Determining the Right Payment Model for Mobile Microinsurance

In recent years, microinsurance has started to play a bigger role in helping facilitate mobile money uptake, with the GSMA reporting a 9% year over year growth in mobile insurance services in 2015.  However with 63% of the120 live services being led by mobile operators globally, the reality is that only eight of these services have issued more than a million policies.

Research analysing the criteria behind some of the microinsurance sprinters offers points for consideration when planning to launch insurance services. It highlights mobile money and airtime as the two most commonly used methods for collecting premiums, however each of these methods has advantages and disadvantages. So, what should MNO’s (Mobile Network Operators) be mindful of when choosing the most appropriate payment mechanism?

Cost and reach. Prepaid airtime, although more pervasive than mobile money, has associated distribution costs and taxes, which can range from 15-30% or higher.  The costs to use prepaid airtime are often passed on to the consumer, which can make airtime-linked premiums significantly more expensive than those products leveraging mobile money.

On the other hand, mobile money, while typically not taxed, is not completely devoid of costs. MNO’s still need to factor in the cost of agent commissions when using it as a premium collection tool. Mobile money has the additional challenge in that it has a smaller captive market than airtime. In West Africa, penetration is only 19.6%, just over a third to that of East Africa (55%). So if an insurance product were to rely solely on mobile money as a payment option, it could severely limit the potential customer base.

Regulation. Every market comes with its share of insurance regulatory requirements, which is further complicated by the need for MNOs to comply with additional regulators. Especially relating to premiums, these other regulators, like communication authorities and central banks, can impact the viability of payment mechanisms.   For example, not all countries allow for the use of airtime to pay for non-mobile services like insurance.

Customer preference.  Insurance remains one of the least trusted financial products in developing markets. Adopting research methodologies such as Human Centred Design (HCD helps to build a clear understanding of the payment models preferred by customers.  For example, HCD research may show that some consumers do not like to have airtime balances auto-deducted, or are reticent of using mobile money to pay for insurance because they only use the service for money transfers.

Despite the trade-offs, MNOs should be reminded that payment models do not need to be exclusive of each other. By leading with an airtime-based insurance product for example, MNOs can create scale early by appealing to a larger customer base using a payment method they already know and trust.  As the operator’s mobile money client base expands, it may then make sense to migrate customers to the lower-cost mobile money option. In some instances, both payment mechanisms are offered from the beginning allowing for multiple premium channels.

In summary, MNOs planning to expand into mobile insurance should reflect carefully on their objectives before designing products and deciding on the associated payment mechanisms.  Factoring in market nuances such as regulation and customer preference, maturity and understanding of insurance are all vital considerations.  To increase their chances of success, MNOs should also be cognisant of the trade-offs associated with the various payment models and recognize that a one-size-fits-all model simply will not work.