term. The simple terms of the product, which include limited choices of term and of death benefit, help it reach a wider audience by allowing people who might be less familiar with insurance to better understand what they are paying for. Grameen Shakti is now offered throughout India (Rusconi).

Technology Plays a Key Role

Technology has proven to be a huge enabler for microinsurance distribution, especially through mobile telephones. This is particularly true for those microinsurance target customers who reside in rural and semi-urban areas of developing countries with limited access to traditional sales and management methods.

Microinsurance actors such as Tigo, a mobile phone operator, Bima, a mobile insurance provider, and MicroEnsure, a microinsurance provider, have teamed up to distribute insurance in a more cost-effective manner. In 2011, Tigo offered free insurance to its clients for 12 months as a loyalty product, to introduce clients to the product and allow them to wait on purchasing until they have a better understanding of how it works with their mobile phone. If a customer uses a certain amount of airtime minutes per month, she receives free life insurance for herself and one family member. She also has the ability to pay an extra fee to increase her insurance cover. All of the fees are paid through the customer’s airtime balance. The use of such mobile based payments platforms is an exciting innovation, and many microinsurance providers are experimenting with this in Africa and India. Though still new, the service has already provided basic life coverage to 978,000 Ghanaians who were previously uninsured. Not only did this service benefit the insured, it also gave Tigo an edge over its competitors as it provided incentive for potential customers to choose Tigo as their provider (Zetterli).

Lack of Financial Capability is a Challenge

A substantial challenge faced by microinsurance providers is that the services target clients who are unfamiliar with insurance, and as a result have a hard time understanding its value. Many believe that there is no point in investing in a product unless they receive some immediate benefit. Financial education is therefore extremely important. One microinsurance education success story is the CARE and Bajaj Allianz partnership created in 2008 to provide property and health insurance to people in Tamil Nadu after cyclone Nisha. In their work the team soon realized that many individuals were uninformed about what insurance actually entailed. To raise awareness about its benefits, the team put up posters, created self-help groups, and organized Bollywood-style presentations with puppets to educate potential clients. Though effective, this proved to be costly. To offset this cost, Bajaj Allianz raised the premium, which was possible because they had succeeded in making the product well known and demand was increasing (Butt).

With microinsurance growing at such a high rate, with more and more people benefiting from it each day, such innovations are very promising.

For more information on Financial Inclusion 2020, sign up for campaign updates.

Works Cited:

Aaban Butt, Experiences in Micro-Insurance (CARE International, 2010).

Rob Rusconi, Savings in Microinsurance: Lessons from India (International Labour Organization, 2012).

Peter Zetterli, “Can Phones Drive Insurance Markets? Initial Results From Ghana,” CGAP, Feb. 15 2013.

Image credit: microDINERO

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