A new MMU publication on emerging practices in Mobile Microinsurance
The Mobile Money for the Unbanked,
Date Posted: Monday, June 18, 2012
One of the most important reasons that people use financial services is to manage risk. Insurance, in particular, is a useful way for households to protect themselves from negative financial shocks and other adverse events. Unfortunately, although a range of insurance policies is widely available to consumers in the developed world, few of these products have migrated successfully downmarket to serve the poor, whose need for such protection is arguably more acute.
In large part, what holds back the diffusion of microinsurance (i.e., insurance for low-income people) is transaction costs. The cost of selling and underwriting insurance and of administering a claim does not decrease in proportion to the value of the policy. Using traditional channels and processes, insurance companies simply cannot write policies with values below a certain floor without pricing them unrealistically. Moreover, microinsurance is a low-cost, high-volume business; therefore, scale is crucial.
The mobile platform, including mobile money, can be used as a tool to reduce the cost structure of microinsurance and to help it to scale. For example:
Insurers can leverage mobile communication channels (including not just voice, but also SMS and USSD) to promote their services and allow customers to self-enrol, administer their account, and submit claims
Airtime dealers and mobile money agents can educate and enrol customers
Customers can pay premiums with airtime or mobile money
Co-branding can build confidence in insurance among customers without experience with it
To support practitioners who are exploring these possibilities, the Mobile Money for the unbanked programme is today releasing an overview of the ways in which the mobile channel can support the delivery of microinsurance and an inventory of nearly thirty approaches that have been tested so far. In the article, “Emerging Practices in Mobile Microinsurance”, we hope that readers from both the mobile and the insurance industries will discover new ideas for collaboration that will make risk-management tools more widely available to those who need them most.