Impact on Developing Markets
Why do developing markets need a new insurance solution?
Insurance coverage for the majority of developing markets is currently at a low level, with an insurance penetration rate roughly half of the global average. An underdeveloped financial industry and difficulties in affording premiums provide some reasoning behind this issue.
Mobile phone usage within developing markets provides a lifeline for many people in their day to day lives. In countries with lower than average access to home computers, the internet and banking, a mobile can provide a cheap and efficient way for people to stay connected. For example, the number of mobile transactions and wallets in Africa continues to grow, with 21% of adults in Sub-Saharan Africa now using mobile money accounts. This is the highest share of any region in the world, and is mirrored in a number of other developing countries.
Therefore if somebody’s phone is lost or broken, there can be a significant disruption in their ability to work and access funds. Uwezo can then protect the vulnerability of those at risk to such an external shock. Replacing a phone can be costly, so providing insurance at a low premium helps create stability in the lives of those most at need.
By getting more people insured and using our mobile wallet, we also improve financial inclusion. This subsequently is an enabler in achieving the UN’s sustainable development goals and improving lives.
What is causing high, unaffordable premiums for the insurance market in developing countries?
A combination of different factors are causing high and unaffordable premiums in the African insurance market. A large number of fraudulent frames within the insurance system inevitably end up raising the cost for customers to take out insurance. Middlemen within the system, including brokers and claim adjusters, also contribute to increased premiums. The whole insurance process requires all these intermediaries to successfully go from quote to underwriting and finally to issuance and payout.
This all adds to the cost and makes the process lengthier. Technical and administrative issues, such as the accidental or incorrect denial of a policy, lead to appeals-related costs. The industry is also a fairly immature and young one in comparison to the European and North American market. Infrastructure still isn’t fully in place to facilitate all operations. Manual procedures without the use of IT make up the majority of operating costs and are more expensive.
Why is uptake low in insurance policies in developing countries?
Many policyholders within developing markets maintain a level of distrust with their insurance providers. Claims are often not paid out because of process issues, document irregularities and deliberate red tape. In response, consumers will simply not take out an insurance policy. Without proper IT infrastructure on both the consumer and insurer sides, uptake is low. The level of bank account ownership is also under the global average, making the possibility of taking out a traditional policy small.