Pranav Prashad is the Senior Technical Officer at the International Labour Organisation (ILO)’s Impact Insurance Facility. Pranav provides technical expertise on agriculture insurance, alternative distribution and mobile services. He was the lead author of a published paper on the use of mobile phones in insurance. The paper mainly focused on two issues. First, how can you build scale in a time and cost-effective manner? Second, go beyond mobile phone-based schemes in life insurance and look at how mobile phones can be a useful tool across the entire insurance value chain.
How did micro insurance schemes start leveraging possible advantages of mobile phones?
Most of the excitement around mobile-based insurance, also called M-insurance, links to short-term insurance products offered to mobile phone costumers usually as an incentive. Giving these incentives started as a response to a problem mobile phone companies were facing: people have multiple SIM cards and use whichever service provider is cheaper at a point in time. This led to mobile phone operators losing subscribers (customers “churning” out of their services) and revenue. The incentive was conducted as following, if you recharge your phones by, e.g., $10, for the subsequent month you and one more family member are covered by insurance. This gave insurance and protection to people who had never actually experienced it as well as an experience of claims to families who were unfortunate to encounter a problem in the covered month. Next, product diversity evolved: insurance was linked not only to recharges, but also to balance in mobile phone bank accounts and savings, and products evolved to include hospital cash back as a cover. Notwithstanding, it was challenging to move people who got used to a free insurance product to actually pay a premium, and many consumers started moving out after the free period was over. Consequently, there were lessons learned and we quickly tried to analyse and explore the attainable the role of mobile phones in various aspects of insurance.
What are advantages and disadvantages of using mobile phones in micro insurance?
There are several advantages of using mobile phones in connecting with low income households or vulnerable communities. On emerging area is of climate and disaster risk management. From a customer’s viewpoint, one is convenience: it is there in my hand and I can interact with it and get my policy. Effort and time for enrolment are also minimized and thus convenient and accessible even to people living remotely. With the increasing density and spread of smartphones, along with improved applications and features, companies have begun to accept claims via mobile phones. Instead of sending documents back and forth, applications can be submitted directly to the respective offices, which makes registration processes instantaneous. The mobile banking app can be used for premium payment and confirmation as well. Moreover, pictures of the field can be sent to the assessors at the back end to estimate the status of loss or of the plants’ health or on death of cattle. This cuts down the time to a considerable extent.
Another advantage is that mobile phone companies can support the premium collection or claims payment process. For example, in the case of what kind of Syngenta did initially for this entire Kilimo Salama project: When purchasing seeds from a supplier, the delivery would include a number that can be used to register for a particular insurance scheme on the phone. If the index of the insurance was triggered, the customer received a payout through the mobile banking application.
In addition to collecting premium payments through mobile wallets and mobile banking accounts, the mechanism of recharging one’s mobile phone can be expanded further to pay insurance premiums using airtime. However, customers can be uncomfortable for having premium deducted from their airtime. In addition, this has regulatory implications and needs to be carefully considered.
For both advantages of convenience and premium collection process to work, it is vital that the customer understands the insurance cover and terms. However, this understanding can turn out to be problematic in some cases, and a lot of initiative is required on the part of the insurers and mobile phone operators to provide a better understanding to the customers. Often, information about the cover is only provided when customers contact the mobile phone agents. Customers may become frustrated if they encounter a problem while using the mobile phone application, especially in low-income segments, or are unknowingly left uncovered if they did not achieve the minimum-targeted recharge value or are not clear about the kind of coverage. However, there are several ways to engage with the customer via mobile phones that can foster their understanding. Direct messages, or voice messages (to include people unable to read), can provide information about whether people are registered and whether their coverage is operational. Also, policyholders can be informed, for instance, about index-based insurance and triggers. In the case of a drought-related policy, customers can be informed about the trigger threshold, deviation to their current weather situation, and subsequent possiblity for a claim. For example, if the cover triggers at rainfall under 45 millimeters and it has already rained 45 millimeters then there is no claim; or if we are still on 25 millimeters then there is a scope for getting a claim.
Additionally, mobile phones can come to use in training. This way, sales teams can be provided with product information and product updates. Similarly, the sales team’s understanding in the classroom can later be tested by sending them messages, and possibly asking for a response. Therefore, the provider is very clear about the product and there is reduced miscommunication in the market.
In general, mobile phones are communication tools; hence, there are multiple opportunities to provide information and engage with the customer continually. Independent from getting a claim, customers can receive other benefits over the phone — for example, weather forecasts, agricultural advice and information on price fluctuation of nearby markets. Other cases can include using customer data as feedback to improve the product, or giving a preemptive warning to customers in advance of an approaching hurricane and asking them to take adequate measures, evacuate, etc. All these are fundamental aspects. Through such value-added services, insurance becomes very tangible.
One major challenge is the cost of this technology. Service providers and mobile phone companies are acting from a revenue earning perspective. Thus, care needs to be taken that the customer does not lose out here. Despite stated challenges, due to reach and distribution of mobile phone companies, using mobile phones in microinsurance poses a useful tool.
Are you continuing your research on the use of mobile phones across the insurance value chain?
Yes, we are continuing and we now see the entire insurance value chain actors playing a role. Both farm input providers and contract farming organization that buy the farm output can help with the enrollment of customers through mobile phones. Regarding product development, using mobile phone data of location and usage quantity serve as a surrogate for affordability. Once the costumer is on board, it can assist premium payment through instruments such as mobile wallets and airtime as premium payment. These are exciting issues, which continue to be investigated. Then engaging with the consumers: I mentioned value-added services and advice, disaster information and trigger track. Last but not least, the claim settlement. Getting disbursements, or at least confirmation of payment, through the phone can be very fast and beneficial. These are some of the various aspects across the insurance value chain we continue to look into.
What are developments in this area that you wish to see in the future?
I would be pleased to see mobile phones being used across the entire insurance value chain. Of course, there is the challenge of inter-operability and regulations. There is need to work not only with financial service regulators but also with telecom regulators. Ministries and regulators responsible for specific sectors, such as the agriculture ministry also needs to be engaged. Engaging with all stakeholders can lead to better results. ILO can undoubtedly assist in the process, albeit ultimately the governments have to do it. One goal is to have all different kinds of regulators collaborating. Another good practice that can be further encouraged is knowledge sharing between the various players and among different countries so that good practices and potential pitfalls can be shared.
More information on leveraging mobile phones in micro insurance here.
This interview was conducted by the InsuResilience Secretariat.