August 1, 2016
Africa is the largest unserved market that has dropped out of sight of the global financial system. Some estimations suggest that there are ~330 million adult Africans, approximately 80% of the continent’s population, who lack access to formal financial services, which signifies tremendous opportunities for financial technology companies that are ready to embrace them.
However, financial health is not the only liberator and foundation for growth and exit from poverty and misfortune. The healthcare industry plays a far more important role in the developing world as it can significantly boost the quality of life and serve a firm ground for people to get pushed out of the loop of poor health to look for employment, inclusion and development.
Like every other continent in the world, healthcare in Africa has its aspects. The ‘one size fits all’ approach in ensuring appropriate health insurance doesn't work. African countries forged their own path in the insurance industry understanding the hallmarks of the region and the opportunities of the population.
As Emmanuel Dooc, Chairman of the Mutual Exchange Forum on Inclusive Insurance, commented on the importance of microinsurance, Providing people with financial coverage especially in times of disasters and risks is crucial. [Through microinsurance], people’s self-esteem is intact because the payment, however little, comes from their own pockets.
Microinsurance is a way of developing resiliency to unfortunate events; it fosters families’ sustainability and the ability to overcome other hardships, including financial troubles.
Antonis Malagardis from the German aid agency Deutsche Gesellschaft für Internationale Zusammenarbeit, also outlines the exceptional importance of microinsurance, saying, The point here is that people create a type of self-awareness that they are conscious that risk can happen any time... And they are the ones to contribute and be responsible in addressing this. They don’t necessarily rely on dole-outs, which is exactly the point of creating self-respect.
The study performed in 2015 in Africa identified 61.9 million people in the region covered by at least one microinsurance policy, up from 44.4 million people identified in the 2011 study. Moreover, total written microinsurance premiums amounted to ~$647 million in 2015, representing an impressive 31% increase since 2011.
Microinsurance has an outstanding opportunity to become the key to sustainability in Africa given that an average insurance penetration on the continent is at just 2.8%.
Source: The Microinsurance Network, 2015
The Microinsurance Network also reported that although life covers still dominate the region in terms of coverage, the largest growth was seen in health and agriculture covers. Mass market channels are playing an important role, accounting for 45% of the distribution of microinsurance in the region, the study suggests.
Chairman of the Microinsurance Network, Michael J. McCord mentioned an upward diversification in the coverage of the business.
"It is great to see indications of a maturing African market with an increasingly diversified coverage. Whilst life and credit life products are still widely spread on the market, new types of bundled covers especially in health and personal accident are being developed.
Looking at the subset of products for which claims, administrative expenses and commission ratios were reported, the study showed clear profitability for many products with more than half of products with combined ratios below 75%."
Microinsurance has a potential of improving the quality of life beyond Africa as well. Asia is another region with the need for health and household resilience to disasters and other unfortunate events.
Mid-July this year, in Nepal, an initial draft of the new Insurance Act prepared by the finance ministry has made it mandatory for both life and non-life insurance companies to launch microinsurance schemes. As the Kathmandu Post reported, The Insurance Board (IB) has also introduced a directive on microinsurance schemes. Microinsurance has been defined as targeted insurance of life and properties of economically, geographically and socially backward people. Under the current IB directive, the policy amount has been fixed from Rs. 100,000 to Rs. 200,000 and annual premium has been fixed at 0.1-5%.
Meanwhile, in the other region, Paris-based blockchain startup Stratumn – together with payment service provider LemonWay and consulting giant Deloitte – unveiled the first microinsurance proof-of-concept for the sharing economy: LenderBot. As the EconoTimes reported, LenderBot allows people to easily enroll in customized microinsurance simply by chatting through Facebook Messenger. Through a bot available on the messenger, the lender and borrower will be able to agree on the terms of a loan and digitally sign the agreement directly by interacting with the bot.
In the first week of July, a year-long initiative by the Postgraduate Department of Commerce of Teresian College resumed Microinsurance Awareness and Enrolment Mission (MAEM), an initiative of the department of studies in commerce, University of Mysore. As The Hindu reported, the objectives of the mission were to create awareness among the rural masses, to enroll them in various government-sponsored microinsurance schemes, and to promote financial inclusion.
From African countries, Zimbabwe, for example, is now working on a framework to regulate and formalize operations of microinsurance firms targeting low income earners. The country identifies microinsurance as a critical instrument for delivering effective and efficient insurance services and products as well as promoting financial inclusion.
The proposed guidelines are meant to provide a more structured method to deal with the licensing, formalization and regulation of microinsurance activities. Citing the Insurance and Pensions Commission, the Herald reports that the need to develop the framework has been motivated by the current regulatory framework, which does not provide guidelines for the licensing and regulation of microinsurance products and entities. The regulatory gap has presented a challenge to the commission on how to deal with the existence of unregistered providers.
There are certainly more initiatives around the world supported by the corporate world, governments and the startup ecosystem. Overall, the global microinsurance market is estimated to grow at a CAGR of 8.2% during the period 2016–2020. At the moment, microinsurance is gaining adoption in the developing world as a way to improve the quality of life and strengthen sustainability of households in face of financial misfortune or other hardships.