Emerging consumers are particularly vulnerable to risk and have limited resources to draw upon in times of need. Insurance is meant to insulate against risk, but traditional products, distribution models and administration processes are often ill-suited and uneconomical for serving these consumers.
Up to 98% of people in emerging markets are therefore left unprotected from accidents, illness, death, natural disasters, crop destruction and other risks, which can have devastating long-term consequences.
Steady growth of microinsurance in Africa, driven in part by mobile channels and product diversification
Microinsurance is helping address the needs of emerging consumers and has been showing steady growth in recent years. The Microinsurance Network reported that microinsurance in Africa has experienced 30% growth between 2011 and 2014, with 61.9 million people in Africa, an estimated 5.4% of the population, now being covered by at least one microinsurance policy.
This growth is being driven in part by increasing use of the mobile channel to reach and interact with emerging consumers. According to the GSMA, mobile operator channels now account for 49% of the lives covered in Africa and mobile microinsurance specifically has grown 68% from 2014 to 2015.
The growth can also be attributed in part to increasing diversification of microinsurance products that meet a broader range of consumer needs. Over the past year we have seen health, property and agriculture products growing at higher rates than life cover. With respect to mobile microinsurance specifically, the GSMA reported that in 2014, 75% of policies were life insurance, where 45% of products are now non-life policies, mostly health.
Going forward we expect to see increasing product diversification as well as bundling of both insurance and non-insurance products, such as information and health services, to meet a broader range of consumer needs and add value to specific market segments. This will become more significant as players and competition in the microinsurance space escalate, which is likely to lead to greater focus on particular market segments and the emergence of more niche players.
Escalating competition is driving a need for innovation
As an increasing number of mobile operators realise the potential of mobile microinsurance to deliver direct and adjacent benefits, such as reduced churn and increased ARPU, the mobile microinsurance space is becoming more crowded, with most large multi-national mobile operators becoming linked to insurance providers.
Over the past year, we have also seen increased interest from large insurance companies keen to address the microinsurance opportunity. The Blue Marble Consortium demonstrates the increasing interest of large insurers, but the complex collaboration also shows their risk aversion and lack of clarity on how to invest in this space.
As the number of players in the microinsurance space escalates and competition heats up, there will be an increased focus on innovation. We expect to see microinsurance offerings being delivered through alternative channels, such as smartphones and applications, as well as more innovative ways of engaging consumers from registration through to claims.
More innovations in this area will start to leverage the rich capabilities of smartphones as their penetration continues to grow across Africa. A report from the International Data Corporation earlier this year showed that Africa’s smartphone sales were already breaking records in the first quarter of 2015, comprising 47% of Africa’s market sales with the sales of feature phones decreasing by about 20%.
Over the coming year we expect to see more innovation across the entire microinsurance value chain and increased investment in and emergence of InsureTech players. In 2014, KPMG reported that investment in FinTech companies grew 201% globally as expectations for new digital start-ups in the industry continued to swell. While the insurance industry was not an early focus of FinTech, 2015 was reported as being the year of the emergence of InsureTech. We expect to see enormous growth in this space in the coming year, leading to increased disruption of traditional insurance business.
However, innovators must be cognisant of keeping customer centricity at the top of their agenda. While customer centricity was much talked about over the past year, we need to see more of it in action as we move forward. Innovation for the sake of it will not be successful unless it truly adds value to the lives of emerging consumers.
Continued growth of microinsurance benefits Africa’s businesses and emerging consumers
Africa is a fast growing market for microinsurance, and investment in this space is continuing to grow rapidly. What it means for players across the value chain is an opportunity to expand into new markets and realise additional business benefits. What it hopefully means for emerging consumers is an increased focus on their specific needs and products that will help protect them from risks that could devastate their lives.
Jeremy Leach and Jody Delichte, Inclusivity Solutions