Microinsurance and technology: Bringing hi-tech to low-income clients

When a young woman living in a small village in India became ill, the treatment she received reflected how microinsurance can bring technology that improves health and reduces poverty even to the remotest places. ILO Online reports from India on how micro-insurance providers using technology are paving the way to poverty reduction and sustainable development.

YAVATMAL, India (ILO Online) – Shagun had been contributing to her family’s meagre income by baking and selling bread when she became ill. Luckily, her neighbour Nalina had enrolled her in a health insurance programme, where she was treated using a new hand‐held diagnostic device with a built‐in “clinical decision support system”.

That system allowed Nalina to quickly obtain a text-messaged prescription for medicines from a doctor from the not-for profit CARE foundation. The treatment not only got Shagun back on her feet, but represents the new frontier of microinsurance: bringing technological innovation and higher quality services to remote clients while keeping costs low.

Microinsurance, or insurance designed to serve low‐income clients, has become a well‐known poverty alleviation strategy in the last ten years. CARE’s rural health delivery and microinsurance scheme focuses on providing outpatient care in villages, training local health care providers to use hi-tech diagnostic devices. The project has been financed with microinsurance grants.

The project faces enormous challenges. Only about three percent of low‐income people in the world’s 100 poorest countries benefit from microinsurance, leaving approximately two billion people uncovered. If microinsurance is to reach them, technology will be key.

Access to information technology in the global south is increasing at astonishing rates. Subscriptions for mobile phones in developing countries have grown from a few hundred million at the beginning of the century to three billion in 2008, and in Africa there are on average 40 mobile phone subscribers per hundred people. Falling prices of mobile broadband and the increasing availability of 3G, the new generation of wireless technologies, are expected to improve internet access considerably in coming years.

Furthermore, the “global digital divide” could potentially have a silver lining, as developing countries can “leapfrog” obsolete phases of technology and jump directly to new advancements. These advancements, such as satellite data, Global Positioning Systems (GPS) and point of sale terminals, have the power to improve microinsurance in a variety of ways.

According to the World Resources Institute, “Technology does two key things that help drive the development of financial services: it cuts costs, and bridges physical distance.” These two issues – high operating costs and clients that are spread out and difficult to access – represent two of the biggest barriers to microinsurance development. The partners of the ILO’s Microinsurance Innovation Facility are testing a variety of technological solutions to overcome both of these challenges.
Bringing Additional Value to Clients

Like Shagun, poor people often live in remote locations, making access to microinsurance difficult. Microinsurers are experimenting with new technological innovations to bridge these distances. Point‐of‐sale devices are an example of one of these solutions – they allow customers to enrol and make premium payments remotely, saving both time and money. Mobile phones can also be used to improve access: in Kenya, British American Insurance (Britak) has recently launched a new personal accident insurance product that features enrolment and premium payment via cell phones.

Health microinsurance also presents unique opportunities for technological innovation to increase client value. The tele‐medicine aspect of CARE’s product is another valuable offering, since many poor clients live in areas where physicians are scarce. Technology also plays a key role in health insurance schemes that offer “cashless” benefits and in detecting fraud.

To be sustainable, a microinsurance scheme must minimize operational costs. Insurance requires a large number of policyholders to reach economies of scale. It can involve costly claims verification processes, cumbersome data management, and a high volume of transactions due to regular premium payments. When this model is translated to a micro scale, maintaining a good ratio of operating costs to premium payments becomes difficult.

According to Richard Leftley, CEO of Microensure, “If 50% of a poor client’s premium goes toward administrative costs, claims payouts are meager and client value plummets. If you had a dollar to invest in your microinsurance scheme, I’d strongly recommend spending it on back office efficiency.”

According to Pranav Prashad, a Grant Officer at the Facility, “Players in the microinsurance field need to cut costs and they recognize that technology is one of the solutions, but given the current scale of operations, they aren’t sure how much to invest and in which technologies.” To help assess which strategies work and which don’t, the Facility will offer one final call for proposals for Innovation Grants, supported by Z Zurich Foundation, with the theme of “Scale and Efficiency”. This round will focus on projects that are using technology to make microinsurance more affordable and accessible to low‐income clients.

The ILO’s Microinsurance Innovation Facility was established in 2008 to further the extension of good value insurance to millions of low‐income people in the developing world, with the overall aim of reducing their vulnerability to risk. With support from the Bill & Melinda Gates Foundation, the Facility makes grants to projects throughout the developing world that are using microinsurance in innovative ways. www.ilo.org/microinsurance