Micro-insurance coverage is on the rise in Africa. In 2015, total micro-insurance premiums written on the continent amounted to nearly $647 million USD, which is up from $387 million USD in 2011, a 60% increase over a four-year period (Microinsurance Network). Of the nearly 62 million lives insured by micro-insurance in Africa, South Africa alone accounts for more than half these lives, making it one of the world’s largest micro- insurance markets. Empirically, this has led to an unlikely convergence between the private sector and the traditional development agenda, providing a unique opportunity to explore questions regarding the role of insurance companies in helping the poor address their vulnerabilities through the provision of financial services.
As might be expected, building profitable micro-insurance markets presents a number of challenges, especially the need to achieve scale, since the sustainability of insurance operations relies heavily upon building a sizable risk-pool. Fortunately, the advancement and proliferation of technology across the developing world, particularly mobile phones and its networks, have been a game-changer for many industries including micro-insurance. In South Africa, mobile penetration is deep; mobile phone subscriptions per capita stand at an impressive 1.47 (World Bank, 2014). To gain a foothold into the lower end of this market, South African insurance companies have partnered with mobile network operators (MNOs) to leverage their distribution networks and to gain access to low-income consumers. By overlaying their operations upon a mobile infrastructure, insurance companies have been able to generate efficiency gains across the entire micro-insurance value chain from product design, marketing and sales all the way to enrollment and claims administration (Téllez, 2012). From the MNO perspective, m-insurance is an appealing product insofar as it stimulates average revenue per user (ARPU) and reduces churn, i.e. increased loyalty/retention (ibid.). And for the end-client, efficiency gains translate into affordable premium rates that compare favorably to traditional micro-insurance products or even their informal sources of insurance coverage.
Given South Africa’s established micro-insurance market and its excellent mobile penetration, the compelling business case for both insurance companies and MNOs propelled a flurry of early investment into m-insurance deployments. Surprisingly, despite what would seem to be a bevy of structural advantages and a solid business rationale, several reports and the findings of this project concluded that the majority of m-insurance products in South Africa failed to achieve scale (see Smith et. al, 2010; Tellez and Zetterli, 2014). On the face of it, m-insurance in South Africa should have been a win-win scenario for both consumer and provider. But why did this market fail to launch, and what might this say about the potential and/or limits of insurance companies as development actors? The central research questions that underpin this study approach this issue from both top-down and bottom-up perspectives. From the top-down perspective, what are the regulatory and market-wide factors that inhibit the development and distribution of m-insurance? And from the bottom-up perspective, what are the factors that drive clients’ mistrust of m-insurance products?
