Mobile Insurance: Micro Product, Macro Impact

Mobile Insurance:Micro Product,Macro Impact

Agrotosh MookerjeePrincipal Actuary

MicroEnsure

1.WHY BOTHER ABOUT INSURANCE?

2.WHAT ARE WE DOING IN AGRICULTURE?

3. WHAT ARE WE DOING WITH MNO?

4. KEY LEARNINGS FROM MOBILE PRODUCTS

5. WHAT NEXT?

AGENDA

WHO WAKES UP IN THE

MORNING WANTING TO BUY

INSURANCE?!

Value Creation – Accessing Demand for Insurance

Realities of Life in the Mass Market:

- Family death- Illness- Accident- Natural disaster- Lack of income and food

security- Exploitation- Marginalization- Patronization

CONFIDENTIAL – FOR RECIPIENT ONLY © 2014 MICROENSURE HOLDINGS LTD

Do Low-Income People Want Insurance?

Low-Income Clients:

Move from city back to village

Remove children from school

Change to lower-paid/degrading work

Sell household goods or assets

Take on high-interest debt

Middle/Upper Income Clients:

Use savings

Raise money from community

Work an extra (temporary) job

Use insurance via employer

Take on low-interest debt

• The poor face more risk than any other population; they may not know about insurance, but they live with a variety of risks on a daily basis

• The poor have many insurance “policies” today: assets, informal loans, various savings spots, coping strategies

• The job of micro insurers is to offer more efficient risk mitigation tools, which are simple, accessible, valuable and reliable


Mobile Insurance is Taking Off

Growth in Africa2010-2012: 200%

Outside SA: 17.2 Mlives covered

Coverage by Country

8 of 9 markets with >1m lives insured have done so with mobile micro insurance

Is low penetration a function of low demand?

Source: www.mfw4a.org/insurance/microinsurance-landscaping.html

Recent Agriculture Projects world-wideCOUNTRY DISTRIBUTION

CHANNELSCROPS INSURED

NUMBER OF FARMERS INSURED (approximate)

ZAMBIA Contract Farming Cotton 7,000

RWANDA Linked to Lending, Farm Inputs, Farmer Cooperatives

Rice, Maize, Irish Potato

21,000

MALAWI Linked to Lending, farmer union, church organisation

Tobacco, Groundnut, Maize

16,000

TANZANIA Linked to lending, contract farming, farm inputs, NGO

Sunflower, Safflower, Beans, Cotton, Maize

2,000

KENYA Farm Inputs Maize 3,000

UGANDA, GHANA

Technical Consultancy support to insurance industry, to develop crop insurance products.

n/a

PHILIPPINES Input supplier Rice 5,000

CARRIBBEAN

Retail Livelihood protection

1,000Approx. 60,000 farmers in 5 countries (Kenya, Malawi, Rwanda, Tanzania, Zambia) in Africa insured in 2013. Approx. 5,000 farmers have received payouts in 2013.

IMPACT OF FARMERSHIELD, ZAMBIA

• Access to insurance (often for the first time) to over 25,000 farmers for life

insurance and approx. 7,000 farmers (in 10 locations) for weather-index

insurance;

• Approx. $380,000 insured, premium of approx. $30,000, premium

prefinanced by NWK and cost shared (upto 75% of cost for some farmers);

• Affordable for farmers- cost is $0.80-$3;

• Many life insurance payouts- approx. 3-4 claims a month;

• Weather Index Insurance payouts of aprox. $45,000 (250,000 ZWK) due to

dry spells and excess rainfall in 5 locations in Zambia;

• Strong demand for scale-up and from market;

• Strong interest to scale-up from insurance companies (despite the claim

payout!);

• Need to evaluate impact on yield and side-selling/ delivery of crop;

8

Introduction to MicroEnsure

MicroEnsure is the world’s first and largest company dedicated to serving the mass market with insurance.

Fastest-growing insurance organisation in Africa: 10 MILLION PEOPLE INSURED GLOBALLY. ABOUT 7 MILLION IN AFRICA 85% of our clients were never before insured

Track record of innovation: Winner of 2009, 2011 FT/IFC Sustainable Finance Award

“One of Africa’s 20 Most Innovative Companies - 2012” Financial Technology Africa Magazine

“One of Five Innovations to Watch in 2013” US Council Foreign Relations

GameChangers 500 member - 2014

Investors: IFC, Omidyar Foundation, Telenor, Opportunity International, MicroEnsure management team

Adding new investors: 2 of the largest global insurers

MicroEnsure Global Footprint

Micro Health Insurance- Tanzania: KNCU Primary Care Cover- Philippines: Triple 10- Ghana: Credit Health for MFIs- India: Rural, Cashless Inpatient Cover

Mobile Insurance- Zambia - Airtel- Tanzania: Tigo- Ghana: Airtel, Tigo, MTN- Kenya: yuMobile, Airtel- Senegal: Tigo- Malawi: TNM- Bangladesh: Grameenphone- Malaysia: Digi- Pakistan : TelenorAgricultural Insurance for Smallholders- Malawi, Rwanda, Zambia, Ghana, Uganda, Kenya,

Tanzania: Rainfall Index Cover- Caribbean: Hurricane Index Cover- Philippines: Typhoon Index Cover

AMERICAS Caribbean

AFRICA Zambia Malawi Rwanda Nigeria Ghana UgandaTanzania Kenya MozambiqueSenegal

ASIA BangladeshPakistanIndia Philippines Malaysia


Our Innovations in the Past 6 Months: #1

Largest benefits on a mobile insurance product in the world

Telefonica Ghana Three for Free, launched January 2014

First mobile insurance product to cover life, accident and hospital cash

Up to 0.4% subscriber penetration per day

World Bank CGAP video on Tigo product:

http://www.cgap.org/photos-videos/tigo-ghana-insuring-ghanaians-mobile-phones

MicroEnsure Partnership Sample

MOBILE

BANKING

INSURANCE


Why is MicroEnsure the Global Leader?

Speed to Market- Largest group policy in African history (Zambia) – 8 weeks start to finish

Best Claims Operation in the World- Pay claims in minutes in rural areas submitted on handwritten napkins- 76% claims ratio in company history; currently paying 70,000 claims in Philippines

Social Impact- Never exclude HIV, pre-existing conditions, etc

Partner Value Creation- Achieve ARPU growth, churn reduction, liabilities and asset growth

Systems Capability- 1.2 m new policies/hour, web-based, fully customizable for all classes of risk

Product Innovation- Weather Index (2004) Enhanced Credit (2008)

Credit Health (2011)- EduSave (2012) Decongestion (2013)

Mobile Three for Free (2014)


Why do Customers Love Mobile Insurance?

CustomerValue

Reliable Protection from Risk

Simple Processes

built for Mass Market

Products address real

needs

Easy access to services

from a trusted brand

Lower cost risk

protection than

anywhere else

Growing suite of products

Policy management convenience

Why are MNOs Doing Insurance?

MNOValue

ARPU Uplift (6-15%)

Churn Reduction (25-

60%)

Direct Revenue (US$0.05-0.20/

sub/month)

Competitive Difference (new product class)

New Customer Additions

Brand and Social Impact

(1,000s of claims paid)

Lifetime Customer Value

(Stickiness)


Largest Group Insurance Policy in African History

Launched 11 February 2014, project started 9 Dec 2013; 8 weeks from pitch to launch

2.2 million insured on 1 March 2014

Fastest-Growing Opt-In Insurance Product in History

30,000 sign-ups on some days (already 14,000 today)

No Exclusions, No Age Requirements

Compare:

…67 years of insurance in Pakistan = 7 million policies

…3 Months of our product = 700,000 policies


Value Creation – Accessing Demand for Insurance

Barriers to insurance uptake:

Cost

•Typical insurance premiums can represent 8-10% of a typical income in mass market population

Trust

•Insurers are not seen as trustworthy due to product complexity and poor claims payment

Access

•Insurance agents are not sufficient to cover a whole country, and they do not target the poor

Under

-standing

•Clients lack financial, legal, health education to understand coverage, terms and conditions

Cost

•Offer superior value for money – even “free” or low-cost

Trust

•through Telefonica’s trusted brand

Access

•…via mobile through Universal Access (USSD, IVR, Apps)

Under

-standing

•…and begin with simple products

Our Value Proposition:


Value Capturing – Insurer Perspectives Must Change

•Illiteracy, indigenous languages

•High rates of morbidity, mortality, natural risks

•Poor document access, distrust of written forms

•Inconsistent cash flow, majority of assets unbanked

•Poor history with all formal financial institutions

•Distrust of all types of insurance companies

•Expected intimidation, inconvenience, bribes

•Low health, legal, financial education

•Pervasive superstitions and traditional beliefs

All Mass Market

Insurance

Products Must

Account For:


Typical In-surance Micro Insurance

Profit

Brokerage

OpEx

Losses

Core Problem:

How do you offer insurance to people that face more risk andcan’t afford to pay the same premium?

Solution:

Price in the RiskReduce ExpensesReach Scale Quickly

The cost of delivery and operations puts many micro insurance products outside the reach of the mass market.



MicroEnsure’s service model lowers costs dramatically…

Typical In-surance Micro Insurance

Profit

Brokerage

OpEx

Losses

Reducing OpEx:

- Product Design- Product- Training- Marketing- Policy Administration- Loss Adjustment- Underwriting- Reinsurance- Policy Reporting- Claims Processing- No Excess “Costs”



Waiting Period of 3-6 months before cover commences Medical Examination required for underwriting Family Medical History shows genetic linkage to disease Exclusions for HIV/AIDS, death by heart/lung disease or other pre-existing medical conditions, mountain climbing, paragliding, mental illness, asthma, diabetes, hypertension Cover, surrender value lapses if premium paid late Cover terminates when subscriber reaches a certain age Complex documents and forms required for claims Claims Processors paid by claims denial rate

Typical Life Insurance Terms & Conditions



Waiting Period of 3-6 months before cover commences Medical Examination required for underwriting Family Medical History shows genetic linkage to disease Exclusions for HIV/AIDS, death by heart/lung disease or other pre-existing medical conditions, mountain climbing, paragliding, mental illness, asthma, diabetes, hypertension Cover, surrender value lapses if premium paid late Cover terminates when subscriber reaches a certain age Complex documents and forms required for claims Claims Processors paid by claims denial rate

Typical Life Insurance Terms & Conditions

Scale requires simplicity...which is justified by scale



Typical Barriers

Insurers need to change their processes and assumptions, and be willing to accept thinner profit margins.

Insurance regulators must accept different processes: no wet signatures, no policy documents

Telecoms must be willing to offer a free product to change market perceptions about insurance; paid-for products will only penetrate the subscriber base up to 1% within one year, but freemium products will penetrate 15-20% of the base, of which 40% will purchase paid-for upsell products, leading to higher revenue for Telefonica indirectly in the short term and direct revenue in medium term

The telecom and insurer must be agreed that the telecom’s brand is primary

Project plans and charters have to be established and followed in an orderly fashion; otherwise mistakes will be made and gaps will be missed


Why Offer the Promo (Freemium) Product?

Creates a Market – Traditional products have only reached 0.5% penetration in any market in their first year, whereas promo products reach 8-12% Accesses Consumer Demand – mass market consumers face persistent risks btu have never had insurance before: promo products give them experience

Product Pays for Itself via ARPU Uplift and Churn Reduction Created Market will Convert to Paid-for Products

12 operators worldwide are currently running with this model…it has driven ARPU and loyalty everywhere

Consolidate the policy wording, terms & conditions onto 1-2 pages Eliminate any important word that a 12-year-old doesn’t understand Consider alternatives to “wet” signatures: may involve regulators

Claims:

Accept documents that are accessible & meaningful in rural contexts Audit the second claim (that looks out of sorts) and do trend analysis Be proactive, accessible, and helpful in claims processing: incentivize

claims officers on how fast claims are paid from event to payment Start the internal clock when the event occurs, not at document receipt Measure the customer’s full experience from event to receipt of cash Accept digital documents for speed (but protect right to hard copy) Expect loss ratios of 50-60% for clients to see value

Process Notes for Mobile Insurance

How Mobile Makes Insurance Better

Understand customers and address their most important needs! Strong trusted distribution partners with good brand recognition;

Strong business case for distribution partners and insurer;

Claims- PAY them! Efficient claims process; Social Impact;

Insurer should rethink strategy; have a long term approach;

Products should be simple, innovative, cheap/ even free!

Robust systems needed and ground presence required

Best Practice project planning and long term strategy

Introduce Value-add-services e.g. Crop advisories, weather forecasts

SUMMARY OF KEY LESSONS LEARNT

Documents

Mobile Insurance: Micro Product, Macro Impact