Insurance Innovation Through Data
August 4, 2018
There is a magical Swedish company that many people don’t know about. It’s a mobile micro-insurer which provides small-ticket insurance in emerging markets where mobile penetration is relatively high, and insurance coverage is very low. By providing insurance through mobile subscription in target markets, it has seen amazing growth since its inception in 2011 by reaching more than 26 million customers and selling 33 million policies worldwide. It works with mobile operators, banks, and microfinance institutions as well as a growing range of corporates. About 93% of its global customers live on less than $10 per day, and 75% are accessing insurance for the first time. It’s a fully mobile based microinsurance tech platform. The company is BIMA.
BIMA is a good example of how a mobile microinsurance company uses technology and partnerships to scale (what seemed to be) an impossible business. They have created a highly digitized mobile insurance model by integrating their proprietary mobile insurance platform with the billing infrastructure of mobile operators. This combination enables customers to register and pay for insurance premiums via their phones. (We will come back to microinsurance in a bit.)
The opportunity is beginning to expand
More than ever before, tech is driving Insurance innovation by more accurately pricing risk (loss evaluation) and fraud prevention. Most startups in the insurance space five years ago were about distribution.
Look at Zhong An, a kickass InsurTech startup from China that offers insurance and adds value across the value chain below. Advances in AI and machine learning are making it possible to leverage new and unstructured sets of data. For example, Zhong An, the first online-only insurer in China, is using machine learning to customize pricing on products for online retailers — leveraging a consumer’s purchase history to gauge individual risk around returns and warranties.
Source: McKinsey Panorama InsurTech Database
Science fiction is now a reality with on-demand insurance that is turned on or off depending on consumer need. Short-term accidental insurance, as offered by Safari Bima or Cover2Go, have already been tried where individuals purchase scratch cards or send an SMS to activate coverage. As smartphone penetration increases in emerging markets, additional opportunities may be unlocked for similar protection of houses, livestock, and other assets for low-income consumers.
Let’s get back to microinsurance
There are great opportunities across the microinsurance value chain where AI could help improve risk modeling, pricing, collection frequencies, customer acquisition, distribution, and more. For example, behavioral data gleaned through call records, and social media can be used to identify indicators of consumer propensity to sign up for insurance and continue paying premiums. In addition, it can optimize distribution channels and marketing strategies. AI can also be used to improve claims processing to reduce the turnaround time from triage, through fraud mitigation, to payment via wire.
It applies to both developed ($27-billion opportunity) and developing world ($38-billion opportunity). In the former, it’s about ease of use and pricing risk better. The latter is about making it cheaper and accessible.
For the first time, tech enables protection of low-income earners (from specific dangers to their lives) while they work hard to get out of poverty. With fewer available data sources such as credit histories, online usage, and even national ID systems, developing markets need to be more creative in identifying and leveraging unique datasets.
New types of data, such as mobile phone usage and social media, are already being used to offer insurance and lending to previously excluded consumers. Imagine the use of offline data points such as shops and merchants where cash digitization (P2P transfers and even bills) has become big business. In addition to online distribution channels (e.g., websites and mobile apps), street agents are used for member acquisition.
In emerging markets, building end to end immersive experiences will matter a lot. BIMA’s ability to provide insurance-led mobile health services differentiates them and is highly valued by their customers. Since the insurance and health components of the product package are linked to and reinforce each other, they can create a unique, holistic health bundle offering customers dual protection against both financial and health risks.
If you drive less than I do, then why should you and I pay the same amount? Your premium should be less than mine. One way to accomplish this is through on-demand, microinsurance - buy it when you need it. On-demand microinsurance is one of the avatars in the developed countries.
Trov is a good example. The service is already available in the UK and Australia, where customers have signed up to insure items (DSLRs, guitars, any single-items) 1 million times since the company first launched its business. Trov is approved in 44 states in the US.
Mobile microinsurance in this context refers to (say) the health insurance plans that cover short-term small health events (e.g., weekend sports insurance) or minimal ongoing health insurance (e.g., dental insurance). In developed countries, implementations make use of digital technology (e.g., apps, mobile webpages) to support the selection and purchasing process of small insurance packages on the go. Microinsurance packages tend to be linked to single events and non-regular health risks. Payment is mainly via credit card.
While it all seems great, there are long term and unforeseen issues with microinsurance, particularly on-demand. A major issue is the problem of adverse selection whereby only people at risk subscribe to the policy which brings down the ability to pool (and lower risk).
There’s also the moral hazard: people don’t bring down risky behavior to reduce risk. If they are able to get insurance at a very low cost, with relative ease and any time when they feel the maximum amount of risk, it’s not going to stop them from undertaking risky behavior. In fact, it might actually increase with quick, on-demand claims processing.
That said, the answer lies in technology. For example, the moral hazard can be reduced by building in a premium reduction for risk-reducing behaviors using AI and IoT.
The InsurTech space, in general, is emerging from the shadow of FinTech. It’s catching up to disrupt the incumbents.