banner

Microinsurance provides insurance cover to low-income consumers in exchange for low premium payments. It brings cover to communities who could not afford it before, enabling them to take out policies specific to where they live, how they live, what they do or own. Microinsurance is flexible and can be turned on and off as needed, or as cash flow dictates, unlike life insurance.

Microinsurance can provide cover for almost anything you can think of, from life insurance, funeral plans, and disability insurance to cover for smoke alarms or solar panels; crops or cattle/livestock, and natural disasters. It typically provides cover within the low figures: up to R100 000 for life insurance and R300 000 for anything non-life insurance.

Its structure is simple, providing a defined benefit upon a defined event (e.g. upon, death, X amount pays out) as opposed to indemnity insurance, which pays benefits according to the actual value of the loss suffered. This model helps microinsurers avoid the costly loss adjustment process required for indemnity insurance.

Done right, microinsurance is easy to distribute, easy to take up, and carries prudential risk low enough

to enable almost anyone to offer it, from a traditional insurer or licensed microinsurer to a manufacturer, retailer, or microfinance provider. Surprisingly, many microinsurance companies are already offering basic financial services in low-income South African communities, but have not yet added microinsurance to their spread; a missed opportunity.

In catering to the low-income mass market, microinsurance presents a huge business opportunity –

So why aren’t more companies pursuing it? Because of three perceived barriers.

Barrier One: upfront cost

You need a license to offer microinsurance. At around R1 million in South Africa, that’s fine for a big insurance company or retailer, but it puts the opportunity out of the reach of smaller concerns.

The solution?

A more affordable route is to partner with an insurance company that has a microinsurance cell captive license, like Guardrisk, which requires a capital contribution of just R250 000. This is ideal for retailers, brands, or other concerns that also have no experience in insurance and will benefit from their insurance partner’s oversight (Read more about (“cell captive insurance”, a partnership that enables non-insurers to launch insurance without the high license fee or challenging compliance-related paperwork).

Barrier two: distribution cost and challenges

Traditionally insurance has always been distributed by brokers or crowded call centers, with a significant cost attached to both. With the revenue accruing from microinsurance being low to modest, you would need your distribution costs to be close to zero to get value out of your microinsurance product; you can’t be deploying a small army of brokers around the country.

The solution?

It lies primarily in the palm of your hand. Through mobile phones, microinsurance can be digitized and engineered to reach people almost anywhere, whether through smartphone apps like WhatsApp, or cost-free unstructured supplementary service data (USSD) on old-fashioned feature phones – which are still more prevalent than smartphones in South Africa’s lower-income and rural communities. In the digital era, the distance between insurers and consumers has been bridged, removing the need for brokers in the field.

As mobile phone penetration in Africa continues to accelerate in the coming years, it promises to stimulate an increasing rate of policy take-up, making the “modest” revenue accruing from microinsurance anything but.

The solution also lies in something called the omnichannel approach. As an insurtech, we specialize in assisting the insurers and microinsurers we partner with to distribute to and onboard customers utilizing a low-cost digital spread including mobile, web, e-commerce, QR Code/SMS, Whatsapp, and more; enabling wider distribution and policy take-up. We make microinsurance easy for consumers to find, whether on an appliance’s packaging, an advertisement on the back of a bus seat, or at a spaza shop counter. For companies offering microinsurance to lower-income communities in the African context, this ability to engage consumers on multiple fronts, online and off, is a must.

Barrier three: administration and compliance

Policy administration is a big, scary notion to prospective microinsurers, who fear they won’t have the resources, time, or extra capital to meet the daily end-to-end management needs of their insurance products. Traditionally, they’d be right. Another concern is that, if the administration is overly slow and painstaking, they might drop the ball in meeting compliance requirements – in South Africa, all valid microinsurance claims should be paid within 48 hours after the insurer has received all relevant documentation (with the qualification that claims may be paid in installments if this was provided for in the contract).

Until now, microinsurers have faced immense time pressure by operating in a non or only partially digital way, with the clock ticking as claims are managed from HQ to branches or field agents, to consumers.

Policy administration is a big, scary notion to prospective microinsurers, who fear they won’t have the resources, time, or extra capital to meet the daily end-to-end management needs of their insurance products. Traditionally, they’d be right. Another concern is that, if the administration is overly slow and painstaking, they might drop the ball in meeting compliance requirements – in South Africa, all valid microinsurance claims should be paid within 48 hours after the insurer has received all relevant documentation (with the qualification that claims may be paid in installments if this was provided for in the contract).

Until now, microinsurers have faced immense time pressure by operating in a non or only partially digital way, with the clock ticking as claims are managed from HQ to branches or field agents, to consumers.

The solution?

When you partner with us, we make the microinsurance administrative function 100% digital and easy to manage, with our software standardizing and aligning all administration documents and workflow templates from end to end. Our insurtech SaaS can digitize policy administration functions from endorsements to claims management and collections, ensuring speed, efficiency, and regulatory compliance.

Compliance also requires reporting. Our software makes accurate reporting and resulting compliance easier, because all source data is consistent across the microinsurer’s value chain, from policyholders to administration, underwriting and claims; across your operation, a “single source of truth” is shared, and the risk of human error is removed.

The microfinance sector is projected to reach almost $300 billion in value by 2024 and has been steadily growing in South Africa for years – but technology like ours now makes it more cost-effective, easier to distribute, easier to manage, and, ultimately, more profitable. Consider the barriers fallen.

Contact the team on 0027 (10) 045 4019 or hello@click2sure.co.za if you are: 

  • An insurer not yet trading in the microinsurance space
  • An insurer or microinsurer wanting to digitize your value chain
  • A microfinancier, retailer, or manufacturer already trading in low-income communities
  • Any company wanting to find out more about the microinsurance opportunity