Booming microinsurance gives millions of Africans first-time access
It is only a matter of time before sector moves up the value chain to disrupt the traditional industry
Africa has traditionally been the world’s most uninsured, and underinsured, continent. That’s rapidly changing as the booming popularity of microinsurance gives millions of Africans access to life and hospital insurance for the first time.
Microinsurance offers consumers financial protection against specific risks — hospital cover for accidents, for example — for tiny premiums. The impact is transformative, as it shields people with lower incomes from the economic shocks that would otherwise keep them locked into an endless cycle of poverty.
SA has by far the highest insurance penetration rate on the continent, at about 17% in 2017. Our bigger risk lies in losing touch with the power of insurance cover, since it is so widely available for formally employed workers. Namibia, Lesotho, Mauritius and Zimbabwe have insurance penetration rates of 4%-7%. More than half of the countries in Sub-Saharan Africa have an insurance penetration rate of less than 1%, and it is often a struggle to drive effective and efficient access for that 1%.
However, the rapid growth of microinsurance across Africa is turning traditional insurance models on their heads, and changing long-standing perceptions of insurance on the continent as complex and expensive.
While microinsurance started out largely targeting underinsured people, it is only a matter of time before it moves up the value chain to disrupt the traditional insurance industry, which has battled to deliver relevant, affordable products to lower-income and rural audiences.
There are thus few more exciting markets for insurance fintechs to be in now than in Africa. Before Covid-19 struck McKinsey predicted the African insurance market would grow at about 7% a year from 2020 to 2025. That is nearly twice as fast as North America and three times faster than Europe.
The game-changer has been the ability to reach people through mobile handsets, which gives micro-insurers the ability to deliver an insurance product using cost-free unstructured supplementary service data (USSD) capability on old-fashioned feature phones.
According to the Global System for Mobile Communications, Sub-Saharan Africa has the world’s fastest-growing mobile economy, with mobile penetration growing from 280-million subscribers in 2012 to more than 456-million in 2019. The heavy lifting of mobile network operators such as MTN is giving microinsurers the foundations and channels with which to reach not only mobile phone users but also their wider communities.
Whether it is the use of unstructured supplementary service data (USSD) or a zero-rated app (for those fortunate enough to afford a smartphone), zero-cost engagement channels make it much easier to deliver attractive insurance engagements. As the cost of smartphones decreases we will be able to provide even richer experiences to customers.
While ease of use is a factor in the growth of microinsurance, affordability plays a role too. If consumers cannot afford the premium they will not buy the product. Ideally, insurers should allow customers to buy as much insurance as they can afford, without locking them into regular premiums. It is all about value. A seemingly insignificant premium can deliver great value for the amount of cover, provided the products have sufficient flexibility to meet consumer needs.
However, the real driver of microinsurance’s momentum across the continent is the changing perception of insurance. Many Africans see insurance as something that is reserved for the middle class, or not to be trusted. Now, a growing cohort of microinsurance customers is seeing that it works, and they are spreading the word.
Much of the industry’s growth is being driven by word of mouth. The more people see that microinsurance is real, and the more they benefit, the more they talk about it in the community. This is helping break down many of the negative perceptions about insurance.
We are wary of using terms such as “disrupting” the insurance industry. Our experience is that the traditional approach of comprehensive insurance is not what is always needed, and there is a huge appetite for a model that says consumers can start their insurance small and build from there. Perhaps once a critical mass of African consumers sees the value in microinsurance they will also see more value in “bigger value” insurance purchases in future.
Microinsurance protects those who need it the most. People with low incomes need insurance even more than those with higher incomes, because they are more vulnerable and have a smaller cushion of resources to draw upon in times of need. They are one disaster away from falling below the breadline.
By providing insurance to these audiences micro-insurers are driving real financial inclusion on the continent, and providing the first steps towards closing the continent’s insurance gap.
• Botha is group CEO at aYo Holdings.
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