Mobile insurance is growing rapidly, with over 100 identified insurance offerings currently being delivered through or with mobile operators. However, despite fast expansion in the number of products in the market, business models and regulatory responses are still at an early stage. Few initiatives have achieved scale, with many products growing slowly or struggling to remain viable, and one outstanding failure exacerbated by underdeveloped regulations. This illustrates the reason for increasing focus on responsible finance and responsible mobile insurance as discussed in a recent report co-authored with Martina Wiedmaier Pfiister for GIZ on behalf of BMZ.
Much has been written about the role of mobile in extending the reach of insurance to include emerging consumers; not only for payment of premiums and claims pay-outs, but also for processes such as sales and distribution, administration and client servicing. However, while mobile adds significant value, it also introduces challenges that may undermine potential growth and create new risks for insurance supervisors to manage. These challenges and risks need to be understood and mitigated in order to support the sustainable growth of mobile insurance.
Examples of the challenges and risks that can potentially be exacerbated through the use of mobile channels include:
- Lack of awareness around benefits and terms & conditions (e.g. due to limits of SMS communications)
- Inappropriate product sales due to limited information (e.g. information delivered via SMS versus face-to-face sales agents)
- Difficulty training mobile money agents on insurance products, as well as high turnover of mobile money agents
- Poor customer service due to processes designed around low volume / high touch (agent) sales models (versus processes that address the needs of high volume / low touch sales via mobile channels)
- Fraudulent usage (e.g. when SIM cards are used by various people)
- Technology and internet limitations (e.g. connectivity problems)
- Increase in traditional insurance related risks, such as insurer capacity, which can be strained due to the potential scale provided by mobile
In addition, because several partners are involved in mobile insurance, there can be increased potential for failure due to different motivations and unaligned interests between partners.
The three key pillars of Responsible Finance, as used by the Responsible Finance Forum, provide a lens through which these risks can be examined and recommendations developed to ensure responsible mobile insurance that is transparent, inclusive, equitable, client-centric and, above all, scalable and sustainable. The three key pillars and associated recommendations include:
1. Financial Capability
Financial awareness, education, literacy and engagement of end consumers are key to creating demand for mobile insurance and ensuring a positive experience that leads to sustainability. All parties related to mobile insurance need to ensure:
- Customers are informed on the particularities of mobile insurance, including who offers what, the implications of the insurance they have, the way it is distributed, and how it works
- Digital insurance/financial know-how of existing and potential customers is improved through effective and appropriate communications
- Customers are educated on priority risks and claims processes to ensure they derive value from insurance products
- A long-term approach is taken to promoting mobile insurance literacy, including enabling customers to make the right choices, and know about their rights, responsibilities and respective duties
Many of these aspects are expanded in a recent blog focused on the seven keys to success in mobile insurance, based on a report written for the Bill & Melinda Gates Foundation.
In addition, the growing potential of digital self-service financial inclusion supports the need to empower consumers to take control of their finances. When we launched MTN mi-Life in Ghana back in 2010, we gave customers the ability to change their level of cover as they needed it. We have not seen enough efforts along these lines in the intervening years.
Some challenges are better dealt with through a self-regulatory framework, rather than through regulation. Self-regulation can be more flexible and nimble than requiring legislation, which would allow it to evolve as we learn lessons in the market. The following recommendations apply to mobile operators, as well as other distribution channels including financial institutions:
- Ensure product quality by providing simple and understandable products that deliver value to end consumers
- Clarify who owns the customer and who is in charge of taking care of their interests
- Put adequate safeguards into partnership models, such as ex-ante exit plans (or living wills, to borrow a phrase from the ‘Great Financial Crisis’ of 2007-2009) to ensure schemes that wind down do so in a responsible manner
- Educate agent and sales staff and ensure training and incentives are coupled with proper control systems to verify effectiveness
- Organise regulatory dialogue across partners with the aim of jointly building the market
3. Consumer Protection Regulation
Mobile insurance presents new and potentially severe regulatory and supervisory challenges. For example, there may be gaps because partners fall under different regulatory jurisdictions, or existing market conduct rules, and legal frameworks may not fit distribution models required for mobile insurance to be successful. The following recommendations are therefore applicable to insurance supervisors:
- A coordinated approach between the telecommunications and/or banking regulator and the insurance supervisor
- Defining the nature of the legal relationship and responsibilities of the various partners to enforce accountability and set a basis for joint supervision across jurisdictions
- Ensure supervisory staff understand business models and mobile insurance products
- Ensure product quality in terms of client value and simplicity with minimal exclusions
- Introduce separate reporting from traditional insurance to enable the supervisor to more easily track any worrying trends
- Ensure there are business exit plans in advance to provide alternatives should an initiative shut down
- Donors or the international supervisory body, the IAIS, may wish to consider creating a technical mobile insurance facility that supervisors can draw on as required for information
By implementing these recommendations, strong, inclusive insurance markets can be developed that benefit all parties, while ensuring mobile insurance is delivered responsibly and that end consumers are protected.
To view the full list of risks as well as more detail on the recommendations for responsible mobile insurance, download the full “Responsible Mobile Insurance” report.