Converging market and public policy trends are making microinsurance an increasingly attractive opportunity for carriers, with India, Brazil and Mexico showing the greatest potential, according to an Accenture report entitled "Succeeding at microinsurance through differentiation, innovation and partnership." The firm says that real-time connectivity, flexibility and scalability will be decisive technology features in driving insurers' successful forays into microinsurance.
Accenture cites three chief trends driving the maturing of the microinsurance opportunity: First, the growth of the low-income stratum above the poorest represents a market of roughly 2.3 billion people needing to protect their income and assets. Second, a growing convergence of the private, public and social sectors is creating a fertile environment for the provision and distribution of microninsurance, as state and non-governmental agencies seek to collaborate with private sector organizations to develop insurance solutions for the previously uninsurable. Finally, the increasingly favorable conditions described above coincide with insurers' exploration of emerging markets as they face a difficult growth environment at home.
Currently about 400 million microinsurance risks are insured in Asia, owing to a combination of "large, dense populations, interest from public and private insurers, willing aggregators or distribution channels and -- perhaps most importantly -- active government support," according to the Microinsurance Innovation Facility's annual report. Combined with markets in other geographies, such as Latin America and Africa, microinsurance itself represents a very large market whose scale justifies the low value of individual accounts. However, the value of the opportunity extends beyond the initial breakthrough into the microinurance market, suggests Madhu Vazirani, senior manager, Accenture Research and co-author of Accenture report.
"In fast-growing economies today's low-income customers may soon become tomorrow's premium prospects," comments Vazirani. "Products such as microinsurance, which seem at first glance to offer modest financial returns, may in the long run prove to be important contributors within the carrier's broad portfolio."
Accessing the immediate microinsurance opportunity will require the specialized technology capabilties, according to Thomi Meyer managing director of Accenture's insurance practice in Europe, Africa and Latin America, Vazirani's co-author. "There are three key areas where technology can be decisive in facilitating the uptake and profitability of microinsurance: mobility, real-time connectivity, and flexibility and scalability," Meyer says.
With regard to mobility, the provision of mobile technology, such as biometric smart cards, hand-held devices, solar-powered deposit machines and digital pens, can be a game changer, according to the Accenture study. For example, Old Mutual offers pay-when-you-can funeral insurance to South African customers who buy registration packs at Shoprite retail outlets and text a unique 16-digit code to the carrier to confirm coverage. Other examples include UAP Insurance's enablement of mobile phones for Kenyan farmer customers of crop insurance to photograph barcodes on bags of fertilizer or seed and pay premiums using the M-Pesa mobile banking system.
The Accenture report advises that seamless integration of insurers' systems with agents and partners is critical in enabling the efficient bulk processing and servicing of low-premium policies. For example, Aviva has implemented straight-through processing allowing the carrier to issue a policy with 24 hours of application date being entered at any of its Indian microfinance partner Basix's 220 branches. In India IFMR Trust Holdings and HDFC Ergo GIC use RFID tags on insured cattle to control claims fraud; and in Brazil, Mapfre Seguros' partnership with retailer Casas Bahia and telecom provider Vivo, uses advanced IT platforms to monitor insurance sales in real time.
Microinsurance operating models can gain efficiency, adaptability and extensibility through the use of pay-as-you-go insurance platforms in the cloud, according to Accenture. The firm cites the International Labor Organization's reporting of the use of software-as-a-service (SaaS) for microinsurance. IFFCO-Tokio's agents use digital pens while working in remote areas to quickly convert hand-written notes into formal policy applications, the Accenture report relates. The pen data is transferred via GPRS or Bluetooth to the company's web-based SaaS platform for processing. Max India and its partner New York Life have extended their virtual network throughout India by distributing scratch cards through small retailers, according to Accenture. Customers pay premiums by buying a card and texting the concealed code to their insurer.
Other technologies that can support profitable microinsurance operations include micropayment processing capabilities, review of broad data sets to verify claims -- such as satellite photography of field where drought is claimed -- and local data on claims likelihood from sources such as topographic maps, flood data and earthquake incidence, notes Mark McLaughlin, director of strategy, Global Insurance Industry, IBM.
But while technology is a necessary component of microinsurance success, it cannot overcome fundamental business mismatches, cautions McLaughlin.
"Products, services and marketing must be carefully tailored to local needs and kept simple enough to operate through distribution and payments constraints common in the microinsurance market," McLaughlin says. "Local partners are essential to understand these distinctions and navigate local regulatory and cultural hurdles but will not be able to provide distribution on their own. Systems must support the development of the broad distribution networks required to succeed in the market."