Insurtechs provide great potential for microinsurance growth in emerging markets

However, experts emphasize building trust and financial literacy to attract more customers

Kampala, Uganda | ISAAC KHISA | Nairobi-based insurtech firm, Turaco’s decision, to unveil operations in Uganda to provide medical insurance has signalled an immense potential for the growth of microinsurance in emerging markets, especially across Africa.

Launched four years ago, Turaco has successfully insured over one million individuals in Kenya, Nigeria and now Uganda through strategic partnerships with several companies including Airtel Mobile Money, Prudential Insurance, M-Kopa and One Acre Fund among others.

The partnerships have enabled the insurtech firm to design white-labelled insurance products, allowing customers to easily sign up and pay for insurance while purchasing other products or services.

In Uganda, Turaco has partnered with Airtel Mobile and Prudential Assurance Uganda to roll out a low-cost hospital cash insurance product with a funeral benefit named Hospital Sente.

For a monthly premium of Shs1,000, customers receive a hospital cash pay-out of Shs 40,000 per night of hospitalization and a funeral plan of Shs1 million under the Silver Plan.

Likewise, a Shs 3,000 monthly premium provides customers with a hospital cash pay-out of Shs 60,000 per night and a funeral benefit of Shs 2 million under the Gold Plan. For a monthly premium of Shs 5,000, customers get a hospital cash pay-out of Shs 100,000 per night of admission and a funeral benefit of Shs 4 million in the event of death under a Platinum plan.

“In Uganda, insurance penetration is at a dismal 0.8%, the lowest compared to our neighbouring countries – Kenya and Tanzania,” said Hamza Mutebi, the General Manager and Principal Officer at Turaco.

“…These figures show that the vast majority of Ugandan families are highly exposed to financial risks and we have a long way to go in ensuring that every Ugandan family has access to insurance.

Currently, Kenya and Rwanda’s insurance industry are the only ones in the East African region with the highest insurance penetration. Kenya has insurance penetration of 2.6% while Rwanda has insurance penetration of 1.6%.

But these figures, like in many African countries, are still very low. This is because Africa’s insurance penetration rate stood at merely 2.78% in 2019, significantly lower than the global average insurance rate of 7.23%.

To make the situation worse, insurance penetration in Africa is concentrated among the urban elite, with minimal adoption among the remaining 90% of people with low and middle incomes — the very people who often face the most risk of financial shocks.

As a result of this lack of coverage, 14 million low-income households in Africa are said to be pushed into poverty every year owing to unplanned health costs alone, according to the World Bank.

It is this category of the population estimated to be approximately 8 million hooked on the Airtel Mobile in Uganda that Mutebi says Turaco hopes to provide protection, with claims paid via mobile money channels. Finscope survey shows that the number of people with some sort of insurance in Uganda dropped from 349,295 in 2013 to 220,000 in 2018.

Insurance captains who spoke to The Independent said Turaco’s growth has proved that there’s market for microinsurance products and services.

“One of the reasons why micro-insurance has not succeeded is mainly because of the costs of doing business. People come into microinsurance using traditional methods – that is the use of brokers, agents, setting up offices and sell usual products such as motor, property where clients pay annual premium – and with expectations that they will make money in one or two years,” said Protazio Sande, director research at the Insurance Regulatory Authority of Uganda.

“Now when you are using this model, you are not speaking to the small value policies. If one adopts that approach, then they may not get the demand, and even if they get demand, distribution costs will push them out of the market.”

He said there’s a huge potential for insurtech to stir uptake of microinsurance because their distribution costs are low owing to their digital channels and customers can be reached remotely easily eliminating incidences of travel costs to reach out to the customers.

He says most of the population now have mobile phones that can ease policy purchase and claim payments via mobile apps and USSD.

Latest statistics from the GSM Association show that the number of mobile phone subscribers in Sub Sharan Africa is expected to increase by more than 100 million new subscribers by 2025, taking the total number of subscribers to 613 million. This opens opportunities for insurance firms to expand their reach.

Genesis of microinsurance

Protazio said the rise in microinsurance in 2000s was motivated by a belief that low insurance penetration among the mass market was driven by the high cost of insurance. The industry assumed that reducing prices would be sufficient to increase demand.

However, with these mass-market insurance offerings still failing to deeply penetrate African markets over the last 20 years, many have shifted to the belief that there is a deep-seated demand-side issue — maybe customers just don’t understand or see value in the benefits of insurance.

Susan Holliday, Principal Insurance Specialist, Insurance and Financial Guarantees, Financial Institutions Group, IFC, says while the majority of insurtechs currently operate in North America, Western Europe, and developed Asia, an increasing number are gaining traction in developing countries.

“We believe there are some areas where insurtech will be particularly powerful as many emerging markets leap digital. In countries such as Kenya and China, mobile banking and payments are already advanced and widely adopted,” she said.

However, Holliday says there are some caveats. Insurance is less well-known and understood in many emerging markets especially in Africa than it is in Western Europe, North America, and Japan.

“In some cases, there are legitimate trust issues associated with insurance. This is because in the past some insurers did not pay legitimate claims and brokers failed to pass on premiums, leaving both the customer and the insurer in the lurch,” she said.

“In this context, a level of personal trust is required, and consumers and small business owners may need help before they feel confident enough to buy insurance on their tablet or mobile phone,” she said, adding that there’s an increasing importance (perhaps surprisingly) of call centres and tech-enabled agents.

She said shorter-term and on-demand policies are also likely to offer benefits where there is a lot of informal work and it may be difficult to pay for an annual policy. These types of products, Holliday says may also be more attractive to younger people, informal workers, and gig economy participants.

“Insurtech is delivering clear value here and it will be even greater in emerging markets. This includes using digital technology to settle claims faster, improving customer service, and reducing the risk of extra costs being accumulated,” she said.

She added: “Customers can now take photos or videos on their phones, if necessary in conjunction with a remote loss adjuster, to assess the damage and quickly begin the repair process.”

She said digitalization also makes it easier for both the insured and the insurer to track the claim, which further boosts customer satisfaction. She said the claims area is one of the most fruitful for applying artificial intelligence which has already taken off in developed markets.

“AI can be used to identify potential fraud or cases where something is awry. Insurance companies in the United States and Europe are already seeing major cost savings in this area, which in turn can make these companies more sustainable and keep insurance prices affordable,” she said.

Options to deepen insurance penetration

However, insurtech is not a silver bullet. Holliday says unlike in mature markets where people tend to start with auto, renters, and property insurance, in developing countries the entry point is more likely to be life insurance, often linked to a loan or health insurance, especially for lower-income individuals.

She says financial literacy is needed as the issue is in many countries, not just emerging markets. She says many people and small business owners don’t understand the risks they face and may end up losing all their savings due to events such as illness or loss of their business to flood or fire.

“Insurtech can play a role in this, with advice and education on the web, gamification, call centres, and chatbots, among others,” she said.

She said biometric identification can also play a big role in preventing fraud, which otherwise drives up the costs of insurance for honest customers, particularly in health insurance.

She says while it is not essential, the experience in India and some African countries has indicated this type of identification removes a significant barrier to developing better insurance solutions.

She added that whereas some apps can record data and upload it later, access to a strong network or WIFI at some point in the day is critical.

Protazio said digitalisation is the only option to grow the uptake of microinsurance. “For microinsurance to succeed, all the insurance processes have to be digital, right from policy underwriting to claims payment. If an insurer wants customers to sign here and there, they will not manage because the claims comes in huge volumes. So, automation makes it faster, saves time and resources.” he said.

Lessons from five successful insurtechs

BIMA: BIMA is an innovative insurance provider operating in developing and emerging markets, utilizing mobile technology to offer its services. The key innovation lies in BIMA’s proprietary tech platform, enabling quick registration and payment processes for policyholders. Users register via their mobile phones, providing basic identification details in about 2 minutes. Premium payments are collected by automatically deducting prepaid airtime credit, making insurance more affordable and accessible.

BIMA employs a trained agent network for distribution. These agents engage with potential policyholders, offering education on policy details, costs, and coverage levels. After purchase, customers receive confirmation SMS messages and monthly reminders of their coverage status and payment amounts.

BIMA offers various personal insurance products, including accident, life, and hospitalization coverage (with fixed payouts for each night spent in the hospital). To make a claim, policyholders contact customer support, who assist them in filing their claims. Claims are paid in cash within 72 hours of completion.

Friendsurance: Launched in 2010, Friendsurance is a pioneer of P2P insurance. Policyholders with the same insurance type form small groups, and a portion of their premiums goes into a cashback pool. If no claims are made, group members can receive up to 40% of their premiums back at the end of the year. Large claims are covered by traditional insurers.

InsPeer: Founded in 2015 in France, InsPeer allows a group of people to share deductibles when a claim is paid. Policyholders can raise their deductibles and share risks with designated groups. InsPeer covers auto, motorcycle, and homeowner’s insurance policies. Users form small groups to share the risk of filing claims, with exposure limited to €100 per participant and €1,500 across the platform. The service is free if there are no claims, with a 10% fee on insurer-paid claims.

Guevara:  Based in the UK, Guevara offers auto insurance policyholders the option to join groups, splitting premiums into individual group pools and a collective pot. Claims are paid from the group pools until exhausted, then from the collective pot. Peer pressure is used to encourage responsible behavior and keep claims low. Leftover funds in the protection pool carry over to the next year.

Lemonade: This is a New York-based insurer. Here premiums go into a claims pool, with a fixed fee deducted for reinsurance and expenses. Any surplus funds are returned to policyholders or donated to charities of their choice. Lemonade uses AI apps for policy offers and factors in various risk mitigation factors to calculate individual premiums.