- The low penetration of insurance market has been due to both supply and demand side issues.
- A majority of insurers have ignored the emerging customer segments such as micro businesses and low to lower-middle income households.
- This has led to a dearth of customer-centric products targeted at this market.
Africa scores very low in uptake of insurance, with continent’s insurance penetration at 2.8 percent compared to world’s average of 6.8 percent. In Kenya, it is even more concerning as penetration has decreased recently and GDP growth rate has outpaced that of insurance premiums.
This low penetration has left a huge protection gap, exposing households and businesses to unforeseen shocks as experienced during the pandemic.
The low penetration of insurance market has been due to both supply and demand side issues. A majority of insurers have ignored the emerging customer segments such as micro businesses and low to lower-middle income households. This has led to a dearth of customer-centric products targeted at this market.
Awareness and understanding of insurance has therefore remained low among the population. Traditional products with complex terms and inflexible premium payment terms have further alienated potential customers.
The insurance industry must come out creatively in the new tech era with a new approach that will enable it to not only increase its client base but also save the underinsured from various shocks. Platform economy provides an excellent opportunity to achieve this.
Platform economy refers to economic activity (buying and selling) facilitated by digital platforms that connect inter-reliant groups such as providers and producers of services and products with users and consumers.
Examples include superplatforms like Wechat (with 1.2 billion users) and Whatsapp (two billion users) that started with social activity but have now transformed into some of the biggest facilitators of business activity across the world.
Closer home, platforms like M-tiba, Little Cabs and Twiga Foods have revolutionalised health, transport and agriculture sectors respectively. These platforms have organised sectors that were previously fragmented.
Platform economy provides unprecedented opportunity to financial service providers in general and insurers in particular. Firstly, by acting as aggregators they provide access to large groups. As a majority of such platforms are tapping into informal economy (such as mama mbogas in case of Twiga), they provide access to emerging but underserved customers.
Secondly and more importantly for insurers, such platforms are an excellent source of data, including demographic, financial and behavioral data that can be used by insurers to design relevant solutions. Finally, through technology, they can simplify key processes such as collection of KYC and premiums, making it easier and cost-effective to distribute insurance at scale.
RE-IMAGINE INSURANCE OFFERINGS
To realise this potential, a number of transformational changes are needed. The insurance regulator needs to make it easier for such platforms to offer services.
At the same time, regulations should focus on consumer protection by ensuring that predatory behaviour (as seen by mobile lenders) is not repeated by these platforms. Early support by the insurance regulator in Kenya for such partnerships has been quite encouraging.
Governments need to step in because increase in insurance penetration will help in protecting vulnerable communities and in developing capital markets that will strengthen the continent’s financial sector.
This can be done by learning from countries like India where government-funded, market-driven insurance programmes have extended protection to millions. Supporting insurance programmes that are trying to insure informal micro businesses can be a good start.
Platforms themselves need to be more open to insurance partnerships by realising the potential of additional revenue as well as ability to protect the excluded groups. Finally, it is the responsibility of insurers to design products and processes that suit the needs of the platform users.
Instead of conventional one-size-fits-all approach, context-specific products should be co-created along with the platforms that meet client needs. Transactional and behavioral data from the platforms can be used to design such products.
For example, a Covid-19 ride insurance co-created by Britam and Little Cabs has seen voluntarily take up by thousands of users in a short period as it is specific to the context and need of users.
Processes also need to be changed by minimising KYC requirements, simplifying onboarding process and digitising claims journeys.
Platform economy is transforming many industries and it has potiential to transform the insurance sector as well. However, industry players, platforms, policy makers and regulators need to come together to achieve this by placing emerging consumers at the centre of their efforts.
The pandemic has taught all of us about the need for risk mitigation and client-centric solutions delivered through insurer-platform partnerships.
Sharma is the General Manager, Emerging Consumers Business Unit at Britam