Increasing Access to Insurance in Developing Countries
By Susan Holliday
Principal Insurance Specialist, IFC
The Role of Insurance in Economic Development
Insurance, pensions, and savings support sustainable development in a number of ways:
- Allowing enterprises to take on more risk and create new businesses and jobs.
- Providing a safety net for individuals, families, and communities.
- Acting as an economic multiplier. Insurers can deploy assets into the local economy and support infrastructure and housing.
- Supporting the development of capital markets as insurers can invest their own funds and their customers’ savings.
- Protecting against natural disasters and promoting food security.
Penetration of Insurance is Lower in Developing Countries
The penetration of insurance in developing countries measured by premiums to GDP is on average just 2.9% compared with over 7% in the US and higher in some European countries. Ironically this means that the most vulnerable people are often the least protected. To give just one example, more than one third of the world’s poor live in low-income countries, which represent 70% of the most natural disaster-prone countries. The average direct loss from such “nat cats” is 2.9% of GDP, and can be as high as 12% as we saw in the Thai floods in 2011, whereas in industrialized countries the average loss is only 0.8% of GDP. The life insurance protection gap is estimated (SIGMA – World insurance 2015) at US$7 trillion in Latin America and US$32 trillion in South and East Asia. In many cases, if the main earner dies or is unable to work, there is a devastating effect on their dependants, which in turn puts a strain on local communities.1
Affordable, Accessible, and Appropriate
The challenge before us today is how to provide protection that is affordable, accessible, and meets the needs of the individuals, families, and communities in developing countries. This is easier to talk about than achieve, but nonetheless technology is opening up new possibilities all the time and this is an exciting growth opportunity for the insurance industry. I would even go so far as to say that, as with payments and some other aspects of banking and lending, solutions from developing countries can help insurers transform their business models in more mature markets.
In order to gain traction, insurance products need to be affordable, accessible, and understandable. Technology can help achieve all of these. Traditionally many insurers shied away from mass market consumer and small commercial risks in developing countries on the basis that it was impossible to make any money. Technology can cut out costs, both in “manufacturing” and in “distribution”, and this possibility will only increase further as areas like artificial intelligence (AI), new methods of authentication, use of algorithms for underwriting, mobile payments, etc. develop further.
Typically, insurance products are seen as very complicated, even by experts like me! In some cases, there is a view (rightly or wrongly) that there is a lot of small print, put there in order for the insurer to avoid paying the claim. While protecting against fraud is important in being able to make policies affordable, the insurance has to be understandable and meet a real need. Otherwise people will not buy insurance unless it’s compulsory, which is not usually the case in developing countries. This is an opportunity to design simpler products, where it is more obvious when a claim in triggered, without the need for lengthy form filling or delays.
There is a huge need for financial education, in both mature and developing countries. This can be seen as a precondition to the successful adoption of insurance. The importance of face-to-face communication by trusted sources cannot be overemphasized. However, technology still has an important role here. Agents and brokers can be provided with technology on phones or iPads to improve customer service and make the sales process more efficient. Advice can be given online or via mobile, both in terms of the insurance itself but also for areas such as health or what to do in case of weather-related events, for example. Gamification techniques can also help educate people about insurance and risk and drive better behaviours, in terms of risk prevention, exercise, etc.
Technologies Applied to Insurance in Developing Countries
I would broadly categorize the main insurance related technologies as follows:
- Fully digital insurer – regulated risk carriers;
- Online brokers/advisors – often regulated as intermediaries;
- Aggregators and platforms – such as price comparison sites;
- Process improvers – dealing with one part of the value chain such as claims, payments, or doctor consultations;
- Data and analytics – support insurers but also other sectors such as hospitals, auto manufacturers;
- Other – the catch-all, but includes the important areas of drones, satellites, wearables, mobile health, agriculture, and weather tech.
These apply equally to developing and mature markets, but in some cases it may be easier to gain traction in developing countries as there is less of an incumbent legacy.
Examples of Technology
While we are only starting to see how technology can transform the insurance industry, I would like to offer a few examples of what can be done.
MicroEnsure – Use of Mobile Phone Distribution and Bundling to Increase Insurance Penetration
MicroEnsure is an IFC investment, which partners with insurers and distributors to provide innovative insurance solutions to bottom-of-the-pyramid people in emerging markets. A recent product to be launched was the digital health service, TONIC, in Bangladesh. TONIC was launched through Telenor’s mobile operator, Grameenphone. It offers four main services: health and lifestyle advice, access to a doctor on the phone at an affordable rate, discounts on services at hospitals, and a hospital cash product with claims paid directly to mobile wallet. This is an example of many of the ways that technology can deliver solutions in emerging markets, which both makes healthcare more accessible and cheaper and also relieves pressure on local resources due to saving on travel and hospital services.
Hellas Direct – New Fully Digital Insurance Company in Greece
Hellas Direct was founded in 2012 to offer motor insurance at a better price and with better customer service in Greece, where the economy remains under severe strain following the financial crisis. Hellas cuts out brokers (thus saving the hefty commissions involved) and sells policies directly by phone, online, or mobile. Underwriting is done by algorithms, so can be updated in real time, customers are offered different policy durations ranging from 30 days to a year, and claims are typically settled in a couple days making use of photos and videos from mobile phones and potentially even drones. The company has an app that can monitor driving behaviour and used gamification by launching a competition to identify the “best driver in Greece”, which should improve road safety. They also offer ancillary services such as roadside assistance and a network of garages to ensure cars are repaired efficiently and costs are controlled. This model increases the interaction between the policy-holder and the insurer and reduces the risk of fraud. This is a good example of using the most modern technology to provide competitive pricing and excellent customer experience in a market that is still very old fashioned, and with the potential to move into other types of insurance.
Turtlemint – Online Broker in India
Turtlemint is an online broker offering motor insurance for cars and two wheelers, health, and term life. As well as comparing prices, Turtlemint focuses on identifying the key priorities of the customer, such as being able to use your local hospital, and finding the best fit. It also provides education about risks, insurance, safety, and health. Some of the interesting features of Turtlemint are that the site is directly linked with insurance companies’ sites so you can buy a policy straight away; however, there is also an option to talk to an agent and many of Turtlemint’s users are company agents who are using it for lead generation, or point of sale agents (who represent multiple companies). This means that the company can also impact the 80% of the Indian insurance market that is still offline, or those who prefer to continue to go through an agent. They use Facebook messenger as a communication tool, which is popular in India as many people have phones that do not have a lot of memory and tend not to use apps. However, they also offer an app for agents as well as consumers, which provides fast processing of claims as well as access to ancillary services like roadside assistance. The company intends to add other lines of insurance such as travel, home, and crop as well as savings products in due course.
ACRE Africa – Applying Technology to the Needs of Small Farmers
One of the earliest examples of technological innovation in the insurance sector in developing countries was Kilimo Salama in Kenya. A joint venture between the Syngenta Foundation for Sustainable Development, Safaricom, and UAP Insurance, the product provided parametric cover based on rainfall. This model used various innovative technologies at all stages. The product was sold by community agriculture shops and seed distributors and if the farmer chose to buy the insurance, the stockist would scan the barcode on the bag of seeds corresponding to seed and fertilizer brands available for insurance at subsidized rates using an app on their mobile phone. The app would calculate premium payable, capture client details, and send policy confirmation via SMS. This was transmitted to the insurer, calculating the coverage amount and the premium. Communication was done by text message, and premiums and claims were settled using the M-PESA mobile wallet. The rainfall and other climate data were measured using solar-powered weather stations and the payments based on a widely used Water Requirement Satisfaction Index. The initial policy was designed so that if the crops failed due to weather, the farmer would receive a payout to enable them to buy more seeds to plant for the next harvest. The first version covered seeds for maize but subsequently the products have been extended to cover other crops, other inputs, such as fertilizers, and the harvest outputs. The product was also picked up by micro lenders, who made buying insurance a requirement to get a loan and this added considerably to the growth.
Conclusion
We can see that technology is already being used in many ways in developing countries to enable simple, affordable, and accessible products. While there are always local nuances, the ideas discussed here are certainly transferable to other markets. There are challenges to reach scale, not least the need for education about risk and insurance and advice. Furthermore, because these are new areas and in many cases involve collaboration between different sectors, it is important that regulation supports these innovations and they do not get caught up either in unintended consequences or in regulatory frameworks so onerous that they destroy the economics. It is, however, clear that technology is key to the advancement of accessible and affordable insurance in developing countries and can unlock many benefits both for consumers and the insurance industry.