Micro-finance: New product on the market

MICRO-INSURANCE has burst onto the Zambian insurance scene as a ground-breaking product. Its hallmark features such as its social function, low premium and low coverage limits makes micro-insurance ideal and affordable for majority of Zambians in the medium and low income brackets.
According to the International Labour organisation (ILO), micro-insurance has changed the global insurance picture and provides coverage to over 500 million people worldwide.
The use of mobile service providers as distributors of some of these products has also enabled people even in remote areas to have access to insurance at an affordable rate.
This week, we look at micro-insurance and the use of mobile networks as distribution platforms; and we feature a guest writer, Mr Chishiba Kabungo an inspector in the Insurance Department at the Pensions and Insurance Authority (PIA).
From the onset, it should be noted that micro-insurance has the potential to help low-income households mitigate their vulnerability to catastrophic risks. Insurers, however, face a number of challenges when delivering microinsurance products, such as high transaction costs, poor infrastructure, low uptake and lack of awareness.
Further, the cost of distributing, underwriting and administering claims does not decrease in proportion to the premium received and sum assured.
A study by  ILO entitled Microinsurance Facility Initiative (Prashad et. el .Paper No. 26: 2013), highlights that insurers can leverage mobile phone platforms to enhance efficiency across the microinsurance value chain by lowering costs, reducing turnaround times and bridging geographic distances.
Insurers could utilise strategic partnership with mobile network operators to allow them access data on consumer spending patterns which could be used to design and adjust existing products to make them more responsive. Micro-insurance product pricing has been identified as one of the key element in achieving sustainability and scale.
According to a study presented at the ninth micro-insurance conference in Indonesia, actuarially determined prices in microinsurance render products unsustainable and costly. Data from mobile network operators could provide an opportunity for insurers to adjust prices in real time and help to reduce transaction costs.
Mobile phone platforms provide immerse insurance coverage potential to insurers in Zambia. It is estimated that over 55 percent (over 8 million) of Zambians have access to mobile networks compared with less than five percent who are insured. The picture is not different from the entire continent of Africa were 44.4 million lives and properties are covered by insurance compared with over 600 million mobile phone subscribers.
It is, therefore, encumbered on insurers to understand and appreciate how they can leverage mobile platforms to access this immerse market to achieve scale and profitability.
Insurers could take advantage of the wide distribution network of mobile providers to enhance their brand value and improve operational efficiency. Improved operational efficiency will reduce costs and make micro-insurance products affordable.
Examples of strategic Partnerships
The Kilimo Salama project in Kenya is a partnership between the insurer UAP and the Syngenta Foundation. Farmers buy agricultural insurance and farming inputs using Safaricom M-Pesa mobile money service. The Kilimo Salama project drives efficiency by omitting all paperwork hence reducing costs.
In Zambia, we have a number of products that have been introduced and these include the Airtel Life Insurance product in partnership with African Life and Micro Ensur Ensure, the MTN Edusure (an education policy) in partnership with Hollard Life Insurance and MTN Life After Life (funeral policy) with African Life Assurance.
According to the ILO study, from a mobile network provider perspective, adding insurance to its portfolio of products serves multiple purposes. First, insurance has the potential to provide another revenue stream, received either as a commission or through profit-sharing.
While this added revenue is attractive, perhaps a greater incentive to offer insurance as a value-added service is its potential to help mobile providers differentiate themselves from competitors and attract and retain clients, as well as increase the average revenue per user by encouraging clients to spend more by using more airtime to retain their insurance.
Insurers are using mobile phone platforms to make enrolment and claims processes more efficient, provide better customer care and improve communication with policy holders.
For developing markets like Zambia, loyalty-based products have the potential to succeed, but as insurance appreciation grows more voluntary competitive products could be launched.
From a regulatory and Government perspective, insurers partnering with mobile platforms provide an opportunity to advance the financial inclusion policy and insurance market penetration. Insurers should therefore seize the opportunities offered by mobile platforms to enhance service delivery, competitiveness and profitability.
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