Microinsurance: More than meets the eye for insurers

The impact of COVID-19 has exemplified the need to insure against individual and business risks of various kinds. At the same time, changing consumer behaviour is leading to varied demands of risk protection that are not limited to life, accident or health coverage. 

Microinsurance is helping to fill these risk gaps. In the process, it is opening several opportunities for insurers to embed microinsurance products into their offerings. 

There is more to microinsurance than meets the eye. For many, microinsurance is the provision of insurance to the poor who cannot afford larger and extensive insurance coverage types. 

But it is really a lot more. This bite-sized microinsurance reimagines how people obtain and consume insurance. We believe it is about the provision of smaller insurance products that are aligned to provide risk coverage against specific aspects of an individual’s daily life. Incorporating microinsurance into their offerings successfully and seamlessly is key for insurance companies.

Whilst insurance has, until now, been about selling wealth management and risk protection products via agents and brokers, microinsurance is driven by the consumer’s need to buy different types of risk coverages that cater to their specific lifestyles. Given this fundamental difference, how can microinsurance businesses be built?

Meeting growing demand

Asia has seen strong economic growth in the past three decades, and this has resulted in a rapidly growing middle class with increasing incomes and changes in consumer behaviours and habits. These developments are opening opportunities for insurers, who can now integrate insurance seamlessly into customers’ lifestyles, with bite-sized premiums that are directly linked to daily activities.

Technological innovations across the board, and in particular the near-ubiquity of the smartphone and deepening mobile broadband penetration are enabling this. 

Technological trends in microinsurance and their impacts on insurers

Emerging technologies are key to an effective microinsurance experience. For example, cloud computing can be used for infrastructure management by insurance companies. Big data, meanwhile, can be used for identifying, extracting, and mining large amounts of customer data, helping insurers understand their customers’ needs more accurately and in staying one step ahead of the consumers to find their potential needs too.

Then we have artificial intelligence technology, which helps fulfil needs such as consumer identity online. It also helps automate complex processes and conduct predictive analysis based on risk profiles. 

Blockchain optimises efficiency, security and transparency in the industry despite the insurance business becoming more complex than ever before. It also helps connect all insurance stakeholders and does away with the need for manual reconciliation, thereby reducing operational costs. 

Finally, the internet of things (IoT) enables access to real-time data for insurers to gauge and determine premiums or claims. 

The list can go on.

A big change resulting from these innovations and the changes in consumer behaviour is how insurance companies ought to look at insurance. In past decades, an insurance product was sold, not bought. Customers’ awareness of insurance was quite low, and insurers relied on large agent-broker distribution channels to sell their products. 

But now, information is more easily accessible, and business strategy has transitioned from offline to online, wherein potential consumers are increasingly comfortable with purchases of products through online channels instead of through physical meetings.

The coming age of embedded insurance

The challenge for insurance companies is how they can embed microinsurance products into their existing offerings seamlessly, and also ensure that microinsurance is embedded in the lives of their customers, supplementing their existing insurance portfolio.

This is where marrying the technologies referred to earlier with insurance comes into play. Broadly speaking, technology can be used in the innovation of products, reaching customers via digital channels, and in optional third-party services. 

For insurers, there is a need for greater agility, such as by enabling more distribution channels and AI-driven business processes. It is about trying to design simple products that are suitable for different customers and markets – these include event-based products and pay-as-you-go products. 

Digital channels allow insurers to have direct access to customers, and help result in a mindset shift where insurance is considered a consumption product as opposed to an investment product. 

Here are some ways this can be done:

• Subscription insurance: Individuals can pay for their insurance plan on a monthly basis, catered specifically to certain needs such as a retirement plan for future saving, an education plan for kids. Customers can have the flexibility to change, update, or stop the insurance plan whenever they deem fit. 
• Health insurance: Using geolocation services, insurers can recommend precise health coverage for specific diseases based on information available on disease clusters or heavily infected areas available through government databases. 
• Event-based insurance: Amid the ongoing pandemic, consumers can avail of health insurance, providing protection against specific diseases, whilst allowing them the freedom to stop the coverage when the worst of the pandemic has passed.
• Auto insurance: Insurers can provide innovative products such as usage-based auto insurance, or dynamic premiums based on a customers’ driving behaviour data, whilst consumers have the option to switch on/off their insurance coverage depending on their vehicle usage. 
• Automated travel insurance: Customers can easily buy travel insurance by scanning a bar code printed on their plane tickets or by selecting a check box when buying tickets online. Flight delay claims can also be triggered automatically without customers having to raise the first notice of loss to insurers.
• Lifestyle insurance: Embedding insurance in a regular shopping experience is something that can be done. For example, individuals can be automatically charged a $1 policy on their payment card whenever they shop online. This insures them in the future in case of death, accident, or illness. 

These examples provide a peek into how insurance companies can make the shift from “selling” insurance to getting customers to be “buying” insurance. Given the flexibility these types of products provide customers, they are going to become more popular in time, and insurance companies must look to cater to this impending demand. 

Evolution of microinsurance

Whilst several advances have been made for the better, insurers have a tough task of raising awareness among the general public about insurance – such as the benefits of buying protection for small trips, taking a bus or a taxi ride. There is a need to establish that insurance is not only limited to wealth management, and microinsurance is not just about providing the poor with affordable protection. And most importantly, there’s a need to underscore that risk aversion for any scenarios—whether big or small—serves the same purpose. 

Creating innovative insurance products alone isn’t enough. Partnering and integrating with various digital channels enables insurance companies to push for microinsurance products where consumers spend most of their time online.  

Selling insurance directly to customers is more than just a B2C model. Insurance companies need to build deep ecosystems and partnerships so that they can on-board customers seamlessly and deliver value. 

The key is to provide interconnected sets of services in a single, integrated experience that can connect offerings from players from across different industries. In the coming years, microinsurance will continue to deepen its connections with digital channels, be widely involved with third-party services; and will be increasingly based on one-off events or scenarios.

But addressing last-mile challenges can be challenging and expensive. As such, insurance providers must consider an ecosystem approach that can help generate new leads, lower distribution costs, increase customer retention and improve prevention and assistance to reduce claims. 

One other challenge that still needs to be addressed is pricing. This is because of short actuarial history pertaining to microinsurance products. But emerging technologies are helping overcome this challenge too.

Helping insurers make the shift

Its wide scope of coverage, ease of acceptance, and speed make microinsurance a good supplement to traditional insurance products. At OneConnect, we are pushing for the greater use of AI, big data, and blockchain among insurance companies so they are able to seamlessly extend microinsurance products to customers. 

We are also looking to build an insurance ecosystem, leveraging on our parent company Ping An’s extensive experience of over 30 years in financial services. OneConnect’s Surety—Insurance Platform provides an end-to-end journey for insurance companies starting from the designing of sales processes, endorsement, and claims—and for all kinds of microinsurance and digital insurance products. In the move to embrace digitalisation, the platform serves to reduce the time-to-market for products and improve overall operational agility within insurance companies – with production management and design tools as well as APIs that can combine the full suite of insurance product offerings. 

Microinsurance enables a win-win situation for both insurer and consumer. Insurers benefit by providing small-ticket policies that have a low-barrier to entry, resulting in increased revenue and new market opportunities. Meanwhile, the insured benefit from customised risk coverage with greater efficiencies and value. 

Going forward, technology is going to drive microinsurance by providing insurers with important insights that will help design better and more effective products. There is more than meets the eye to microinsurance. The sooner insurance companies acknowledge this, the greater their chances of success will be.