When Indian micro-lender Annapurna Finance had to shut down face-to-face operations due to the COVID-19 pandemic, its first thought was to create an app which would enable its 1.9 million customers to access support, make payments, and take out new loans online.
But there was a problem. The microfinance institution (MFI) soon realised that only ten percent of its customers had a smartphone. The rest – mostly women – were still using old-fashioned 2G mobiles. The answer was to create a stripped-back, SMS-based loan product which would work on the current handsets and on smartphones, should the customer upgrade in the future.
Such digital barriers are all too common in emerging insurance markets. As a recent New York Times tech blog noted, “Technology alone, even if it’s cool and backed by billionaires like Jeff Bezos and Elon Musk, isn’t sufficient to bring online the roughly 3.5 billion people worldwide who aren’t using the internet.”
The pandemic has seen a significant growth in digital financial products – including insurance – as ‘human-touch’ distribution models have become increasingly challenging. “Many inclusive financial service providers have increased their digital users since the onset of the pandemic,” says the Mastercard Center for Inclusive Growth. “However, these new users are primarily higher income individuals. Far too many others, meanwhile, remain on the other side of the digital divide. This divide means those with access to digital tools and fast internet benefit while others – often women and rural entrepreneurs – do not.”
InsurTech is undoubtedly a potential enabler when it comes to reaching low-income populations at scale. It should, however, be a means to an end and not the end itself. Indeed, inclusive insurance professionals have long pointed out that technology is not a panacea. As MiN Executive Director Katharine Pulvermacher warned during last year’s International Conference on Inclusive Insurance, we need to understand the digital divide much better – especially as it affects women – if no one is to be left behind in the rush for tech.
Into this space, steps the perhaps unlikely figure of Mark Zuckerberg. The Facebook Connectivity initiative aims to connect billions – for example, by sharing fibre-optic internet lines or partnering with local telcos to bring mobile internet to remote areas – while trying to keep the cost of data as low as possible. Although Zuckerberg has been tackling connectivity issues since 2013, the pandemic has given the Facebook initiative extra impetus. “According to the latest Inclusive Internet Index,” says the Facebook Connectivity blog, “nearly 70 percent of people around the world believe that increased internet usage in all aspects of their lives signified a ‘new normal’ that will continue indefinitely in the future. But at the same time, nearly half of the world’s population remains unconnected or under-connected to the internet.”
It is not surprising that Facebook, whose business model requires more and more people to be connected, is investing significant sums in getting currently underserved parts of the world online. “The company acknowledges that it benefits if more people get online,” says the NYT blog. “But so do countries and many other companies that profit from selling stuff to billions more internet-connected people and businesses.” Including, of course, the insurance sector.
But is digital really the best way to help those with little or no cover manage their individual, household, and business risks? According to Dr. Ola Oyekan, a long-time MiN member and microinsurance specialist with RGA South Africa, “New insurance innovations prompted by the COVID-19 pandemic only emphasise an old struggle to appeal to underinsured and uninsured communities…The effectiveness of digital platforms as a viable distribution channel for microinsurance is still in the proving stage, and questions remain as to whether these platforms can scale and aggregate the right type of customers.”
The best insurance products in the world are useless unless customers can access them – and increasingly, that means accessing them online. For those lucky enough to have a cheap, reliable internet connection, InsurTech could be the great enabler. Many believe it is only a matter of time before nearly everyone can access insurance online. A recent Spixii blog, referencing the often-quoted estimate of an untapped microinsurance market of one billion people, claimed that “ever increasing digitalisation will ensure that the one billion number is reached. Maybe even quicker than the estimated 10 years.”
Others, however, are more cautious. As CV Madhukar, Managing Director for Responsible Technology at Omidyar Network writes, “Digital architecture has the power to enhance many different aspects of our lives…The problem is that this kind of digital infrastructure is only present in a few countries around the world – which leaves the rest of us to depend on slower, less reliable systems.
“When it comes to countries with far fewer resources, especially in Africa, the lack of digital infrastructure can create even bigger impediments to access even basis services,” continues Madhukar. “Even if governments and philanthropists have every intention of supporting vulnerable people, these will remain mere intentions without a mechanism through which they can get people the resources they need. Put simply, digital infrastructure is a first-mile necessity for an equitable digital world.”
Even where mobile connectivity does exist, it’s far more expensive in the least developed countries, according to a recent report from UNCTAD. “Data for 2019 unequivocally shows the extent of the technological divide plaguing economies of least developed countries (LDCs), even in relation to a now-well-established technology such as mobile telephony,” reads the report. “This situation perpetuates existing inequalities – rural vs urban, poor vs rich – that intersect with micro-level disparities across gender and ethnicities, among others. Although the gender gap in internet use has narrowed in recent years, women are still 20% less likely than men to use mobile internet in low- and middle-income countries.”
Faced with this, the InsurTech hype should be taken with the proverbial pinch of salt. Despite the fact that a billion new internet users have been added in the past decade, without adequate information and communication technology, many more remain excluded from digital products and services. As Siani Malama, Head of Inclusive Insurance at APA Insurance in Kenya and member of the Network, said at a JMM session on the economies of distribution recently, “You can have a Rolls Royce of a product, but if you can’t distribute it, it is just going to stay parked on your desk.”