Over the last nine months, we have looked at how different microinsurance providers have used technology or innovation to launch new products and reach untapped customers. At a micro-level, microinsurance has had an impact on many users – though not without challenges. This month, we’re keen to understand the impact of technology and innovation on the industry itself. We discussed this with Doubell Chamberlain, the Founder and Managing Director of Cenfri, and a former Chair of the MicroInsurance Network. We asked a simple question: how has the microinsurance sector changed and how has the growth of insurtech impacted it?
There are two things to consider before thinking of the question itself. The first is that there is clear recognition across insurance and global development communities that risks at multiple levels are increasingly threatening development progress. Insurance ‘business as usual’ can underwrite some of these risks. Several more require innovation and efforts to focus on risk mitigation, not transfer. Climate-related disasters and challenges require solutions that the insurance industry is well-placed to inform, if not provide. Yet, if we want truly impactful insurance, we need an industry with a basic level of functioning – a challenge in many developing countries.
The second is that insurance can contribute to development progress if a longer-term perspective is taken - but not in its current form, with its current, comfortable boundaries. The industry is often still reliant on compulsory offerings that lead to cannibalistic competition for the current small market, with little incentive to grow the market. “Business as usual” needs to be disrupted by competitive forces among new players and new innovators. For insurance to lead to development outcomes, we need to fix the sector first. This requires patience, a scarce commodity that I do not expect will return soon in the donor environment. It will also require strong collaboration: no one is going to achieve this alone.
So, what has changed? Microinsurance seems to have changed very little and so too has the insurance industry in emerging markets. The dial has not moved significantly on insurance or microinsurance penetration and the COVID-19 pandemic was a setback for the industry’s appetite to innovate.
Cenfri and the Access to Insurance Initiative (A2ii) carried out a series of country-level diagnostics on microinsurance in over 20 emerging markets that revealed two key findings:
More recent findings from eight African markets in 2022 confirmed the importance of a competitive market, with aggregators for client access and premium collection, and working partnership modalities. Beyond that, the findings brought to light several interlinked drivers – all of which remain challenging:
While policy and regulatory changes have been emerging slowly, many countries have created a first generation of enabling insurance regulation. This includes microinsurance regulation to boost partnerships and reduce barriers to entry, but this has still not led to an explosion in providers. The incentives are simply not enough to trigger meaningful entry, while the roles of technical service provider, aggregator and market-maker are not yet sufficiently accounted for.
Donors have played an important role in launching several microinsurance services. However, their support was never going to last beyond a certain point: some donors are now moving on to focus on other developmental objectives. This has removed the training wheels for both industry and regulators, just as we were starting to achieve balance.
What has changed or evolved rapidly is insurtech and digitalisation. Insurtech is different to microinsurance but can enable the latter. In most cases, insurtech aims to solve a very specific and narrow problem. Providers are not always direct competitors to insurers and their primary objective is often for their solution to be bought by a traditional financial services or insurance company. This is quite different from insurtech-enabled insurance startups which can dramatically change and disrupt traditional insurance. To compete with traditional insurers, many digital insurers have improved customer service, user experience and underwriting. However, few are focused on microinsurance.
Digital platforms and other digitally enabled aggregators could increase the insurance sector’s outreach. This is particularly possible where the regulatory environment clearly defines aggregators’ roles and doesn’t subjugate them to existing insurers. These platforms can provide access to clients at scale, often with a payment gateway embedded, and vast amounts of data that can allow targeted risk sharing and risk management interventions.
Whether such platforms offer opportunities for insurers is our current focus. So far, we have found that some platform providers have been left disappointed after engaging with the insurance industry. Traditional insurers typically see platforms as a means to sell an existing product, rather than innovate to produce a new offering. There is little evidence that insurers are using the rich data these platforms can provide to innovate. Some platforms may not have considered insurance, as they seek to scale up their market share.
What needs to be done to increase innovation? Regulation could be amended to encourage regulators to go beyond their traditional role by facilitating entry and innovation in their respective markets.