Micro insurance and the use of mobile phones
Uganda has little insurance service provision; dominated by insurance mandated by law, especially third party motor vehicle insurance and up to about 800,000 people covered by a life cover insurance policy. All in all, this only represents a sliver of the Ugandan population. Most of these are covered by a policy offered through formal employment and are not self-initiated.
Micro insurance is giving people around the world with low incomes a method of managing risks in their lives. But micro insurance is not widely available. According to a GIZCountry diagnostic study, Uganda has an underdeveloped but growing insurance market. Insurance penetration is just 0.65% of GDP, much lower than our East African neighbour Kenya, and lower than the Africa market as a whole, at 3.6%.
According to the Uganda Insurance Authority, micro insurance is one of the key ways in which the industry will grow. The growth in this segment is confirmed by industry statistics from the GSMA Mobile Insurance Savings Credit Report 2015 which indicates that there were 120 mobile based micro insurance services around the world, 70 of which, were offered in Sub Saharan Africa. Micro insurance delivered through a mobile phone is an emerging solution that answers two problems: the lack of individual insurance policies and the access constraints in delivering insurance services to the people in rural areas of the country. There are great examples, such as Kilimo Salama in Kenya: offering a weather indexed insurance service that pays out in cases of drought or excess rain experienced by farmers. Another example is Tigo Bima in Tanzania, offering life insurance for Tigo prepaid customers.
However in Uganda, the product offering is not as varied. Except for group credit life which is procured by the financier against losses stemming from borrowers passing away, insurance is primarily sold through the traditional broker/agent model directly to the person needing cover. This is too costly a distribution mechanism for micro insurance and the traditional brokers and agents have very limited presence outside Kampala. New distribution channels are required.
Mobile micro insurance appears to offer great promise, especially by reducingthe costs of distribution. There are three main business models emerging: premium,loyalty and freemium.
Premium models have customers pay regular premiums for coverage in monthly, weekly and even daily payments, as opposed to the more traditional yearly payment plans for traditional insurance. Loyalty models rely on certain behaviour as a prerequisite for coverage, customers may be encouraged tomaintain a certain balance of mobile money, load and use a certain amount of airtime or a combination of both to get coverage. The freemium model is a hybrid, where paying premiums on top of loyalty based rewards raises the overall cover. Though initial data indicates a shift towards premium models, FSDU is looking to investigate the on ground utilisation of these models aswell as understanding what models best suit both the companies providing them and the most vulnerable users. Currently the mobile channel facilitates premium collection and reminders of the same, however, registration, complaints handling and initial selling still need to be explored to innovate creative ways to either compliment or incorporate the mobile phone.
But supply side advancements will be for nothing if the major barrier of inherent mistrust of the entire concept of insurance is not sufficiently addressed. Though poor people are more susceptible to significant adverse effects from shocks, they also have less stable sources of income, with a majority of them in Uganda dependent on agricultural production’s seasonal cash flows. Insurance is seen as an expensive luxury which is compounded by the reputation of non-payment or long wait times between claims made and payments being disbursed. Middle class Ugandans with motor vehicle insurance experience bureaucratic hurdles when submitting claims, with many settlements taking up to a year. Insurance appears to occupy the same emotional space as tax and provides no direct immediate benefit in the minds of many people. Part of this can be confronted by reducing the amount of red tape to get pay-outs, increasing customer education on how insurance works but also ensuring customers are adequately educated on the specific product, and what it covers, to prevent wrongful claims based on incorrect expectations.
Micro insurance has never had a better environment than now to grow. With regulatory movement on interoperability of mobile money services and with the advent of agency banking, banks could now bundle savings and credit products with insurance coverage through agents closer to clients. While we still need to see strong product offerings, clear processes for payments, claims and reimbursements, coupled with an investment in consumer education and awareness, we are optimistic about the future of micro insurance in Uganda.
By Joel Muhumuza