Small-ticket insurance has attracted a lot of interest from insurers, for various reasons. Before we go into these it’s probably worth explaining which products fit into this category.
As the name implies, small-ticket insurance carries a relatively low premium and offers a small pay-out. It’s generally quick and easy to buy. In mature markets the most popular product is the extended warranty, for items such as mobile phones and domestic appliances. Travel and sports-injury insurance are also common. In emerging markets it’s usually called microinsurance, and it’s quite similar to the conventional property and casualty, and life and health insurance that customers in mature markets would buy – except that the insured amounts are much smaller and the methods of distribution are usually different.
So there are two distinct types of coverage, but as I’ll explain later, they’re similar in a number of crucial respects – and this is the key to their profitability.
Some small-ticket insurance products, like travel insurance, have been around for well over a hundred years. Most are relatively new. Certainly, the number and variety of products are growing rapidly. What is driving this proliferation? There are many factors, but the four most important ones are these:
- The rise of the lower-middle class in emerging markets. Millions of new potential customers who appreciate the value of insurance and can afford basic coverage.
- Technological innovation. This is enabling the creation of new insurance products, new distribution channels and new payment mechanisms.
- Convergence and ecosystems. Many insurers are partnering with stakeholders in insurance or other sectors, and combining their assets and capabilities to form powerful ecosystems.
- Improved operating models. New insurance software is making it easier for carriers to achieve the automation, scale and efficiency they need to make small-ticket insurance viable.
Each of these trends shows every sign of intensifying, so there is good reason to believe the growth projections of over 6 percent a year in mature markets and anything from 11 to 17 percent in emerging markets.
In my next blog post I’ll go into a bit more detail about the differences and similarities between the two main types of small-ticket insurance, because this is crucial to understanding their potential. I hope you’ll join me.