Role of InsurTechs in Addressing Financial Inclusion in Developing Countries

Tom Kamau is a bodaboda rider stationed at Seasons, a mushrooming lower-middle class dwelling along Kasarani-Mwiki Road, Roysambu Constituency, a few kilometres West of Nairobi’s Central Business District. Until recently, when the Kenyan government issued a directive requiring all motorbike taxis to be insured, he did not have an insurance cover.

Still, he says, the process he endured to secure himself with a Personal Accident cover was long, tedious and cumbersome. His application took four days. This is a massive dent to his Ksh1,000 daily net income that goes to his rent, pay school fees and savings at the end of the month.

“Our nature of work does not allow us to waste any time. Each minute counts, because at any given time, someone is constantly seeking our services,” says Mr Kamau.

In respect to this, insurance companies will benefit greatly by partnering with insurtech firms to customize solutions that will cater for unique insurance needs of different market segments.

This is because insurance technology firms have amassed a massive array of data that addresses specific needs that would be left uninsured by traditional underwriters.

At WazInsure, we have unique resources at our disposal to provide innovative, disruptive solutions that will enable proliferation of financial inclusivity to every individual, regardless of their disposition.

The era of strict competition between fintech startups and incumbent insurers is abating. More companies are cognizant of the advantages of insurance-insurtech partnerships, from a more extensive customer base and increased access to funds, to faster and cheaper technology.

Kenya’s insurance penetration has dropped to 2.43% to the country’s GDP – the lowest in 15 years. There are more than 90% of the population currently living their lives without the stability and opportunity that basic insurance cover can bring. Leaving these people unserved isn’t just a humanitarian problem; it’s a business problem.

For example, by integrating our data-driven platforms, insurers are able to profile their customers’ risks more accurately, making better underwriting and claims decisions. A customer would wish to know if they can receive an insurance cover through their mobile phones, or online, seamlessly and with less bureaucratic restrictions.

They would also want timely processing of claims.

Insurance is fundamentally a social good, but has remained mistrusted for quite a long time. Adoption of technology is one way of lessening the suspicion. Through insurtech, there is an opportunity to make this crucial, yet sometimes opaque industry, more human.

“Many insurtech start-ups are focused on working with the industry to make it more efficient, often by focusing on the claims process, providing telematics solutions, or adding AI and data analytics,” says Susan Holliday, Principal Insurance Specialist, Insurance and Financial Guarantees, Financial Institutions Group, IFC, in a note published at EM Compass.

Relationships between insurance providers and insurtech start-ups are developing in a number of different ways, and it is becoming clear that no insurer or broker can afford to ignore insurtech, she adds.

Partnerships between insurance companies and insurtech & fintech firms, while not without cultural and operational challenges, generally improve customer service and make the production process cheaper and more efficient, say Ms Holliday.

Digital Solutions Answer to Untapped Insurance Market

How does the largely untapped insurance market in Kenya benefit from technological innovations? The answer lies in tapping into the growing and remarkable digital solutions being conjured up by innovative startups.

Kenya’s insurance story mirrors that of any other sub-Saharan country (apart from South Africa and Morocco) – low penetration rate. This affects the most vulnerable in the society, the low-income households.

At 3% of the country’s GDP, insurance rate remains unremarkably low in Kenya. The largely uninsured are low-income earners, who are often crippled financially in case of a disease, accidents or weather-castigated poor harvest.

In Deloitte’s Unlocking new markets; Digital innovation in Africa’s insurance industry, while middle class consumers tend to reduce financial vulnerability by means of insurance, the ‘bottom-of-the-pyramid’ consumers often do not have access to or cannot afford insurance products.

What then? This is when technology and innovation meets underwriting. The word coined from the convenient marriage is insurtech. Roughly put, it is the digitization of insurance process to advance efficiency and cost-reduction.

How can insurtech bridge the uninsured gap and enable financial inclusion, especially to the low-income earner, comprising 74% of waged employees in Kenya according to a report by Institute of Economic Affairs?

First, cost. This is a necessary ingredient in the insurance sector; from premium underwriting to offsetting a claim. Maintaining low costs in mass insurance remains a key challenge. By adopting strategies employed by insurtechs, insurers will improve their business processes thereby cutting costs and increase customer satisfaction. This, in the end, brings down the cost of a policy, giving the uninsured opportunity to be covered.

In a research by The Centre for Financial Regulation and Inclusion (Cenfri), Swiss Re Foundation, Munich Re Foundation and United Nations Office for Disaster Risk Reduction, there is positive socio-economic impact of affordable insurance products.

Secondly, let us explore data. As is often told, Data is King

The insurance industry is rich in data. That cannot be gainsaid. Still, we need new data and analytics to allow new customer insights. This is because consumer needs and behaviour patterns keep on changing. 

At WazInsure, we provide data-driven insurance solutions to make the insurance value chain not only transparent but also ultimately cheap and cost effective for all insurance stakeholders, improving on workflow effectiveness, cost savings and customer satisfaction.

By leveraging on technology, insurance firms can penetrate a wider reach faster and efficiently at a click of a button. According to Communications Authority of Kenya’s 2018/2019 Q1 sector statistics report, the country’s mobile phone penetration crested the 100% mark. This means, on the surface, that everyone is connected to a mobile phone.

The high mobile penetration has been further boosted by tremendous growth of mobile-based transactions. More than 90% of Kenyans have mobile phones while those who have access to internet services are estimated at 84%.

A research by PricewaterhouseCoopers (PwC) says data consumption in Kenya is expected to grow by 41.1% to reach 984 Million Gigabytes in 2022.

By leveraging on the high mobile phone accessibility by Kenyan consumers, and taking into account the attraction of using mobile money platform to conduct financial transactions especially among the low-income earners, we have an opportunity to drive insurance penetration in the country.

Through the above approaches, WazInsure intends to play a crucial role in mitigating the negative effects of financial shocks and in doing so reducing financial vulnerability.