Mobile money and insurance in Africa: whats the connection?
Written by Wanjiku Mugambi
Insurers take advantage of high mobile phone penetration in Kenya and Ghana to sell products to low-income earners
Africa’s mobile telecoms landscape has witnessed tremendous expansion over the past decade and become a big driver of growth across various sectors of the economy. The number of mobile subscribers and mobile network operators (MNOs) in Africa has increased due to enhanced investment and regulation in the industry. According to a report by Informa Telecoms, Africa is on track to hit one billion mobile subscribers by the end of 2015.
Technology is a key catalyst to the attainment of the Millennium Development Goals in Africa. A 2005 London Business School study found that for every additional 10 mobile phones per 100 people in a developing country, the GDP rises by 0.5 per cent. Mobile money is perhaps a beaming
example of how mobile technology can be leveraged to develop products and services that address Africa’s unique needs.
It is estimated that 18 million people use the M-Pesa mobile money transfer service in Kenya and that half of Kenya’s GDP moves through mobile money. Already, 80 per cent of the world’s mobile money transactions are happening in East Africa, driven by Kenya, the epicentre of mobile innovation. The financial services industry in Africa has benefited from advancements in mobile money with banks and insurance companies offering it as an alternative platform for undertaking
In the insurance sector, mobile money has greatly facilitated growth in micro insurance, which involves the provision of services to low-income earners. Microinsurance products are typically low-premium, with low coverage limits that seek to prevent low-income earners from reversion
into poverty. MNOs have revolutionised microinsurance because of the convenient access available through their communication infrastructure. Through this infrastructure, microinsurance
providers are able to receive premiums from customers and settle claims through mobile wallets.
This significantly reduces transaction costs, which makes the product more affordable and hence accessible to low-income earners. However, it is imperative that the airtime and mobile money agents are adequately trained to understand the intricacies and exclusions of insurance products.
A good example is “mi-Life”, a microinsurance product launched in 2011 in Ghana through collaboration between MTN Ghana, Hollard Insurance, MicroEnsure and MFS Africa. This product allows users to buy life insurance products, pay for premiums and lodge claims through their mobile phones.
UAP Insurance and Syngenta Foundation for Sustainable Agriculture have successfully leveraged
on Safaricom’s M-Pesa network to promote a weather-index microinsurance product known as ‘Kilimo Salama’ designed to protect farmers in Kenya from the risk of drought and excess rain.
Farmers can buy the cover when purchasing agricultural inputs from stockists. M-Pesa is used to transmit premiums to UAP Insurance and to settle claims by farmers. MNOs can collaborate with insurance companies to promote the use of their products and services through loyalty programmes.
The MNOs bear the insurance costs on behalf of their customers who then enjoy insurance cover if
their monthly consumption of airtime exceeds a specified threshold.
The insurance cover included would then increase commensurate to their consumption of airtime. The benefit of this model is that insurance cover is extended to customers who previously would have been unwilling to pay for it. This would increase the popularity of insurance products among
the public once they appreciate the value they get from it, which would lead to an increase in the uptake. This model is currently operational in Ghana through a product known as ‘Tigo Ghana’ offered by Vanguard Life, Bima and MicroEnsure. Lack of readily available information related to various risks, like mortality, leads to overpricing of premiums in order to safeguard insurance providers’ liquidity and profitability. This leads to an exclusion of low-income earners contributing
to low insurance penetration in Africa.
Collaborations between MNOs and insurance providers will result in the recording of transactional data which would provide insurance practitioners with reliable and available data which can be used to design and price new products, especially those targeted at low-income earners. The benefits of such collaborations only improve over time with increased uptake of insurance products
hence opening up a bigger pool of data. Insurance companies may also ride on the trusted brands of established MNOs to launch various insurance products.
Scepticism among the public about the insurance company’s willingness and ability to settle
claims has been a major deterrent to insurance uptake in Africa. However, established MNOs are
perceived to have a trusted brand by the public that insurance companies can lurch onto when introducing new products. Alliances between insurance companies and MNOs can be a powerful tool in increasing insurance penetration in Africa.