Mobile coverage: Sector players are increasingly turning to alternative distribution channels to reach more potential customers

In the past year Ghana has hosted two pilot programmes that have turned mobile phones into new distribution channels for microinsurance policies. Two carriers launched these services in conjunction with partners from the insurance sector in early 2011, and they are now being introduced in other countries on the continent. The demand has proved that insurance can be a successful venture in Ghana despite its low penetration rate, and has also furthered the idea that mobile phones can be a transformative technology in Africa.

TIGO PARTNERSHIP: First to market in the Ghanaian mobile insurance segment was a partnership between wireless carrier Tigo, global non-profit microinsurance intermediary MicroEnsure and local insurer Vanguard Assurance. The offering is a free life insurance product available to any Tigo subscriber. As long as they spend GHS5 ($2.96) a month, a customer is insured to a level of GHS200 ($118.58) for themselves, and another GHS200 for an additional beneficiary. Coverage levels double for an additional payment of GHS1 ($0.59) a month. The maximum pay-out is GHS1000 ($592.90) in coverage for each beneficiary for customers that buy GHS30 ($17.79) in airtime a month, or GHS2000 ($1185.80) for those that also contribute the additional GHS1 monthly payment. Through this scheme, Tigo is able to offer a service that encourages its customers to spend more money and stay loyal. Vanguard gains new potential customers as well as the premium income from those that choose to add it in, while MicroEnsure gets a percentage of the premium income. “This presents a lot of opportunity for the mobile microinsurance segment,” the general manager of Tigo, Adil El Youssefi, told OBG. “Consumer response has been to demand more variety in the offering.”

MTN: A month after the service’s launch in February 2011, MTN, the largest wireless provider in Africa and a pioneer in mobile financial services, announced a partnership with local insurer UT Life. Unlike the Tigo offering, insurance is not included in the price of air time, but can be purchased as part of MTN’s Mobile Money suite for GHS1 ($0.59) per month. Pay-outs are between GHS500 ($296.45) and GHS2000 ($1185.80) depending on premiums paid. MicroEnsure also works as an intermediary for the product, as it does for Tigo. Other MTN partners include local insurer Golden Life Assurance and Hollard International, an insurance group based in Johannesburg.

Both MTN and Tigo offer a fast claims process as central to the experience: Tigo promises a three-day turnaround between claim and pay-out, and MTN 10 days. In Ghana’s conventional insurance sector, payment of claims has been an issue, which has led to people losing trust in the sector, so offering a quick service can be a competitive edge for providers.

MTN made a marketing splash of its first pay-out in July 2011, made within three days of the claim filing at an amount of GHS1945 ($1153.19). “I didn’t expect to be a beneficiary so soon because I never expected anything to happen,” Emelia Sena Adjei, the first customer to receive compensation, was quoted as saying in an MTN press release. “Now I am convinced beyond all doubt the policy is real.” Adjei, like most Ghanaians who have decided on their own to purchase insurance, was seeking help in paying for the costs of a funeral, which are expensive, often lavish celebrations in Ghana. Using life insurance as a way to save for them or protect against insolvency because of a sudden death is one of the most popular uses of insurance in the country.

BRANCHING OUT: Though life and funeral insurance are currently the only policies available via mobile services in Ghana, this distribution channel is important as it helps insurers reach the lowest-income segments of the market, said Eugene Adogla, the director of MicroEnsure’s Ghana operations. Microinsurance is often sold in a package with microcredit, and expanding the market means tapping into segments of the population that cannot afford to borrow money. Target the mobile market enables insurers to reach lower-income households, especially given the fact most people have a phone now, Adogla said (see IT & Telecoms chapter).

Another issue that is being addressed by mobile insurance offerings is gaining people’s trust. The lack of trust has been caused by some undercapitalised insurers failing to pay claims promptly or at all in recent years. Policies have also been sold on credit to buyers who later default. Given this distrust and the lack of brand loyalty in the insurance sector, buying insurance through mobile carriers has proven more popular. A recent survey showed that 70% of respondents in Ghana would rather buy insurance from a mobile operator than an insurer, according to a report on mobile insurance by the GSM Association (GSMA).

REDUCING COSTS: Mobile distribution can also help lower costs for insurers. “The cost of selling and underwriting insurance and of administering a claim does not decrease in proportion to the value of the policy. Using traditional channels and processes, insurance companies simply cannot write policies with values below a certain floor without pricing them unrealistically,” the GSMA report said. The association identified three payment mechanisms for mobile insurance: pre- and postpaid airtime accounts, stored-value mobile money accounts, and over-the-counter mobile money payment points. It also highlighted the role loyalty schemes can play in the segment. “In countries where customers tend to have more than one SIM card, loyalty programmes can be designed to reduce churn. Alternatively, when qualifying for insurance is tied to certain levels of expenditure, these schemes can actually cause customers to spend more, having a positive effect in ARPU [average revenue per user].”

ONGOING EXPANSION: As part of expansion plans, MicroEnsure, along with Tigo, has initiated similar services in Tanzania and Senegal, and is also considering other markets on the continent. As of 2011 there were mobile microinsurance programmes in 13 countries worldwide, according to the GSMA report. However, that number is certain to go up, according to Peter Gross, the head of business development in Africa at MicroEnsure, adding that the company’s plan is to have offerings in 10 African countries by the end of 2013.

Most of what is on offer currently by way of mobile microinsurance is life coverage, with a few programmes offering protection against personal injury and loss of the ability to work. Kenya, home to past mobile financial initiatives such as M-Pesa, the mobile money transfer service that inspired a wave of innovation in the field after its launch in 2007, has some interesting mobile insurance offerings, including a 12-year endowment with life, savings and disability coverage elements, and a blended savings and health insurance plan. Kenya offers the most choice when it comes to mobile insurance, with six products. Elsewhere, there are four mobile insurance plans on offer in India, and three in Thailand and Tanzania. No other country with mobile microinsurance initiatives has more than two.

Future innovations are likely to involve a larger range of offerings in anticipation for when smartphones become more affordable and thus more popular. Smartphones are the primary method of getting online for most internet users on the continent.

While all the signs are pointing in the right direction for the microinsurance segment, some believe it is still too early to tell what kind of impact it will have on the sector. “The product is still new and we will need to evaluate this over a longer period to ascertain whether the impact will be significant in the long term,” El Youssefi said. However, for MicroEnsure mobile insurance works and can be replicated elsewhere. “We were able to prove that the value proposition is not just in Ghana,” Gross told OBG. “It’s not limited to a single market.”