Musings on mobile microinsurance

In the first few months of my Fellowship with the ILO’s Impact Insurance Facility, I have had the opportunity to work on a mobile microinsurance partnership. This has led to a sea of learning and some reflections about a model that the microinsurance world has been very excited about (for good reason).

Undoubtedly, the Mobile Network Operator (MNO) infrastructure has huge potential for supporting insurance penetration in most markets. In stark contrast to single digit insurance penetration in most developing markets, globally mobile phone penetration is moving towards 100% and may even surpass it! In Kenya, where I am based, SIM penetration reached 78% in 2015 and continues to grow rapidly. Mobile phones have become 24X7 companions across demographics, and that makes it a desirable delivery mechanism for insurance.

But we have to ask the question: why would MNOs be interested in distributing insurance? Maybe because whilst insurers are seeing significant growth in some emerging markets, MNOs are approaching saturation and experiencing a slowing average revenue per user (ARPU), a key indicator of profitability. There is therefore a significant opportunity for MNOs to use their infrastructure to take advantage of this growth in the insurance industry.

As with any other business model, the mobile microinsurance model has some issues which need to be addressed to make the partnership successful at scale. Some issues that I have observed are:

1. Commitment to the cause: Insurance is one of many value-added services (VAS) that an MNO can offer to its customers in order to increase ARPU. Often the other VAS are more attractive to customers and easier to sell. In short, an MNO has no reason to be wedded to the insurance cause and the decision to offer an insurance product is a very transactional one. The MNO could hypothetically replace insurance with a ringtone next month and get the same results. I wonder if this makes the MNO an unlikely long-term insurance partner?

2. Balance of power: The MNO owns a distribution channel reaching millions of customers which the insurer desperately wants access to. This makes the partnership a lop-sided one. At least until insurers find another distribution partner that can reach as many customers with such ease, it looks like the insurers need the MNOs more than the MNOs need the insurers.

3. Customer association: I can imagine customers getting excited about being offered a free ringtone by their mobile operator, but getting a bit confused at seeing a message about free insurance. They do not expect their mobile operator to be talking to them about insurance and may ignore or not understand the message. This has presented problems in the form of low awareness and consequently low claim ratios.

Is there a magic wand to solve these problems? I would like to stick my neck out and say, yes! One such magic wand could be if the MNO was interlinked with a financial institution. While it’s not a widespread practice, there are instances of MNOs being operated by financial service conglomerates.

My fellowship is with the Equity Group in Kenya, which owns a bank, an insurance broking arm and a virtual MNO (MVNO) known as Equitel, among other entities. The MVNO is run with the primary purpose of delivering financial services through mobile phones. As a result, the MVNO is completely committed to the cause of increasing insurance penetration along with access to other financial services. Since insurance is an integral part of the group, the balance of power is maintained. And since customers largely use their Equitel lines to conduct financial transactions, they would not be confused to receive insurance offers on it. In fact, as research has just shown, they are looking forward to it. Fingers crossed!

The million dollar question, however, is: even if this model succeeds, is this is a one-off case, or will we see more like it?