Microinsurance, macro impact

ITIJ 219 | April 2019
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Is microinsurance the next frontier for insurers and consumers alike? Lauren Haigh asked industry professionals to share their thoughts on the topic.
 
Microinsurance is a growing trend within the insurance industry. Essentially, it breaks down traditional insurance products, insuring smaller individual items such as a single event or excursion – this way, consumers can pay only for the insurance they need. Microinsurance was designed to help people who were previously unable to afford insurance coverage and has seen success in the developing world, where it is tailored to specific needs – for example in areas of South Africa and India, where most people don’t have cars and wish to insure their travel on taxi minibuses due to dangers such as overcrowding, poor maintenance and frequent road accidents. 
The customer is willing to pay a higher price for customisation  
The phenomenon is now starting to enter the developed world, where it has huge potential – such as savvy travellers looking for instant cover for gadgets – and its use is being expedited by advancements in technology. Microinsurance offers insurers and consumers the ability to cherry pick features that offer the right amount of financial protection for the shortest period of time. It also means they can obtain coverage for events or items that may not typically be included in traditional insurance policies, filling in the gaps.
 
Thank u, tech
One of the reasons that travel insurance is able to go ‘micro’ in the First World is because technology has paved the way for it to do so. Think of an app like Trov, which uses GPS to track consumers and provide on-demand insurance, offering short-term cover for electronics. Users are able to turn insurance on and off for each item individually using the app and can also use it to make a claim.
 
ITIJ spoke to Rain Takahashi, Founder of JAUNTIN’, a white-label mobile app enabling insurers to offer their policyholders on-demand insurance products. He shared his thoughts on how technology has paved the way for insurance to go ‘micro’ in the developed world. “Up until about five years ago, the cost to distribute insurance was too high to accommodate micro or short-term insurance policies,” he explained. “Imagine walking into a broker/agent and asking for four hours of insurance. They would laugh you out of the room! But with advancements in technology and automation, these short-term policies have now become possible and profitable through a self-serve via smartphone model. Travel insurance is no exception, especially since it’s more of a straightforward product compared to auto or home.”
 
Amy Walker, Propositions Development Manager at Allianz Partners UK, agrees that smartphones have facilitated the introduction of microinsurance and benefited consumers wishing to access insurance: “Technology has enabled insurers to offer microinsurance in ways that simply wouldn’t have been possible in the past. Smartphone ownership means that consumers can now use an app or a website to turn insurance on or off in a click or a swipe, purchasing cover just for their period of travel. This means today, a policyholder can tailor their cover on the go, whereas in the past it involved several phone calls with the insurer and created hassle for both the insurer and the customer.” Technology, she said, has truly delivered tailored cover via a digital platform, providing a seamless experience for the customer.
People don’t want to have to fill out paperwork each time they take a trip. They want it to be as automated as possible
ITIJ also spoke with Stefan Schrödel, Sales Director at ERV, a company of the Munich Re Group. “New technologies in communications and processes offer simple solutions for complex supply structures,” he said, “such as the step-by-step navigation through the booking process, digital damage claims or apps that function as a mobile companion for the customer.”
 
Personalising products 
One of the benefits of microinsurance is that it can meet the specific and individual needs of consumers. The personalisation of products is something that insurers strive for and with the growth of the sharing economy, only products that are relevant to users in terms of their usage and behaviour patterns are likely to succeed. 
 
“For many, the basic insurance is well covered. Yet, the rising diversification of travel types, destinations and local activities often requires more individualised solutions,” said Schrödel. He believes that the idea of breaking traditional insurance down into something much smaller is appealing to insurers, as well as being necessary: “From the cruise module to last-minute health insurance to camping products, every holiday has its own additional requirements and the customer always wants to feel well secured. Thanks to microinsurance, very special needs can also be covered. This may lead to a smaller market, but at the same time also to a more expensive market, depending on the product. Experience has shown that the customer is willing to pay a higher price for this form of customisation.”
 
However, Takahashi highlighted that microinsurance is financially beneficial to the consumer: “From our experience, smaller increments means less financial risk for the policyholder, yet opens up a net-new market for the insurance companies of users who would have otherwise not have signed up for insurance with them.” He believes that the trick is to ensure consumer interest early on: “The earlier that an insurance company can get a user as a policyholder, the more likely they are to remain as a customer as they move through their insurance lifecycle.” 
Takahashi also sees other benefits for the consumer, such as an easier all-round process: “As we move to an on-demand society (Uber, Amazon Prime, Foodora and so on), people don’t want to have to fill out paperwork each time they take a trip. They want it to be as automated as possible. For example, it is now possible to have a user’s travel insurance turn on automatically once the user’s phone detects that they are out of their home country.”
 
Complementary cover
Takahashi underlined that microinsurance and annual traditional plans are not mutually exclusive and that microinsurance can be used to fill in gaps that may be left by more traditional insurance, or otherwise for traditional insurance to be used to supplement microinsurance: “It is possible to start a user with micro-coverage, then recommend an annual plan once they hit a certain usage threshold. For example, if a user predicts they will only travel three days in the next year, they are better off starting with a microinsurance option. But let’s say the same user ends up travelling 60 days that year. At a certain point, an annual plan is going to be more beneficial (and affordable) than having the insurance turned on/off each time.” 
 
Walker agrees with the appealing nature of the convenience microinsurance can bring to consumers: “With microinsurance the customer can just purchase the level of cover required for the relevant time periods they are travelling, with full price transparency,” she said. “This means that they feel in full control of what they are covered for and when. Should they not need cover, they can easily cancel or amend using their smartphone.” 
There are benefits for insurers too, Walker stated, namely increased contact with consumers: “Insurers also like microinsurance as this gives them more touch points with the customer. In the traditional insurance model, the insurer would only speak to the customer two or three times – once at the point of purchase, once at renewal and at the point of claim. Microinsurance enables the insurer to talk to the customer at several points, which increases engagement with the brand, which in turn helps to increase retention.”
 
Takahashi agrees that convenience is an important element for consumers, particularly due to the changing nature of work. “Regardless of whether it’s good or bad, traditional full-time jobs (with health/insurance benefits) are becoming a smaller share of the overall workforce,” he told ITIJ. “This means there is (and increasingly will be) more demand for flexible part-time policies. Gig workers and freelancers aren’t going to buy annual plans because it’s too hard to predict whether there will be enough work to make up the cost. By allowing them to go on demand, it allows them to get coverage based on their actual workload/schedule, while still being protected.” 
Walker explained that this need for convenience is something that insurers must address: “Consumer habits are changing, and in the UK today they expect, if not demand, more immediacy and flexibility. They know what they want and when they want it, and if they don’t get it, they will go elsewhere. Consequently this has had an impact on insurers, who have had to address it by developing flexible products such as microinsurance and on-demand services. Indeed, here at Allianz Partners, due to customer demand for immediacy we’ve launched Resqyou, our pay-as-you-go roadside assistance package.”
 
As well as having paved the way for travel insurance to go ‘micro’, technology is also used in the delivery of microinsurance. “Smartphone and GPS (and its related data) can have insurance turn on/off easily or automatically, while sharing valuable location information to the insurers,” Takahashi explained. “The insurers can take this information and optimise risk/pricing based on the user’s travel habits and locations to the point where individuals are being priced at an individual level (kind of like car insurance). In the future, gadgets like Tile and smart/GPs suitcases will offer new opportunities for baggage coverage. Also, car companies are opening up their software development kits for their onboard systems, which could be another opportunity for those that cross borders regularly by land.” 
The rising diversification of travel types, destinations and local activities often requires more individualised solutions
According to Walker, not only has technology enabled microinsurance to become prominent – it wouldn’t work without it. “Not only has it helped to enhance the customer experience, but it has proven to exceed customer expectations,” she said. “For example, Trov enables customers to quickly and easily collect images of insured items via the camera on their phone, which can later be used to assist in making a speedy claim should the need arise. Travel insurance from digital banking alternative Revolut uses GPS tracking as the key to trigger a policy start and end date, as it tracks when the customer is overseas. Without technology such as this, microinsurance wouldn’t work.”
 
An on-demand world
As Takahashi highlighted, microinsurance and travel insurance are not mutually exclusive –
there will always be a place for traditional annual policies. However, microinsurance matches consumers’ needs for on-demand insurance. “There will always be a place in the world for traditional annual policies,” he said. “But to meet the expectations of an on-demand world, insurers will have to offer some sort of short-term or flexible offering or risk losing those potential customers to competitors who do offer micro options.”
 
Walker agrees that microinsurance is not here to usurp traditional insurance: “There will always be the need for the traditional insurance model and therefore the two models will sit alongside each other for the foreseeable future, as each caters for a different consumer group with different purchasing attitudes and needs.”
 
Schrödel is also in agreement with this point: “As a form of insurance, microinsurance will not be able to replace classical travel insurance because there is a too wide a range of possible risks during travel. Also, experience has shown that customers do not want to deal with insurance companies every time they go on holiday. This is seen in the steadily rising number of annual insurance policies.”
 
While it is unlikely to replace traditional insurance, Schrödel sees a bright future for microinsurance: “In terms of a supplement or specific insurance, there is definitely a future for microinsurance. We at ERV have been working with additional modules for years, such as within the sports sector or for cruise holidays, which insure the customers in cases of seasickness or missed on shore excursions, to name only a few.” 
 
Takahashi also believes that microinsurance will become a key part of the travel insurance industry: “Millennials are spontaneous travellers and are the most likely to take a short-term trip on a whim. They are also the demographic that is least likely to have coverage through their work/profession. They are not going to bother filling out insurance paperwork each time they go travelling, especially if the policy can’t be issued before they leave.”
 
The benefits of microinsurance are many, not least the convenience it affords, allowing consumers to instantly purchase insurance that matches their needs and without completing cumbersome paperwork. For insurers, contact with consumers is increased and companies can meet their specific needs and demands, improving retention. Offering microinsurance may simply be a natural part of developing and remaining competitive. 
 
Microinsurance looks set to assert itself within the travel insurance space, but it will not – nor does it intend to – replace traditional insurance. The two can, and will, coexist.