M-Insurance: Ensuring Take-off While Doing No Harm
Mobile network operators (MNOs) have recently begun offering insurance to their clients, known as ‘m-insurance’, which offers a significant opportunity to scale-up access to insurance. The objectives of MNOs in offering m-insurance may differ (driving financial returns, enhancing and differentiating their brand, increasing average revenue per user or ARPU) and there are a number of models in existence (embedded loyalty programs, payment by airtime deductions or mobile money, and hybrids). As exciting as this opportunity may be, there remains a danger that the promise will be unfulfilled if clients do not understand or benefit from the m-insurance products or if regulators do not sufficiently balance consumer protection with enabling regulation. Certainly, the risk of failure can be systemic in nature – these models can both scale rapidly and collapse overnight as demonstrated by EcoLife Zimbabwe, where approximately 20% of the adult population lost their cover overnight.
The purpose of this post is to think through how we can embrace these models while mitigating the risks of fallout should they go wrong.
Why should m-insurance be considered exceptional?
M-insurance is exceptional compared to traditional insurance for the following reasons:
- The potential for rapidly-scaled distribution is phenomenal. In Kenya there are approximately 3,000 insurance agents countrywide, while M-PESA, the mobile money initiative of Safaricom, has over 60,000 agents on its own.
- MNO brands are more trusted than insurers. In South Africa, insurers were less trusted than informal cash loan shops (FinScope). In Ghana 70% would prefer to buy insurance from MNOs than an insurer (MTN-Hollard demand side research).
- The MNOs may be offering m-insurance to meet their own objectives (as noted above) and so may not be focused on the traditional insurance economics. This could lead to concerns around unfair competition.
Distribution and trust are important reasons for insurers to form relationships with MNOs. However, there are challenges to these alliances both in terms of the partnership itself and from the perspective of the regulator:
- Power imbalance. The MNOs dwarf many insurers in terms of capital and assets and often have powerful political connections, leaving the insurer (and regulator) subject to pressure to conform to their views. In one example, a regulator felt unable to hold an MNO accountable as a licensed agent because it did not have the resources to challenge the MNO about poor behaviour.
- Multiple regulatory issues. MNOs are regulated by communication authorities. Those offering mobile money services are sometimes additionally regulated by Central Bank rules. Adding insurance regulators to the mix adds further complexity and cost of compliance. Regulatory arbitrage also comes in to play as the MNO looks to the lead regulator and exploits the typical lack of information sharing that happens between the different regulators (communication authorities, central banks and insurance regulators). Regulators often lack adequate oversight and enforcement resources or are otherwise unable to hold MNO’s accountable through lack of effective penalties.
- MNO brand power. MNOs’ understanding of their clients often puts them in a better position to act as disruptive innovators as compared to traditional insurers. This means that the MNO brand will ‘own’ the client even though, legally, the relationship should be ‘owned’ by an insurer which causes client confusion around who is the insurer.
What are the challenges around implementing m-insurance initiatives?
M-insurance creates the following challenges:
- Creating a demand for insurance. An unengaged customer base will not pay premiums, or submit claims which will stop the “word of mouth” marketing potential. Claims remain an insurer’s shop window.
- Development of meaningful products that meet customer needs;
- Tailoring distribution models to effectively target early adopters such as youth;
- Selling insurance in a new way. Insurance is a lot harder to sell than airtime or mobile money as it is typically new to the market, often has a bad reputation and is more complex. It’s important to develop appropriate agent incentives and training to support product distribution.
It is clear that these challenges must and can be addressed over time and that m-insurance models offer considerable promise to reach massive scale, drive benefits for clients, MNOs and insurers and address the growing calls for an inclusive financial market.
At the same time there is considerable risk of regulatory backlash should these models be designed in such a way that they do not offer client value over the long-term, breach the rules, or fail. Two examples illustrate the risk of, and indeed may frame the case for, regulatory intervention:
- Getting the commercial agreements right: As highlighted in the introduction, Econet Zimbabwe cancelled their embedded insurance due to a dispute with Trustco, a technology provider, and, overnight, 1.6m / 20% of the adult population lost their life insurance. The dent to the reputation and trust of insurance in the market is serious and at systemic levels which raises concerns for insurance regulators who typically see consumer protection as their priority.
- Client value matters. The Namibian regulator raised serious concerns about the value of an m-insurance loyalty program due to the large number of exclusions which led to extremely low loss ratios, poor ‘word of mouth’ and low client appreciation. 
Both these examples demonstrate how easily trust can be undermined, stall market development, and even destroy it without proper regulation.
Risk Mitigation Models
In order to mitigate these risks, there are a couple of models that could be considered. One example that could be borrowed from the banking sector may be to require a form of 'living will' --an approach that arose after the financial crisis. This could include the insurer, MNO, and regulator jointly agreeing to the following:
- Make an alternative voluntary (paid) insurance available if the embedded insurance cover is cancelled;
- Make arrangements to allow for appropriate payment mechanisms (e.g. airtime, mobile money, cash, debit orders etc);
- Require the MNO to continue to address queries and complaints following the end of the cover;
- Separate reporting on the m-insurance business to ensure adequate oversight.
This approach limits potential damage should the MNO discontinue a product and also strengthens the insurance regulator’s hand as they would have to approve these ‘living wills’ up front, rather than deal with the ex-post consequences which are more challenging due to the power imbalance between the typical under-funded regulator and the well-resourced MNO.
An alternative model that the MNOs and the GSMA, their trade association, should consider is some form of code of conduct to manage their reputation and to grow the market. This should consider issues such as driving disclosure on both benefits and exclusions and other reputation enhancing or destroying approaches.
While I am excited about the potential of m-insurance to do good through massively increasing access to insurance for the under-served and un-served, I believe that the need to “do no harm” will require a delicate balancing act between enabling these models but requiring appropriate safeguards.
Jeremy Leach is Director and Head: Insurance at BFA (Bankable Frontier Associates), a specialist consulting firm focused on innovation in financial services.
Valuable input, comments and editorial inputs to this post were provided by Evelyn Stark at the Bill & Melinda Gates Foundation
 Interview with Adrianus Vugs, General Manager: Research, Policy and Statistics, NAMFISA