How to sell insurance to low-income earners in Africa

MicroEnsure has partnered with mobile network operator Airtel to provide insurance products to its subscribers.

In Africa, insurance has traditionally been a preserve of the rich. Most poor people have no safety nets and therefore risk losing everything in the event of serious illnesses, accidents, sudden deaths in the family or damage to their property.
But the widespread use of mobile phones and the success of mobile money are enabling development of innovative products targeted at low and middle-income earners.
MicroEnsure, an insurance provider focused on Africa and Asia, serves more than 15 million people in 17 countries. It offers ‘free’ and low-cost insurance cover in partnership with other organisations, including telecom operators, microfinance companies and co-operatives.
The company was started in 2005 by US microfinance institution Opportunity International to provide credit life insurance. If a borrower died with outstanding microfinance debt, the microfinance institution would get its money back. Gradually, MicroEnsure added more benefits, providing cover for property damage, critical illnesses, retrenchment, and loss of family members.
“When we started we knew low-income communities faced risks, but what we didn’t know was whether it would be possible to insure them. We noticed the more benefits we added, the more interest people showed in our products. So people actually started coming to our microfinance partners to take loans so as to get the insurance products,” says Peter Gross, MicroEnsure’s marketing director.
“People would ask, ‘what’s the smallest loan I have to take to get the insurance cover?’ We initially thought this was strange, but when we talked to our customers we found out they had no other way to get insurance.”
In Africa, MicroEnsure has a presence in Kenya, Nigeria, Ghana, Tanzania, Malawi, Uganda, Zambia, Burkina Faso, Madagascar and Niger – and provides a variety of products including health, life, property and even political violence insurance.
Teaming up with Airtel
In Kenya, MicroEnsure has partnered with mobile telecommunications company Airtel and Pan Africa Life Assurance to offer free medical cover to Airtel customers based on the amount of airtime they use monthly. For monthly airtime usage of Ksh.250 (about US$2.40), customers receive up to Ksh.1,000 ($9.6) hospitalisation cover and Ksh.10,000 ($96) life and accident cover. The more customers spend on airtime, the greater the insurance cover.
MicroEnsure designed, implemented, and operates the back office services and technology platforms behind the product, whereas Pan Africa Life underwrites the insurance risk. When they have claims, customers inform the mobile operator and receive payments within 72 hours via mobile money. MicroEnsure and Airtel have launched similar products in a number of African countries.
In markets where most people switch between SIM cards from more than one mobile service provider, Gross says the goal is to encourage customers to use Airtel. After several months of experiencing free insurance, users are provided with an option to sign up for additional benefits and pay $1-2 a month in premiums.
“It is clear that over the last five years mobile insurance has been driving insurance penetration on the continent. Our products have also been successful because they are ‘free’, reliable, easy to understand and they are backed by big brands,” explains Gross.
Although most of its products are delivered in partnership with telecom operators, MicroEnsure also works with other institutions such as Barclays bank in Kenya and Ghana, offering the bank’s customers retrenchment insurance. The idea is to leverage the big customer network of certain organisations which benefit by gaining loyalty from customers through the free insurance schemes.
New approaches to insurance
Africa still has one of the lowest insurance penetration rates in the world. According to reinsurer Swiss Re, total premiums in Africa amounted to $69bn in 2014 – less than 2% of the world market share.
Gross says high costs, distrust and lack of access are to blame for the poor uptake.
“People commonly say that insurers never pay claims. Most insurers also think, ‘the customer is going to cheat me so I need to set up 12-foot walls to keep the customer from cheating me’ – but those walls keep customers from coming in the door in the first place. Our approach is to have an open door, get the customers in and then give them a great experience so they’ll want to stay with us moving forward. We don’t treat them like they are untrustworthy. It sounds naive to say, but if you show customers you trust them, they trust you back,” says Gross.
MicroEnsure also designs its products to fit local realities. Gross observes that “private health insurance models from the west simply have not worked in Africa” hence the need for new approaches. In Kenya’s life insurance industry, for instance, most insurance products demand a formal death certificate from government as proof of death.
“But we know that a formal document doesn’t always exist in remote communities, so in some cases we accept a letter from an imam or pastor who officiated the funeral as proof. We have built capacity on the back end to make sure that this works the right way and we aren’t exposed too significantly to fraud.”
However, Gross notes that the firm’s innovative approaches are challenged by vested interests, especially in markets that are overly competitive. Some insurance companies are not willing to adapt to new solutions.
Although Gross admits that “there is a segment of the population that isn’t commercially insurable”, he still believes there is big potential in the African market.
“We think about 600 million people in Africa can be insured. I would love to have 20% of that. I think that’s a reasonable target for us.”