Africa! A continent that occupies one fifth of the world’s land mass and home to over 1 billion people, half of them under the age of 20. A continent of 54 sovereign states, well over 1,000 languages and as diverse a continent as any on Earth.
Africa straddles the equator and is the only continent to stretch from the northern to southern temperate zones. It is a continent rich in much sought after commodities and yet it is also a continent that is defined by its levels of relative and absolute poverty. Living on a low or very low income is the norm for the vast majority of the population.
Which goes some way to explaining why this mass market, with the notable exception of South Africa, are massively under-insured. The people of Africa need cover and protection in the same way the rest of us do. They still get ill, they lose their jobs, and they lose precious possessions through theft and breakage and natural disasters.
They also are vulnerable to risks that are unique to the continent, such as political violence or “decongestion”. This is the action employed by some West African governments to forcibly remove a business that is trading without a license and occupying a parcel of land deemed valuable for some alternate use. Decongestion cover offers protection for the loss of assets seized by the government.
The sheer scale of under-insurance is staggering! Nigeria is Africa’s largest country by GDP and yet it has a mere 0.6% insurance penetration. By comparison, South Africa stands at 15.4%, Namibia at 7.7% and Morocco at 3% penetration. According to a recent report in Business Day, Nigeria has “the fundamentals for a thriving insurance industry” because it has a vast population of 170 million, an active economy and a well capitalized insurance industry.
So, why does insurance have such poor adoption rates?
To answer the question, I spoke this week with Peter Gross, Regional Director in Africa with MicroEnsure, a for-profit social enterprise founded in 2002 by Opportunity International followed by a multi-million dollar grant from the Gates Foundation in 2007. Today, MicroEnsure provide micro-insurance to 15 million people in 17 countries in Africa and Asia for whom the majority has never had insurance before.
Peter explained to me the reason for the poor uptake of insurance in these mass market economies can be boiled down to 4 factors;
Cost. The typical premium from a traditional insurer can be as much as 10% of the average income. Maybe one reason for the insurers attitude in Africa is they don’t have the same loss ratio regulations to operate too as they do in countries such as the USA which gives much greater freedom to price higher premiums.
Trust, or lack of it (sound familiar?). The carrier’s haven’t done themselves any favors with their failure to build trusted brands. How is a low income, poorly educated farmer going to trust an insurer who, on the one hand, charges an excessive premium, whilst on the other, will make it almost impossible to successfully make a claim when the claimant can’t match the insurer for resources?
Access, or lack of it. The primary channel in Africa is the broker although some insurers do go the Direct to Consumer route, however, neither broker nor carrier have a great appetite for selling to the vast majority of low income masses. Even if they wanted to buy insurance, it isn’t readily available to them
Understanding, or lack of it. Traditional insurers still bring Western based policies and products to the African markets. They are not tailored for the markets or the culture or educational standards of the population. Terminology in a 30-page policy document is difficult enough for anyone to grasp.
The result is that over 90% of the population is, effectively, self-insured. When they suffer a loss, they find ingenious ways to cover their loss. This usually involves selling something that is important to their livelihood, or borrowing money wherever they can. But of course, this isn’t an ideal or sustainable situation!
MicroEnsure’s approach is to tackle the four inhibiting factors head on
Their policies and products are designed as a one-size fits all with few or no exclusions and simple terms. Most tend to be short-term policies too, and all these leads to building confidence with people who have had no prior experience with insurance.
To distribute to the market, MicroEnsure work with partners, such as the telcos and banks. What most people don’t appreciate about the telcos in Africa is that they are significantly more important and prominent than they are in the Western world. They are up there with the likes of Facebook and Google and they are key enablers in social and financial inclusion of the mass populations.
The goal for businesses in Africa is to build loyalty amongst this predominately young and increasingly mobile population. In 2013, there were 72 million smart phones in sub-Saharan Africa but this will rise to over 525 million by 2020. Data traffic in this continent is growing at twice the global average!
And the Banks are seeing the opportunity too. In Ghana and Kenya, Barclays now offer MicroEnsure’s free 3-month salary insurance for switching to their salary deposit account. Just this week, Equity Bank has announced the launch of Equitel as a fully convergent mobile and banking platform. The beauty of this service is that it eliminates the need for a mobile app to access Internet banking and enables the all features of a current account through the mobile phone.
Providing access to affordable insurance
The use of a mobile phone to pay bills, transfer money, take a loan is as commonplace in Africa as the visit to the high street branch used to be in the West. In Africa, you visit the local mobile money agent, convert your cash to electronic money and away you go. It is the network that is ubiquitous in Africa, not ATMs!
For MicroEnsure, their approach is to offer insurance as a value-add through a partner, such as a mobile phone or banking service. At first, the partner either fully or partly subsidizes the premium for the consumer, thereby addressing both the ‘access’ and ‘cost’ inhibitors. They also make enrolment incredibly easy for the consumer, who in most cases, have very little personal information about themselves at hand; they will provide their name, but probably not their identification number.
The insurance policy is activated through a phone service by the partner organization who want to ensure a good customer service experience. They make it easy to enroll using USSD technology to simply capture their first and last names and then the policy becomes active. Simple!
Building trust and understanding
MicroEnsure then start the task of building trust and developing understanding. As the new policyholder builds their acceptance level of insurance, MicroEnsure are able to introduce other insurance products, such as simple hospital inpatient insurance through to property protection against fire and flood, to crop insurance where MicroEnsure will use weather indices to cover risk from loss through unexpected fluctuations in the weather.
These insurance products are developed by engaging with the very people that they are serving to protect and not by re-badging policies developed for a Western audience. The result is a suite of products that the low income, mass market populations can understand and can afford.
MicroEnsure has established itself as a global leader in micro-insurance to the low-income mass markets in the third world. With investment partners such as AXA, Telenor, IFC, Opportunity International, Omidyar Network and Sanlam, MicroEnsure continue to provide a safety net for those in our world who need it the most!