Why leadership and ownership are key to grow inclusive insurance markets

By Rishi Raithatha and Dirk Reinhard

From 24 to 26 April 2023, the Insurance Regulatory Authority of Kenya (IRA) hosted the 8^th Eastern and Southern Africa Regional Conference on Inclusive Insurance. Nearly 150 global participants convened in Nairobi, Kenya, to share their experience of inclusive insurance from the region and beyond. Held annually on rotation, the conference combines plenary sessions and training workshops to explore progress on improving access to insurance. The event was co-hosted by the Munich Re Foundation and the Association of Kenya Insurers (AKI). The conference has been supported by Africa Re, APA Insurance, AB Consultants, Britam, CIC Group, FSD Africa, the Microinsurance Network, IDF's Inclusive Insurance Working Group, Old Mutual and FinProbity Solutions.

The 8^th ESARCII brought together actors involved in inclusive insurance value chains to talk about ongoing initiatives designed to close protection gaps. Attendees included insurers and reinsurers, brokers, distribution channel providers, international organisations, non-governmental organisations, development-aid agencies, policymakers, regulators and supervisors in Africa. While the topics explored included several types of inclusive insurance, such as climate risk and agriculture, health and micro, and small and medium enterprises (MSMEs), the discussions generated valuable comparisons between each topic on common issues. These include leadership and ownership, product design, regulation and the role of government, and technology. 

The recently published Landscape of Microinsurance 2023 found that eight per cent of emerging consumers in the 34 countries surveyed had insurance in 2022. The Landscape found that the number of people covered by inclusive insurance in 2022 (eight per cent) was lower than in 2021 (14 per cent) – partly due to the COVID-19 pandemic. According to SOTIR, around 18 per cent of mobile money providers surveyed offered insurance – typically through a partnership.

Based on the Landscape of Microinsurance 2023, trends in East and Southern Africa show a region where some countries are at the forefront of growth in Africa. Across Kenya, Rwanda, South Africa, Tanzania, Uganda, Zambia and Zimbabwe, an average of 10 per cent of emerging customers had insurance – two percentage points higher than the global average. However, the averages per country are likely to vary significantly. Impressively, this adoption rate can be attributed to a wide-ranging product mix (Figure 1) that varied by country: health insurance in Kenya, funeral cover in South Africa, Zambia and Zimbabwe, and agriculture insurance in Uganda.

Figure 1: Share of gross premiums in USD by product line (based on reported data)

Source: The Landscape of Microinsurance 2022, Microinsurance Network

Within Eastern Africa, Kenya stands out as a regional leader: in 2021, 24 per cent of Kenyans had some form of insurance. Of these, 18 per cent were covered by the National Health Insurance Fund, while the remaining six per cent were covered by private insurers (Figure 2). Most insurance products and services in the country are targeted at the formally employed: around 10 per cent of the income-generating population. As a result, the insurance penetration rate remains low at 2.9 per cent of gross domestic product.

Source: IRA/AB Consultants

Source: IRA/AB Consultants

Premiums worth US$ 2.02 billion were collected in Kenya in 2021, 54 per cent of which came from non-life policies (Figure 3); microinsurance contributed 0.8 per cent to total premiums. While the insurance market in Kenya is sizable, there remains an incidence of recycling policies in the same market. While there are several other reasons for low uptake, the most pressing ones are the negative perception of insurance, poor understanding and awareness of insurance, distribution challenges and the availability of communal risk-mitigation substitutes. 

Regulation remains one of the most important barriers for inclusive insurance services to overcome for growth. Kenya’s insurance regulator – the IRA – has played a prominent role in enabling the growth of microinsurance products and services. In 2012, the IRA recognised microinsurance as a separate class of general insurance. Previously, microinsurance was considered part of life or general insurance business.

The IRA has played a unique and proactive role in attempting to change the landscape of inclusive insurance in Kenya. Despite a perceived high level of demand, the IRA found that the insurance law in Kenya was hindering the growth of microinsurance. The new regulations introduced reporting requirements that are proportional to the type of risks being covered. They also permit underwriting for specific types of customer groups, e.g., bicycle taxi riders’ savings and credit unions. However, unlike traditional insurance, microinsurance licences must be renewed annually as they are not long-term products. This allows the IRA to maintain close regulatory oversight.

Regulators in other markets are looking to grow microinsurance too: in Egypt, the lack of enabling regulation has led to a low penetration rate, prompting the regulator, the Financial Regulatory Authority (FRA), to promote financial technology to improve financial inclusion. Egypt’s insurance penetration rate of 0.7 per cent is 100 per cent lower when compared to other emerging markets in the EMEA region (1.6 per cent). To counter this, a new law on microinsurance is expected soon. This is part of the country’s national strategy for improved financial inclusion and digital transformation. The law will allow for the creation of separate microinsurance companies, and encourage the use of mobile technology and electronic stores to distribute products.

Some regulators are actively involved in public-private partnerships

Similar to the IRA, Rwanda’s insurance regulator has played a key role in developing microinsurance-specific regulation – one of the earliest markets to do so. As part of this, the National Agricultural Insurance Scheme (NAIS) was launched in 2019 as a public-private initiative, originally with three insurers and now involving five insurers in total. The government provides a 40 per cent premium subsidy, with farmers covering the remaining 60 per cent. Covering a range of export and subsistence crops, the scheme has allowed up to 150,000 farmers to benefit from insurance coverage each season.

Beyond regulatory support, government leadership is important and has enabled progress for a range of inclusive insurance programmes, including the World Bank’s DRIVE and the WFP’s R4 Rural Resilience initiative. Public-private partnerships (PPP) require significant government involvement to be successful. Rwanda’s NAIS has continued to scale partly due to the government anchoring the scheme and providing a premium subsidy. For the World Bank’s DRIVE programme, the governments in Ethiopia and Kenya respectively have supported pastoralist aggregation to aid product distribution. The WFP’s R4 Rural Resilience Initiative has benefitted from government support too – both in the form of premium subsidies and in defining roles in a PPP.

While inclusive insurance products and services have been around for nearly two decades, some old challenges still limit progress in certain markets. Understanding customer needs to create customer-centric products is now a well-articulated approach for any financial service provider serving populations in low- and middle-income markets. However, microinsurance has suffered disproportionately from traditional products being “shrunk” and tailored for low-income customers; this has not always worked. To overcome this and create a culture of customer-centricity, industry leaders need to understand microinsurance and how it works, and customers’ needs.

With several well-known inclusive insurance players in attendance, there was near-unanimous agreement on the need for good ownership and leadership for inclusive insurance services to succeed and grow. Ownership can be thought of in at least two different ways: local insurers can take ownership by using their knowledge to complement their partners’ efforts, while executive ownership can enable underwriting capability development and increased investment. For effective ownership, it is necessary to have a leader who is passionate and knowledgeable about microinsurance, and who promotes respectful stakeholder collaboration. Effective leadership involves providing support to develop capacity. For instance, the technical skills required to develop microinsurance products are often acquired because of support from company leaders.  

APA Insurance in Kenya represents a good example of where effective ownership and leadership have led to sustained growth over several years. APA Insurance started selling weather index insurance for smallholder farmers in 2006, but has since moved on to provide area-yield index insurance. It has played a leading role in creating a consortium of seven insurers that work together in underwriting agricultural risks. This has not prevented the companies from competing on other lines of insurance. As a group, the insurers could take on 20 per cent of the risk, which allowed them to place the remaining 80 per cent with global reinsurers. Their stance as an industry was the primary reason for reinsurers taking on agricultural risk in Kenya.

Beyond Africa, Pioneer Microinsurance (Pioneer) in the Philippines has also benefited from effective ownership and leadership, and a company-wide entrepreneurial drive to show a business case for inclusive insurance. In its first year, Pioneer has 27,000 customers and US$ 0.5 million in premiums collected. A decade later, the company has 11 million unique individual policies and US$ 32 million in premiums collected. Microinsurance has become the second-largest business line and the biggest income generator for the Pioneer Group. Key to this was creating a separate microinsurance team, led by a change champion who sat just below the Group CEO – at a level where key company decisions were made. This separate business unit took on all customer experience functions, demonstrating that growth can be driven through value creation.

APA and Pioneer’s examples serve as case studies on effective product design: considering the customer’s needs and their ability to make regular payments. Most customers targeted by inclusive insurance providers are likely to be informal workers who may be earning salaries paid either daily, weekly or monthly. As a result, products and premiums should be bite-sized to attract irregular income earners – based on their needs, not by modifying existing traditional insurance products. While irregular income earners could be price-sensitive, Pioneer found that customers would purchase affordable insurance products that offered value over cheaper alternatives (Figure 4).

Source: Pioneer Microinsurance, Philippines

Rwanda’s NAIS also provides a valuable lesson on how to design a product that is specific not only to customers’ (farmers’) needs, but to the environment too. While several agricultural insurance programmes – both crop and livestock – have been launched after a feasibility study, it is important for ground-based studies to consider the exact risks that farmers face. Crop insurance typically covers droughts, floods and locust infestations. But beyond this, farmers’ crops are often damaged by wild or stray animals. Regional variations, even in small areas, mean that microclimates may present localised risks: eastern Rwanda is prone to drought, while the north is at risk of flooding. Rwanda’s NAIS covers all these risks.

All the inclusive insurance examples highlighted at the event had one thing in common: the importance of strong and mutually beneficial partnerships. APA Insurance and Pioneer have used a similar range of partners to distribute their products. This includes aggregators that work with farmers and farmer groups, rural co-operatives and microfinance institutions. APA Insurance has also explored bundling its insurance product with pay-as-you-go solar panel providers. Inclusive insurance providers whose product is offered via digital technology also require strong partnerships. aYo, a mobile-enabled microinsurance provider, uses a highly effective multi-channel distribution strategy, while BIMA, a mobile-based telemedicine provider, started out through a partnership with Airtel Ghana (now Airtel-Tigo). Now, the company relies on partnerships with several healthcare providers to offer on-demand telemedicine to its customers.

Product design may require more than several partners working together: in inclusive insurance, donor support has catalysed and supported product and service development. Britam Insurance in Kenya has been working with the Swiss Capacity Building Fund (SCBF). The SCBF has been supporting Britam in developing go-to-market strategies for insurance aimed at informal workers. With the SCBF’s assistance, Britam has been able to experiment by using behavioural science to improve its products. The SCBF has been enabling established financial service providers to innovate and become high-impact enterprises. Key to this is its commitment to supporting product design early in the value chain and understanding how this impacts the rest of the value chain.

Digital technology has played an important role in enabling and scaling different types of inclusive services, including health, agricultural and MSME insurance. The conference looked at how the evolution of technology had seen inclusive insurance services change in their own way. With some of the earliest inclusive insurance services focussing on covering health, BIMA in Ghana started out by deducting premiums from customers’ airtime balances, aYo’s progress offers an example of how to distribute microinsurance in partnership with a mobile money provider.

Beyond repurposing and improving existing products, technological advancement has led to the creation of new products and services. Climate risk insurance has significantly benefitted from technological advancement. For instance, the availability and use of data, real-time monitoring, design techniques and ground-truthing have enabled the WFP’s R4 Rural Resilience Initiative to offer better-quality products to a wider customer base. Complete value chains have also benefitted from technology, with new value chains created entirely because of digital tools. Democrance, a platform provider, uses digital technology for its value chain from end to end. This covers customer acquisition, product development, distribution, premium collections, business intelligence, and document management and claims processing. Using this approach, Democrance has enabled leading insurers to sell more microinsurance policies using technology.

Technology has allowed traditional insurers to develop microinsurance services and enabled existing traditional structures to take advantage of digital use cases. Britam Insurance in Kenya created an online portal to improve communication with hospitals. The portal allows registered hospitals to check if patients have health insurance and their level of cover, and to submit claims to Britam. The manual process would take between 60 – 80 days; the portal brought the processing time down to 10 days. Technology can also be adapted to traditional community-based resilience mechanisms. Jamii One has developed an app for community groups to track group savings and borrowing. This app has been used in Ethiopia by insurers, such as Nib Insurance, to provide group micro life insurance to hundred-year-old mutual groups, known as edir. Using a digital tool has minimised bureaucracy and simplified claims processes for the edir.

Digital tools have the potential to significantly expand insurance in Kenya: 61 per cent of Kenyans use a smartphone, while 45 per cent use mobile money daily. To take advantage of Kenya’s increasing use of technology, the IRA set up the Bima Innovation Lab. Now managed by FSD Africa, the Lab is an accelerator that allows insurtechs to develop new products, try out customer journeys and allow the regulator to develop regulations designed to promote growth and innovation. The goal of the Lab is to connect technology, talent and trends to increase insurance penetration and coverage, and develop supportive legislation. Most insurtechs and innovators typically struggle and fade away in the “valley of death”. To overcome this, the Lab offers a combination of funding, technology skills and regulatory clarity. The Lab expects to have served one million customers by 2025.

The foremost lesson learned from the event was from the experiences of Pioneer in the Philippines and Britam in Kenya: both proved that there is a strong business case for inclusive insurance. This not only encouraged many attendees, but it validated the IRA’s stance on promoting inclusive insurance and seeing it as a driver to increase insurance penetration in Kenya. Britam’s case offers an important lesson in making changes to a business model and taking calculated risks. The company was previously involved in the Linda Jamii initiative with Safaricom in Kenya, a health microinsurance product that encountered challenges and was discontinued in 2016. This venture was not a complete failure: it showed that MSMEs and individuals demanded insurance and could afford it.

With several speakers encouraging more innovation and collaborative action, the event set a standard for future conferences to serve as a benchmark and demonstrate real progress. Recognising that incremental gains are simply not enough, several industry leaders expressed a desire to see more effort by all actors involved in inclusive insurance. Regulators in Kenya and Rwanda have displayed a level of flexibility and leadership for others to adopt and build on. Insurers in Ghana, Kenya and Zambia have prioritised innovation to develop products that offer customers value and an adequate level of protection. The launch of accelerators, such as the Bima Innovation Lab, not only offers insurtechs the chance to experiment without consequence, but also shows an insurance sector attempting to function in harmony. These examples show a young but vibrant inclusive insurance ecosystem in Sub-Saharan Africa – with significant potential for future growth.

Click here to find out more about the 8^th Eastern and Southern Africa Regional Conference on Inclusive Insurance. To continue learning from key stakeholders in the industry, register here to attend the International Conference on Inclusive Insurance 2023 in Accra, Ghana, in October 2023.

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