Mobile Technology Paves the Way for the Growth of MicroInsurance

By Kevin Day, President, Riskebiz

Amidst the recent turmoil and uncertainty in the global markets as a result of the ongoing financial
crisis, microfinance has continued to generate positive returns, both social and financial for
microentrepreneurs and investors (albeit at a slower pace versus pre-crisis levels). For those not
familiar with this emerging asset class, microfinance is broadly defined as the provision of financial
services (e.g. microsavings, microcredit, and microinsurance) to poor people excluded from traditional
or social financial systems, particularly microenterprises with no access to meaningful forms of
expansion capital. The industry has seen tenfold growth in the last decade or so and microcredit
products now reach well over 150 million customers worldwide. As demand for microcredit continues
to increase, Deutsche Bank estimates investment into the microfinance industry at large will increase
from USD $5 billion in 2005 to USD $25 billion by 2015.
Building on microcredits growing success, an array of utilitarian microfinancial services are being
developed and deployed, including microinsurance. Much like microcredit, microinsurance can be
defined by its scope and scale: risk transfer products and services with low premiums and coverage
limits, designed to service low-income people and businesses not served by typical social or commercial
insurance schemes. The most common types of microinsurance are life, health, disability, property, and
crop. Microinsurance policies are generally very simple with few exclusions and utilize minimal
claims/accounting processes.

The market for microinsurance is tremendous. Over 4 billion people worldwide live on less than $8/day
and control over $5 trillion of income
1
. These poorest individuals live predominantly in emerging
markets where they are particularly vulnerable to financial losses as a result of perils such as death,
illness or crop failure. Because the global poor have fewer resources, appropriately designed
microinsurance products can have tremendous utility. With a demand-driven product and targeted
marketing and education, significant latent demand for such assurances can be tapped. However the
market for microinsurance products remains largely unpenetrated with only 3.4% of the poorest 4
billion able to access any type of insurance (as of 2009). To give a better sense of the market potential,
a recent 100 country landscape study demonstrated a total demand exceeding one billion people
2
and
another study has placed the total value of microinsurance products and services at over USD $90
billion
3
. International insurers, reinsurers, and others in the insurance industry are beginning to respond
to this demand by designing high volume, low priced microinsurance policies and by leveraging

1
In Purchasing Power Parity (PPP) according to the IFC/WRI
2
Microinsurance Centre 100 Poorest Countries Landscape Study, 2007
3
Datamonitor
technology as necessary to facilitate their distribution and administration and make each product viable
and self-sustaining.
Mobile technologies such as mobile money transfer solutions are seen by most in the industry as being
key to the distribution of microinsurance products. Because of the small premiums and rural locations
of insureds, cell phones have the capacity to greatly increase the efficiencies of microinsurance, bringing
down operating costs and making products with low premiums , high claims frequency and delivered in
remote areas viable. Many consider 2009 'The Year of Mobile Ubiquity', that is, the year in which it
became safe to assume that virtually everyone has or has access to a mobile phone. In fact, mobile
penetration has increased so quickly in emerging markets that of the 5 billion mobile subscribers globally,
over 300 million are in Africa. With mobile money services growing at comparable speeds, the financial
landscape in emerging markets is set to undergo a radical transformation. Indeed, it already has.
says Ben Lyon, the VP of Business Development for Kopo Kopo, Inc., which provides a platform for connecting
mobile money and enterprise management systems.
GSM World predicts that by 2012 there will be 1.7 billion cellphone users without a bank account.
Most of these users have few assets and are vulnerable to shocks like natural disasters, loss of property,
illness or death, and could greatly benefit from microinsurance.
International insurers are exploring the microinsurance space in greater numbers with companies like
Zurich and Allianz already selling microinsurance products. By establishing relationships and increasing
their brand value now amongst low-income policyholders, many of these insurers are looking to position
themselves for growth in the future when microinsureds move up the socioeconomic ladder and begin
to purchase more traditional insurance products. Other insurance companies are keeping a close eye on
the innovative technology developments in microinsurance product distribution, particularly with
respect to the use of cell phones. Many of these technologies which facilitate premium payments via
SMS and claims processing through the mobile web can be applied to insurance products at home.
Increasingly, banks, insurers and other financial services companies are looking to the developing world
for the most innovative and cost effective applications which could be integrated into their own
business processes. The introduction of low cost smart phones and tablets like the iPad will further
accelerate this east to west technology transfer.
In addition to primary insurers, reinsurers are very active in microinsurance, not only supplying support
in the form of financial capacity, but often taking a lead position in the formation of innovative
microinsurance programs. For example, in 2009 Munich Re teamed up with Indonesian insurer Asuransi
Wahana Tata to provide an index-based flood insurance product providing coverage to low income
families in Jakarta. Swiss Re teamed up with Nyala Insurance Company and Oxfam in Ethiopia to
develop a satellite index-based program for local farmers. Reinsurance intermediary Guy Carpenter is
engaged in the development of innovative microreinsurance solutions and most recently arranged
reinsurance coverage for a large state-sponsored health microinsurance program in India. Increasingly
reinsurance is playing an integral role in microinsurance schemes, providing the extra support needed
when local supply is limited.
The global reinsurance community is flush with capital and invaluable underwriting expertise and is
thus uniquely positioned to support the advancement of microinsurance in a big way. With the
strategic assistance of development partners this financial and technical capacity building can be
unlocked and put to excellent use for non-commercial, though highly socially beneficial projects, said
Alex Bernhardt, Vice President at Guy Carpenter and head of the firms GC Micro Risk Solutions unit. It
is the (re)insurance industrys social and commercial obligation to explore the micro market in more
detail.
Although it is still a relatively new concept, it is a safe bet that micro(re)insurance will be discussed and
written about with much greater frequency over the next couple of years given its relevance to both
social economic development and commercial (re)insurance actors. The interconnected global nature of
todays markets will ensure the growth of microinsurance and it will have an impact on the commercial
industry as a whole. Indeed the future fortunes of many (re)insurers lies at the base of the global
socioeconomic pyramid.
About Kevin Day and Riskebiz
Kevin Day is CEO of Riskebiz, a microfinance investment firm and a technology services company. The
Riskebiz Microfinance Fund provides venture capital and technical assistance to small and medium sized
microfinance institutions (MFIs) in emerging economies. Riskebiz leverages mobile applications,
including mobile money transfer solutions, to implement microinsurance schemes at MFIs where
microcredit loans are provided to entrepreneurs. Kevin worked as an insurance broker in the 90s and
remains an active committee member of the Canadian Captive Insurance Association. More about
Riskebiz at www.riskebiz.com