Digital Financial Services (DFS) are increasingly seen as a way to address the high transaction costs impeding scale and access in financial services. As part of this focus on digital financial services, there is growing interest in how digitization could impact microinsurance, whether through distribution, scale, collections, or improving the efficiency of the value chain. The term Digital Microinsurance is used to encompass the broader role of digital mechanisms to support the delivery of microinsurance. Digital microinsurance is generally broader and more encompassing than the term mobile microinsurance (MMI or m-insurance) which places a greater focus on the mobile device.
The Bill and Melinda Gates Foundation commissioned Bankable Frontier Associates (BFA) and Cenfri to conduct a study on digital microinsurance (use of technology in microinsurance) and mobile insurance (insurance sold through and with mobile network operators) in particular. The study aims to provide an overview of recent developments in this sector, and to assess whether digital microinsurance can provide the growth injection that the microinsurance market needs to manage the risk of the poor, as well as the institutions that serve them.
The paper finds that similar to mobile money, there are still limited examples of digital microinsurance ‘sprinters’ and successes, especially when considering the paid models. Many models are either too new to report definitive results, or they are clearly struggling. In some cases, the distribution strategy has proven too hands off, relying too heavily on low touch digital models for registration. In other cases, premium payments have been linked to mobile money platforms that have yet to flourish, capping the potential insurance client base from the outset. In other cases, the limited knowledge and understanding of insurance products has hampered these initiatives from getting off the ground.
Moreover, while a digital sales model may be the cheapest, it may limit the market trust that can be developed through face to face interaction, especially when considering the implications for reaching a market that has little or no experience with insurance. Sometimes agent based sales may be costly yet necessary. Thus, a hybrid model may be considered when seeking to balance the cost of reaching the market and gaining trust and facilitating positive market discovery. Ultimately, a need exists for further understanding the implications of digital (low touch) distribution versus physical (high touch) agent distribution versus a hybrid model. Consideration of focusing on the needs of the institution is paramount and models which focus on (mobile money or airtime) agent productivity and needs may be valuable ways to extend cover, and build the business case and the market.