While telecom operators continue expansion into the banking market, some operators have discovered an opportunity on the insurance market. The mobile-enabled microinsurance is a new trend of the industry of mobile financial services. The mobile microinsurance is insurance for low-income individuals at affordable rates using a mobile phone. The microinsurance covers life, health, accidents and other risks.
Telecommunication industry trends
While insurance is easily accessible for those in the developed countries, the poor population of the developing countries lacks affordable solutions. The reason for that is the transactional costs for the insurers. The selling and underwriting of insurance, administering claims and payouts present fixed costs for the insurance companies. Such costs are not proportional to the value of the policy. Hence, the insurers are not able to decrease substantially insurance premium for the developing countries.
An estimated 4 billion people lacking access to affordable insurance. The mobile technology adoption and partnership between insurance and telecom companies discovered a new window of opportunity for the insurance market of developing countries.
The convergence of insurance and telecoms
Telecom operators have the necessary assets and mobile infrastructure to improve the insurance process and reduce costs. Telecom operators use their own communication channels to promote and sell insurance, enroll clients, administer claims and payouts. The communication channels include voice, text, USSD commands and telecom’s mobile app.
Telecom sales and distribution network informs customers about microinsurance, distributes and collects forms, receives payments and disburse payouts. The customers can pay premiums with airtime, mobile money and card. The payment is made over the counter or in the app. Insurance payouts are directly disbursed into mobile money account or to the card linked on the app.
By leveraging its assets and infrastructure telecom companies can achieve three benefits: attract customers by new product, raise ARPU and develop loyalty. Insurers receive an effective insurance value chain, new customers and decreased transactional costs. The customers benefit from the simplified process and cheaper premiums.
The development of microinsurance market
The statistics from the developing countries indicates an active development of the microinsurance market. The microinsurance covers an estimated 500 million risks worldwide.A successful case of the partnership in mobile microinsurance is the cooperation between Sri Lankan operator Dialog with Fairfirst Insurance and Ceylinco General Insurance. Mobile operator Dialog offered its subscribers an accident and hospitalization insurances. Out of 12.7 million subscribers, 27% subscribed to the microinsurance service. Ghanaian telecom AirtelTigo sold 2 million insurance policies to its subscribers. The customer base of AirtelTigo is 10 million subscribers.
Bangladeshi mobile operator Grameenphone, Telenor Group, attracted 4.5 million users for its digital healthcare and insurance service Tonic. Tonic sales increased Grameenphone ARPU to 7% among the insured participants.
The adoption of mobile-enabled microinsurance
The development of the microinsurance market going to drive the establishment of expert intermediaries between mobile operators and insurance companies. Mobile Financial Services Enablers (MFSEs) and Technical Service Providers (TSPs) going to possess the intermediary role. The intermediary companies going to further facilitate the adoption of the mobile-enabled microinsurance.
Wallet Factory is a Mobile Financial Services Enabler (MFSE). The Company acts as a mediator between Telecom operators and financial institutions (banks, payment service providers, insurance companies). Wallet Factory provides planning, implementation and management of mobile financial services.
The article “How microinsurance can help Telecoms to boost revenue” is published as part of the Wallet Factory series on mobile financial services.