Responsible Finance Forum

Can the digitalization of microinsurance make all the difference?

Jeremy Leach and Tyler Tappendorf
27 March 2015
Source:  Bankable Frontier
 Bill and Melinda Gates Foundation

Microinsurance or ‘inclusive insurance’ receives very different reactions from financial inclusion advocates depending on whom one talks to. Some believe that microinsurance has reached the tipping point whilst others claim that the business case is still not proven. Over the last decade, there have indeed been many false starts and failures. First Micro Insurance Agency (FMIA), a microinsurance intermediary in Pakistan, was closed down in 2011; MicroEnsure, a global microinsurance intermediary, showed significant losses and even had to pull out of several countries; the ILO’s Impact Insurance Facility initially failed to show that it could support the rapid growth of valuable and profitable products; and the high expectations around weather based index insurance for smallholder farmers were not met. By 2013, there was a growing loss of hope in unsubsidised retail index based weather insurance products.

In addition, Mastercard, Fundamo (the payments company bought by Visa), and the Better than Cash Alliance purported a view that insurance was a last order financial product and a ‘nice to have’ which was only relevant once payments, savings, and credit were in place. All of this begged the question, “Why should donors support this Cinderella of Financial Inclusion when there were so many other priorities in the market?”, and would the use of digital mechanisms support its take off and viability?

The focus of this paper is on digital microinsurance (use of technology in microinsurance) and mobile insurance (insurance sold through and with mobile network operators) in particular. It aims to provide an overview of recent developments in this sector, and to assess whether digital microinsurance (DMI) can provide the growth injection that the microinsurance market needs to manage the risk of the poor (and the institutions that serve them).