Getting inclusion right is the theme of this year’s Financial Inclusion Week, from Monday 29 October – Friday 2 November 2018.
Here Richard Leftley, CEO of MicroEnsure, explains the importance and impact of simplifying insurance to reach emerging markets.
Why do we need to get insurance to the mass market?
Uninsured people in emerging markets are often only one or two disasters away from slipping back into poverty. Insurance acts as a safety net to stop that from happening. But when we talk about financial inclusion, it’s easier to discuss credit and savings. Insurance is the ugly duckling; it’s the hardest one to get your head around.
Around 97 percent of people in emerging markets are uninsured. Why is it such a hard sell?
If you ask emerging customers what they need, they’ll say a loan so they have cash to feed their kids. They might already be borrowing money from unauthorised lenders or people in the community, and they know about loans because banks and finance have been around longer. So credit doesn’t need much explanation. But because people have never had insurance, they don’t know they need it.
Just because customers say they want credit, does not mean they don’t want insurance. They simply haven’t been exposed to it – or an agent sold them an expensive policy with difficult terms and conditions, and long claims. So it’s no surprise people don’t want insurance, if that’s been their experience.
How can we combat that?
Insurers focus on product and pricing, and making sure people don’t defraud them. But the key item for inclusion is the distribution question: How can you get insurance to the mass market cheaply and efficiently?
At MicroEnsure, we have seen success with simple, low-ticket insurance products – all sold and serviced digitally in partnership with mobile phone companies, banks, and microfinance institutions.
When we get easy to understand and use products into customers’ hands – and create a frictionless digital customer journey – they really appreciate the product, use it, and tell their friends when it works.
So simplicity is the key to financial inclusion?
Insurers love complexity. We want to turn that on its head in emerging markets. If someone is hospitalised, we pay them a lump sum. It doesn’t matter where they get treatment, or how much it costs.
This is very easy to explain to people who aren’t literate, and it’s easy to reach them if it’s via a text message: “Pay a dollar a month, and if you go to hospital we give you $50.” Once we confirm they’ve been admitted, within a few days we can pay a valid claim. The customer can then use it to pay for medical costs, loss of earnings, and other related expenses.
This has a big impact in places like Pakistan, where it can prevent women dying in childbirth at home. They can say to their husbands, “I need to go to hospital. But don’t worry, we have money for it.”
In Africa and Asia, people don’t have savings accounts to fall back on. There’s no point giving them insurance if it takes up to three months to make a claim. We need to pay out quickly, and be transparent about why a claim was or wasn’t paid. Otherwise, people in the community lose
faith in the product and stop buying it.
How can the industry benefit from this model?
Many providers only insure the elite: a few people for large sums, which leads to uncertain financial results. By insuring millions of emerging customers for small amounts, you create more stable, predictable outcomes.
But insurers create complexity, which ultimately hurts them because it stops the masses signing up. You end up with only the sickest, oldest and most desperate people who are willing to go through the pain to get insured. If you make it simple to sign up, you end up with everyone.
Of course, that means you’ll insure some people who are aged 80, but the majority will be 25 because that’s the average age in a country like Zambia – where a lot people don’t even know their age. And when you’re selling a policy for a dollar, with a 30-cent administration allocation and $100 payout, does it really matter?
So, simplicity benefits everyone. Customers get a cheap, easy to use product with quick claims, and insurers reach more customers.
What’s the future of financial inclusion and insurance?
At the moment there’s a push for customers to pay for services with mobile money – their airtime balance, or money pre-loaded onto a mobile wallet. But not many emerging customers have a mobile wallet and store money on it. And airtime is only relevant for paying insurance premiums – not savings and loans. So while giving people access to insurance is important, we still need to crack how they pay for it.
Looking ahead, I think the B2B2C model will continue to expand as we partner with more telcos, banks and remittance companies. But the next big question is: Can we leverage trusted platforms like Google, Facebook, and WhatsApp to reach the next 10, 20, or 30 million people in emerging markets? At the moment, we’re reliant on mobile phone companies that are squeezing the market in terms of costs. We need to find a way to de-link those payment mechanisms, so platforms like Facebook could facilitate the selling of insurance products.
I also wonder if regulators will continue their light touch in allowing microinsurance to flourish, or if they’ll get more involved. So far, they let us get on with it. They say: “Here are the edges of the football pitch; just don’t go beyond the white lines. But whatever you do in the middle, you can find your own way.” As microinsurance grows and reaches more people, it’s inevitable regulators will want to reach in and tell people how to play – to ensure customers are protected, and get the right advice and products. All of that is good, if the model doesn’t have to bear the cost.
Find out more about Financial Inclusion Week which is led by the Center for Financial Inclusion at Accion (CFI), an action-oriented think tank that engages and challenges the industry to better serve, protect and empower clients and is based in Washington, DC.