IN THE developed world, insurance is an every day part of life. In rich countries such as Britain, well over 80% of households hold at least one policy, according to the Association of British Insurers, an industry group. Insurance Europe, a lobbying organisation, reckons European countries spent 8.2% of their GDP on insurance cover in 2011. That figure rises to over 13% in countries such as the Netherlands.
However, insurance coverage is much patchier in the developing world. Recent estimates suggest that 90% of India’s poor are not covered in any way. And in 2010, only 2.5% of Africans used insurance products, according to the International Labour Organisation. Poorer consumers, it seems, are put off by the high cost of traditional products.
Yet economists generally agree that insurance for the poorest people in the world is a good thing. Studies investigating the impact of microinsurance—cheap policies aimed at those earning below $4 a day—have shown they can smooth income shocks in vulnerable households, raise school attendance rates and improve health-care outcomes.
As we pointed out in January, academics now argue that the best way to boost these dismal take-up rates in poor countries is to sell microinsurance products to groups rather than individuals. That way administrative costs can be cut (as the number of transactions are reduced), as can the risk of fraud. Yet some insurers are now taking steps themselves to make microinsurance policies more attractive for individuals to purchase.
One innovative approach, being rolled out by BIMA, a start up, is to give microinsurance coverage away with mobile top-ups in partnership with local telecom companies. In 2010, it set up a scheme with Tigo, a Ghanaian mobile operator, in which using 5 cedi ($1.81) of phone credit a month unlocked free life insurance coverage worth 200 cedi if policy holders (or a member of their family) died over that period. While Tigo benefits from the tie-up by making its mobile-phone services more attractive than its competitors’, the insurer benefits from having access to a low-cost network to distribute its product.
Four years later, the concept seems to be growing in popularity around the developing world. BIMA’s mobile microinsurance product range—including life, personal accident and hospital-stay options—now covers 7m people in eight countries across Africa, Asia and Latin America. The model is already making profits in at least three of those markets, according to Gustaf Agartson, the firm’s chief executive.
According to a new report by the Micro Insurance Centre, a consultancy firm, such methods appear to have increased the uptake of microinsurance among disadvantaged groups. They found that most of the customers signed up to these sorts of mobile-phone schemes earn under $4 a day, rather than being from more affluent groups that already had access to other insurance options. A look at BIMA’s customer base appears to support this conclusion. For instance, in Senegal 84% of the firm’s customers earn under $3.75 a day. In Tanzania 79% have an income of less than $2.50 a day.
But attaching microinsurance to mobile-phone packages, alone, cannot produce the levels of coverage seen in the developed world. Relatively few people earning under $1.25 a day, particularly in rural areas, have been able to sign-up, as they are less likely to own a mobile phone or make enough calls to be eligible for the microinsurance freebie. And large swaths of Africa still do not have mobile coverage at all, limiting the reach of the product. Whilst it is true that mobile microinsurance has boosted insurance coverage in cities, the question of how to do this in more remote areas is still very much an open question.