Microinsurance: Disrupt, Fail, Repeat?

Microinsurance, a darling of the charitable-industrial complex, has run into tough times of late. After more than ten years of high-octane activity, and despite an influx of donor dollars and the stated dedication of insurance titans to work at the bottom of the pyramid (BOP), very few initiatives have been able to achieve scale, sustainably, or impact.  Without one of these elements it is very difficult for any emerging-market industry to endure, and yet the majority of microinsurance initiatives lack more than one of these characteristics.    

There are success stories, to be sure – and the robust conference agenda maintained in the global industry indicates a durability of interest (or at least of training allowances for junior insurers). In my own city, Nairobi, there are no fewer than six microinsurance conferences slated for 2015 alone.

The conferences, however, tend to gravitate around the same innovators, describing the same successes – so much so that fellow panellists sometimes joke that they could give each others’ presentations. In the Philippines, for example, it is well-known that the insurance industry has taken on the microinsurance challenge full-bore, with many insurers actively competing for distribution channels and offering benefit-rich products that appeal to Filipino consumers. Ghana, meanwhile, boasts at least three dedicated microinsurance firms in addition to a National Health Insurance Scheme, which have together made the country one of the most-penetrated insurance markets in sub-Saharan Africa. Finally, mobile insurance, according to GSMA and industry sources, has in just the past few years extended insurance for the first time to more than 25 million mass-market consumers in Africa and southeast Asia.

Beyond these and a limited number of other model initiatives, though, many of the most-trumpeted initiatives in the microinsurance industry have failed to survive the past decade. Crop insurance, desperately needed in markets where more than 60% of the labor force works in agriculture, doggedly refuses to scale as farmers balk at its high price. And crop insurance, of course, comes with significant risk: one the over-eager Filipino market and its global reinsurers learned far too well after the destructive Typhoon Haiyan in 2013.

Similarly, mobile distribution has failed thus far to be a panacea for the industry. Kenyan telecom giant Safaricom projected in November 2012 that 1 million of its customers would be insured through its low-cost, innovative Linda Jamii product, and yet 18 months later only 36,000 customers had registered for the service, with uncertain numbers of customers having actually paid premiums. Other mobile insurance products have also suffered from the volatility inherent in the emerging-market telecom space, leading insurance penetration in individual markets to vary by millions from month to month and insurers to question the wisdom of mobile-dependent distribution.

As the challenges have cascaded, industry actors have started to avoid the very term “microinsurance,” preferring recently to speak of “mass market” or “impact” insurance. The ILO, a champion of the industry, conceded in its 2014 annual report, “we recognize that insurance has much broader, as yet unfulfilled, development potential: we need to go beyond ‘micro’ to have the greatest impact.”

Operators, meanwhile, have responded in kind, looking to take “micro” to “macro.”  Crop insurance discussions today often focus on market-level intervention rather than per-farmer sales; the Linda Jamii product in Kenya has repositioned itself to target corporate buyers; and global microinsurance operators, unable to keep the lights on with pennies earned per customer, have begun distributing more expensive, mid-tier products. While it is unclear whether such efforts will generate value for those who can barely survive, it is clear that an industry with a full head of steam a decade ago is today - if it is honest - merely trying to do the same.

What the shift in the microinsurance industry will mean – and whether a unified industry will endure – remains uncertain, but there is much for a keen observer to watch. The fault lines currently appear to be breaking along the lines of the aforementioned “charitable-industrial complex.” The charitable wing, having tired of funding isolated private-sector projects and regulatory reforms with little to show for either, appears to be focusing its efforts on public-private partnerships with “macro” goals such as universal health care.  private sector, meanwhile, has invested in initiatives such as the Microinsurance Venture Incubator, a consortium launched by nine global insurers in January after it became clear that the microinsurance initiatives of individual insurers were falling short. 

As microinsurance crosses its first decade, with challenges far outweighing successes, the industry’s soul-searching holds implications for other emerging industries serving the BOP. If the industry remains unified, it is unclear if the unity will result from donor dollars or industry collaboration.  If the industry fragments, it remains unclear whether the microinsurance experiment of the early 2000’s will have provided a spearhead for wider penetration of insurance in developing markets, if the number of market successes will remain limited, or if insurance will retreat once again into the preserve of the rich. 

Time – and conferences – will tell.