Innovation has been slow to reach the long-term insurance sector. But the new age of individualised marketing has paved the way for smart companies to disrupt traditional insurance models by introducing products that are flexible and consumer-centric.
Gone are the days of ploughing capital into traditional and largely stagnant operating models. Instead, there is global recognition that for growth to occur the focus must shift to new approaches that provide personalized product offerings and enhanced consumer experience. In other words, microinsurance.
But while microinsurance is a relatively new concept in the developed world, it is a well-recognised term in the developing world for protecting lower income people against risk by providing insurance products tailored to their needs, income and level of risk.
Sonja Visser, CEO of African Unity Life (AUL) believes that microinsurance is the next big growth area in insurance in South Africa.
She believes that to succeed in the new age, the old model of insurance via risk aversion must be replaced with protection of risk. Through customizing products based on the needs of the consumer and using digital distribution platforms, such as cell phones, companies can evolve their cumbersome and complex business models of the past to develop transformed, agile products.
“While funeral cover has been the mainstay of microinsurance in South Africa over the years, the game is now changing. Thanks to the recently introduced Insurance Bill which provides both for licensing of products as well as protection of consumers, the field is now wide open for microinsurers to develop products that people want and can afford”, says Visser.
In its South African Insurance Industry survey of 2018, KPMG defines microinsurance as, “insurance products that offer coverage to low-income households. A microinsurance plan provides protection to individuals who have little savings and is tailored specifically for lower valued assets and compensation for illness, injury or death”.
It goes on to state that between 2005 and 2010 there was an 80% increase in the number of people covered by a microinsurance product in Africa.
This bodes well for South Africa where, according to Visser, there are 12 million people who could previously not afford protection against financial risk, loss of assets, and loss of income.
“The licensing of microinsurers brought about by the Insurance Bill means that consumers will now be protected through provisions such as maximum waiting periods, no exclusion of pre-existing conditions, notice when changing premiums and grace periods for claims”, she says.
According to the KPMG survey, there is still a mismatch between ‘what is perceived as the biggest risk, i.e. loss of income or job loss, and the dominant insurance product, i.e. funeral cover’.
According to Visser, this is an opportunity for disruption and growth of the sector and should be spurring insurance companies on to develop innovative new products.
In their book, “A Practical Guide to Impact Assessments in Microinsurance” David M. Dror and David Piesse argue that the ‘micro’ in microinsurance does not only pertain to low-income products but also to the premiums and benefits related to the product.
To this end, there has been a global swing towards products that disrupt the traditional and provide the ability to handpick cover that offers rapid underwriting and customised cover for the shortest period of time - in some cases, allowing policy owners to form small groups and to get money back if they don’t claim. Not only does this model break with the past, it also allays the problem of insurance being a ‘grudge purchase’ and solves the problem of the moral hazard.
But whatever the definition, the evolution of insurance as we know it will most certainly centre around microinsurance. Companies that are able to leverage off the swing towards microinsurance and create simple, flexible solutions to insurance needs will be at the forefront of this innovation revolution.