Don’t think your legacy business model will work. Microinsurance calls for a new pared-down business model.
This type of insurance—microinsurance or small-ticket insurance—is not unique to developing markets like Africa. It’s gaining in importance and popularity in developed markets for things like ski insurance for a day, warranty extensions and the like. The types of risks that these affluent consumers want to mitigate may be very different from those that worry an African consumer, but in both cases the products need to be simple to understand and purchase.
But the most important commonality, and this is perhaps the key point, is that the insurer needs to understand the consumer very well indeed. In other words, data collection has to be excellent, and analytics and predictive modelling capabilities need to be implemented.
Other commonalities include the use of technology to reach the customers, and straightforward, efficient processing. Both of these are essential for keeping costs down, facilitating distribution, enabling quick claims settlement and supporting scalability.
The table below summarises all these points as they apply to this type of insurance, both in Africa/ other emerging markets and in the developed world. They are very similar in broad terms but one thing is clear: insurers cannot use existing or legacy business models. The need for flexibility and cost-efficiency are paramount, making microinsurers some of the leaders in the innovative use of digital technologies—true digital insurers, in fact.
Next time, let’s look at some examples of microinsurance initiatives in Africa to give all of this life.
For more information, download Big opportunities in small-ticket insurance.