The perverse thing about insurance is that those who need it most are least likely to have it. Worldwide, up to 4 billion people live without cover, meaning if they get sick or have an accident, their lives could be ruined.
In the last decade, insurers have developed “microsurance” products to help fill in this void: extremely simple policies that are easy to understand, and straightforward to administer. More than 500 million people now have some form of microinsurance, according to the latest available figures.
The micro version of life insurance, for example, could be something as simple as a text message. There are no exclusions for acts of god, natural disasters, or terrorism, and no restrictions for age, as there would be on a standard American policy. That would be too complicated. The contract simply says if you die–whatever the cause–the company pays. “We have a joke in the office,” says the CEO of one successful microinsurer. “You can be a 150-year-old terrorist and we’ll still pay your claim.”
The problem is, it can be difficult to persuade someone who’s never had insurance to buy it. Often, poor families have more immediate needs. They’re unfamiliar with how insurance works. Or they distrust the idea. After all, it requires trust to imagine a company is really going to pay out when called upon.
The clever thing about Microensure, a microinsurer based in the United Kingdom, is how it’s persuaded people to sign up for its products. Rather than selling through traditional channels, it’s teamed up with mobile phone operators, which give away policies for free. Every time a customer tops-up with airtime, they get more coverage: 1000 Rupees-worth, say, for each 100 Rupee charge.
That’s ingenious for two reasons. One, developing world phone operators tend to have loyalty issues. Customers will own several SIM cards, swapping them in and out depending on the cheapest tariffs. Carriers are in constant danger of losing business if they don’t cut prices and reduce their margins. Insurance acts as a loyalty bonus, and one that pays for itself, according to Richard Leftley, Microensure’s CEO.
The second reason is that giving insurance away makes people more comfortable with the concept. Once they’ve had insurance, they begin to trust it and see the value in it. “It’s like playing Angry Birds,” Leftly says. “None of us knew we needed it until we tried it. Then we want to pay $1.50 for a version. When people see the benefit, that fundamentally changes their perception of insurance from something that’s a waste of time and money to something worth having.”
Microensure now has 7.6 million customers in 13 African and Asian countries, with half-a-million new customers joining every month. About a quarter of those go on to pay.
“For the mass market, we’ve realized that the product isn’t important. What is important is how you create these human-centered mechanisms for getting people to sign up,” Leftly says. To join, there is no paperwork or form filling. Customers just send a text to a short code, as if they were buying a ringtone. The company gets the personal information it needs from the carrier.
Of course, serving so many customers does open the possibility of fraud. There is no way Microensure can validate every claim in rural Pakistan. But Leftly says knowing each customer’s cell location can help. For example, the company can investigate if the number of claims for a certain area goes higher than it should be.
Microensure isn’t the only microinsurance start-up with a mobile model. BIMA, in Sweden, is another. But with billions of people needing insurance, there should be room for plenty of players.
“We created Microensure to provide a safety net that moves up underneath people,” Leftly says. “As people work their way out of poverty, the gains that they make are locked in, because there isn’t anyone else to catch them when they fall.”
Insurance isn’t a sexy product, but it is vital to living a life of security in countries that don’t have big welfare programs. Without it, families are always one step from disaster, whatever gains they make.