When will we see ‘m-insurance’ join the commonly used new dictionary of commerce? The quantum leap of mobiles into commercial usage has given birth to various new words such as m-commerce, m-payments and the acronym mFSP, meaning mobile Financial Services Providers. So the question for the insurance industry becomes: Is m-insurance close, inevitable, possible and a good idea? Probably more to the point: How will it work?
The growth of the mobile phone market¹ is one of the more remarkable stories in recent times. The numbers are startling! As at 11.31am on the 13 January 2010, the GSMA reported that there were over four billion (4,133,185,526) mobile connections², increasing by thousands every few minutes. These mobile phones are increasingly reaching consumers who have had limited – or no – easy access to services before. Now with an estimated 60% of the unbanked in Southern Africa having mobile phones (cf FinScope surveys), the possibilities are virtually unlimited.
The advent of mobile operator-led ‘mobile money’ has dramatically increased the interaction of the mobile and financial services, with McKinsey estimating that it would “generate US$5 billion in direct revenues and US$2,5 billion in indirect revenues per year to mobile operators”³
So where does the future of the insurance industry feature in this modern marketing phenomenon? How soon will we be referring to m-insurance with the same familiarity as we talk about m-payments and m-commerce?
Drivers of M-insurance
In theory, the role of cell phones in insurance is strong as it should provide the following benefits:
- lowering the cost of collections, especially where ‘mobile money’ has been offered by the telco⁴
- providing a potentially ‘free’ form of distribution using the telco platform;
- Improving persistency of premium payment, through sms reminders;
- Empowering the consumers to manage their insurance in a cost effective and accessible manner;
Although these drivers seem strong, understanding how to engage with the consumer effectively is vital to success.
Customer Touch Points
One way of looking at the role of cell phones in financial services is to consider the customer touch points – namely, how cell phones interact with consumers. This includes (a) how consumers are acquired/how consumers purchase a service, (b) how one remains in contact with consumers, (c) how consumers transact, and (d) how can one cross-sell other products to consumers (see Figure 1). Through understanding these ‘touch points’ one can then understand better what is required to take advantage of new this wave to democratise access to financial services and, in this case, insurance. As the focus will be on developing countries, it will of course mean that it will be on “micro” insurance / insurance for the low income market, as most users of mobile phones in developing countries fall into this category.
Figure1: Customer Touch Points
a) Customer acquisition
Using mobiles as a means to acquire the consumer is one of the least utilised approaches in m-insurance. This is partly due to the fact that many telcos have seen their role to be as a ‘pipe’ where companies use their services rather than partnering with other companies, with some exceptions. Three exceptions are:
- South Africa: Take It Eezi⁵/Hollard partnership: In this case, Take It Eezi, a prepaid airtime vending company with 17,000 agents, uses the menu on a cell phone as a means to sell funeral insurance products. Whilst it in its early days, the potential for this sales mechanism is high especially in markets where there is limited formal infrastructure;
- Namibia: Trustco/Leo partnership⁶: Trustco developed an embedded funeral product that provides a certain amount of funeral cover for each rand of airtime spent. This is certainly a good product for an insurer which has a group policy with a telco to cover all clients – the challenge remains making the client base fully aware of the benefits. It should also provide a useful base of clients which can be cross-sold clients to.
- Hollard Direct Solutions ‘Please call me’ adverts: In this case, an advert for an insurance product has been placed on the ubiquitous ‘Please call me’ text messages. This allows the client to either SMS a Hollard number or send a ‘Please call me’ message so that a call-centre agent can call them. Whilst this is pretty ‘low tech’, it is effective and relatively cheap.
b) Customer contact
Many industries have found that cell phones provide an excellent means to remain in contact with their clients⁷ and SMSs have been readily used from marketers, to credit providers and insurers reminding clients about their next installment, to health insurers reminding clients about taking medication (health insurers have found this particularly beneficial in ensuring clients adhere to taking the required doses and thus prevent further ailments).
- Hollard – PEP Stores: In the last 2 years, Hollard has sold 500,000 policies to South Africa cash-based retailer, PEP stores. However, one of the key components of making this a success this has been using SMSs as a reminder that the premium must be paid. This has had a dramatic impact on persistency levels where the majority of customers must come in person to settle their premium.⁸
So far, transactions in the ‘m’ world, has mainly been around clients of mobile money who use their cell phones to initiate money transfers (both domestic, and more recently, international). I understand that in Kenya, this has increasingly been used to pay for third party utilities, including insurers and airlines, to pay for goods.
- M-Pesa & MTN Mobile Money: The telco’s Mobile Money deployments are growingly, focusing on bill payments. With access to bank accounts low in developing countries (for example, at 23%⁹ in Kenya where M-Pesa was launched), the growth of mobile money will be a key component of ensuring cost-effective premium collection.
The opportunity around using cell phones to cross-sell insurance products to your existing base is a strong one. Access to a client’s cell phone is a powerful way to stay in touch and as smart and web-enabled phones filter into the broader market, there will be opportunity to use this interface to allow clients to manage their products – whether buying up / buying down (that is, amending one’s insurance cover), and also buying alternative products. Whilst SMS messaging has been used already to market products, it is a matter of time before providers use this model more effectively.
Challenges and next steps
Whilst there is significant potential for m-insurance to expand beyond its existing stage of development, there are a range of challenges, which include:
· Activating the client – market acceptance: A significant challenge in using the telco as a base for voluntary client acquisition, will be to ‘activate’ the client, that is, to enable the client to demand the product. Whilst telcos are often seen as a trusted brand, it is the reliance on airtime resellers who may not be seen in the same light that may be a problem.
· Distribution skills: one of the most significant challenges is ensuring that marketing material is suitable and understandable, that there is adequate training for those marketing the products (as likely to be on a non-advice model), and that those who buy the product are adequately informed.
· Regulation: It is noticeable that countries such as Kenya do not allow e-contracts, in that paper-based proof of sales is required. This significantly increases costs as there will be a need for ‘feet on the ground’ and minimises the benefit of the cell phone. Further, the issue of acceptable disclosure will be a challenge for both insurers and the regulators, as one will also need to simplify the terms to ensure clients understand it as well as meeting the limited space needed on a cell phone.
· Customer protection and intrusion: There is growing concern about the intrusion of service providers into the life of the client. With the growing advent of consumer protection rules, this could make it more difficult for service providers to market to the clients. Smart ways of getting client’s permission would therefore be needed.
M-Insurance offers great potential to enable insurers to both enhance their efficiency and also access the micro-insurance market in smart ways. Whilst challenges do remain, the roll out of mobile money is likely to be the launch pad that shifts this from a promise into a reality.
First published in Micro Insurance Matters, April 2010. www.microensure.com
m-banking¹⁰ – the activity whereby a customer uses their mobile phone to interact with their bank either directly or indirectly via mFSPs. The customer issues instructions, authenticates themselves and or receives information through their mobile phone.
m-payment¹¹ – customers issue instructions from their mobile phone that initiate a payment to a third party.
M-insurance¹² – provision of insurance services via mobile phone as a channel.
An excellent survey by the Economist on mobile money is available at: http://www.economist.com/specialreports/displayStory.cfm?story_id=14483896
For a useful scenario exercise around mobile money, see CGAP, 2009, Scenarios for Branchless Banking in 2020. www.cgap.org
¹ Also known as cell phones, particularly in the US and Africa.
² In fact, this is global GSM and 3GSM Mobile Connections so understates the total market.
³ See www.gsma.org’s mobile money for the unbanked programme Quarterly Update, March 2009
⁴ Whilst airtime is also a possible form of currency, the challenges are (a) cost in that the telco often takes a large chunk of the airtime, (b) it is also VAT-able and (c) potential regulatory challenges by the bank regulator who may not be so supportive of what is currently considered ‘barter’.
⁵ See www.takeiteezi.co.za
⁷ Just one of many is http://www.foneworx.co.za/
⁸ An option to use a debit order is also available.
⁹ FinAccess 2009
¹⁰ Abbreviated from Bankable Frontiers, 2008, Managing The Risk Of Mobile Banking Technologies www.bankablefrontier.com
¹² Author’s definition