What is the easiest way of finding out whether artificial intelligence (AI) is being used in an industry? The simple answer would probably be to ask ChatGPT or Bard, or any other conversational generative AI chatbot. Posing this question to either service is likely to show that AI is being used in microinsurance to improve efficiency, reduce costs and expand access to customers. More specifically, AI is expected to improve several elements of microinsurance:
Each case shows the potential of AI, rather than its ongoing use. While several microinsurance providers are using emerging technology in areas such as improving product design, distribution, pricing and claims for example, AI’s use is still in its relatively early stages.
During the International Conference on Inclusive Insurance 2023, held in October 2023 in Accra, Ghana, few – if any – industry experts highlighted revolutionary examples that involved AI. If anything, the event was a reminder that while use of technology and digital innovation are key to filling the gaps in penetration of insurance (particularly in terms of helping to bring insurance to new, often hard-to-reach communities), tried-and-tested approaches to innovation are still vitally important.
Partnerships are a cornerstone of distributing a microinsurance service. Microfinance institutions (MFIs) and microinsurance providers often target a similar underserved, low-income customer base for their respective financial services. This shared mission can make them natural partners in delivering microinsurance products. Notable examples from West Africa show that partnerships with MFIs still offer much potential to reach uninsured and underinsured customers.
Benin’s agricultural sector is worth US$2 billion, but the impact of climate change could alter this as weather seasons are not as predictable as they used to be. As a result, insurance has an important role to play. Comuba, an MFI operating since 2000, offers agricultural credit to women across the country. Customers taking out credit via Comuba are now required to take out insurance too. In several cases, some customers have benefited from insurance without realising it. Despite being aware of it being bundled with credit at the onset, its use only became clear when a risk materialised and affected their ability to repay.
In Senegal, VisionFund, part of WorldVision, has a portfolio of 94% of women among various groups. Since 2017, the MFI has been providing credit to vulnerable and underserved customers in rural areas, particularly those who are starting a micro-enterprise. In 2021, VisionFund began a microinsurance pilot for women engaged in animal husbandry and crop production. Developing resilience through insurance is an important strategy: this approach could diversify VisionFund’s portfolio, which in turn may lead to customer loyalty and serve as an alternative revenue stream. Additional revenue can be used to continue providing credit to vulnerable communities. But bundling insurance with credit isn’t enough on its own.
Most MFIs are unlikely to have a dedicated team responsible for selling and managing insurance products. Insurance can be a foreign concept to customers who have never heard of it before; selling it requires staff who understand what it is, and understand customers and their needs. Both Comuba and VisionFund have field agents who sell credit to their communities. Both have trained their agents to sell insurance too, indicating agent capacity building as a necessity. In Comuba’s case, good agent capacity building led to a 300% increase in sales. Both Comuba and VisionFund found that a poorly trained agent could be the biggest bottleneck even if brilliant growth strategies are in place. An agent lacking a proper understanding of the insurance product could lead to a bad customer experience, which may result in bad publicity.
For many underserved customers, their first experience of microinsurance may well be with MFIs in some markets. Together, both partners should aim to improve financial awareness among their target customers. To do this, Comuba and VisionFund found that communicating frequently with customers could improve their understanding of the value and benefits of insurance. But this can’t be done alone: the strategy behind immunisation programmes should be considered. These are typically done with government agencies, and are usually well-organised and well-publicised. Microinsurance providers could borrow from this approach to get more people on board. There may even be a role for AI to play in improving awareness soon.