Micro-Insurance; Key to Insurance Penetration & Financial Inclusion

Vol. 02 | 28.05.2024 | Dr. Ikpeme Neto

Two years ago, a Wellahealth agent sold a micro-health plan to a young lady who worked as a medical lab scientist in a lab in Abuja, Nigeria. An ambitious lady in her late 20s, she’d desired a way to pay for her and her mother’s unplanned medical expenses for a long time. Her job at a small medical lab didn't provide her with health insurance, so she was always passively on the lookout for a health insurance plan. Whenever she looked online, though, the existing traditional health insurance products were too expensive and out of her reach. Besides, none of the companies actively marketed or sold to her so she had no compelling reason to test out any of the plans or companies she came across.

‘Insurance is a scam!’

When she came across Wellahealth’s microinsurance plan via a digital advertisement, she was delighted by its affordability. She sent a message via social media and received a rapid response. She had a few questions, and once she was satisfied with the answers given to her, she paid for a plan for herself and her mother and got onboarded, using the micro-health plan for common day-to-day illnesses. One benefit she had forgotten about was a funeral cover that provided a payout to a next of kin in the event of death. On one occasion, an agent called to ask her for a testimonial, and she mentioned that her mother had recently passed. The agent checked and realized that the late mother had a funeral benefit as part of her micro-health coverage. The client was surprised to hear this, and very pleased when the benefit was paid out a few days later. In a conversation with the agent, she exclaimed, “You mean insurance can work like this?” She immediately paid for all her siblings to join the micro-health plan because she had seen it work firsthand. She had since become a believer and an evangelist.

This positive experience of claiming from a micro-insurance plan turned a regular client into a believer and an evangelist. With insurance penetration in Africa at less than three per cent (3%), if there’s one thing we need more of, it’s believers and evangelists in the shape of this client. Sadly, in my experience since entering the insurance industry, positive insurance claim stories are an uncommon phenomenon in the public and private domain. The most likely feedback I get when I tell people I sell insurance is a retort along the lines of, ‘Insurance is a scam!’. And you know what? People who harbour such negative sentiments about insurance have valid reasons. They argue that insurance companies are happy to collect premiums gleefully and with minimal hassle from the client. However, when a loss occurs and it's time to file a claim, the previously cheerful company suddenly changes its tune. The requests for documents proving the loss are endless, the policy exclusions that were downplayed during the sales process now become emphasized, with numerous exceptions and exclusions being cited to help the insurer avoid paying a claim. When the insurer does agree to pay, the process is so drawn out that the impact of the payout is reduced, and the client is left with a bitter taste. No wonder insurance clients express bitterness and see insurers as scammers. To grow insurance penetration, we need to repair the broken trust and impaired credibility that pervade the insurance industry in Africa. How might we do this? The answer, I posit is via microinsurance.

To grow insurance penetration, we need to repair the broken trust and impaired credibility that pervade the insurance industry in Africa. How might we do this? The answer, I posit is via microinsurance.

Microinsurance is a type of insurance that offers affordable insurance products that are targeted at lower-income people. This low-income segment has traditionally been excluded from standard insurance plans, despite the significant risks they face that impair their ability to thrive financially. One of the classic risks that this segment faces is healthcare-related. There’s an all too frequent story we’ve all come across of a low-income family living hand to mouth and struggling to carve out some savings only for a singular hospital admission to not only wipe away their meagre savings but plunge them into significant debt. This type of catastrophic health expenditure has an annual incidence of 16% across Africa. Health insurance would be perfect for people with this risk but average premiums are out of reach for this segment and many insurers prefer upfront annual payments to provide health coverage.

In Africa, where work is often informal and average incomes are low, these health insurance plans are inaccessible to the average person. Thus, it is imperative to enter micro-health insurance, with its unique and innovative features that enable low-income people to gain coverage for health and other risks they face. To achieve this, here are four important factors to consider:

1. Low premiums. Microinsurance premiums by definition must be affordable for the low-income segment it targets. These low premiums make it broadly attractive and acceptable to large segments of the population in low and middle-income countries where insurance penetration is lagging.?
2. Simple products. Due to the nature of the premiums and the target market, microinsurance products must be simple. They can’t have too many exclusions or stipulations, they most broadly cover the risks a large population faces and are easy to explain to the average customer. Technical terms like ‘riders’, ‘excess’, and ‘deductible’ are not to be seen in materials explaining these products
3. Easy and rapid claims. Accessing claims must be easy, clear and rapid so that low-income customers get the support they need as close to the time of the loss as possible. Median turnaround times in Africa microinsurance is around 9 days with many providers aspiring to turnaround claims within 48 hours or less. Denied claims should be a rare occurrence.
4. Positioned for scale. Achieving significant volume is key to microinsurance success. Hence, utilizing innovative ways to reach scale via partnerships with entities such as mobile network operators and financial institutions are key. The adoption of technology is also central as manual and legacy systems insurers often use are expensive and incapable of managing the scale that microinsurance portends.

These features are central to the success of microinsurance but in reality, can often be antithetical to the ways of many traditional African insurers who are used to massive premiums from a small number of customers. That market is however saturating and progress in insurance penetration will only come from figuring out how to deliver microinsurance at scale like is being done in Asia.

A few months ago I was in the Philippines; the global leader in microinsurance and saw first-hand how they’ve succeeded in onboarding over 28 million people to microinsurance and how that’s driving significant profits for insurers in that market, while also creating a significant impact. Standalone microinsurance companies and InsurTech intermediaries are hard at work trying to make this happen in Africa and need the support of the whole industry to make it happen. This support particularly for intermediaries is for legacy insurers to be open to innovative partnerships where they’re willing to try out new products, pay claims quickly and turn a blind eye in the early days when the loss ratios don’t look so attractive. The Philippines' experience indicates clear long-term opportunities for microinsurance to promote financial inclusion and grow insurance penetration, while also growing profits for insurers.?

Dr Ikpeme Neto is the founder and CEO of Wellahealth a technology-enabled micro health insurance administrator. He is an internal medicine physician turned health technology entrepreneur. His work in health insurance innovation has won global recognition and several awards.

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