The other key is identifying the risks that are keeping people awake.
As I noted in my previous blog, Africa is only just emerging as a market for insurance—but a very specific type of insurance. Let’s try and create an identikit:
- Cost has to be very low. Given that incomes are in the range of US$2 to $8 a day, prices have to be really, really low.
- Products have to be simple. The imperative for simplicity is driven by several factors. This market is relatively uninformed about insurance and so the risk and conditions have to be readily understandable; the fact that the distribution channel is typically the mobile phone or a call centre further demands simplicity. People don’t necessarily have money (or desire) to travel to a conventional branch, so everything has to be geared to non-traditional channels, including payment. Simplicity also keeps costs low and reduces the need for pre-purchase advice.
- The risk has to be recognised. Because money is tight and the concept of insurance still new, it’s vital that insurers are able to identify and adequately assess the risks that most concern people.
- Distribution has to be multi-faceted. As already noted, digital channels will likely predominate in the sales and support processes. However, insurers also must tap into the complex human networks that permeate African society. Here I’m thinking particularly of affinity groups like churches, burial societies, informal savings clubs (known as stokvels in South Africa), as well as unions and labour organisations. Indeed, government agencies and non-governmental organisations should also be considered. The main point here is that insurers will need to build ecosystems to reach these consumers.
We all know that simplicity is the ultimate sophistication, so these microinsurance products have to be extremely well crafted.
Insurers have already had some success with life and accident products across Africa. According to my figures, some 32 million lives are already insured, and the annual growth is in the region of 50 percent, albeit off a small base. The core product here is funeral cover, which is used not only to cover funeral costs (funerals generally play an important role in African life) but also to settle outstanding debts and provide for relatives/ dependents.
A final word: Insurers with their sights set on this type of market should be prepared to invest in educating potential customers. That way they will gain access to first-time buyers, and hopefully become a trusted advisor as they progress up the economic ladder.
This blog describes the typical microinsurance product from the customer’s point of view—next week, a quick look at how it translates into the insurer’s business model.
For more information, download Big opportunities in small-ticket insurance.