The ancient Chinese farmer, medieval Venetian merchant and the conquering Victorian company man had one thing in common. They took insurance. Arguably, our civilization has gone this far because men took risks and knew there was a fallback plan in the face of insurmountable odds.
Generally, the insurance industry has grown over several centuries into a hydra of products and services, vastly complex and vaguely understood. However, through all its manifestations, the primary goal of insurance is to hedge against the risk of contingent loss. To this end, it has failed to ignite the African imagination.
Historically brought by the white man as he colonized and disenfranchised Africa, Insurance has suffered shame in the hands of a misinformed continent. Only the affluent and middle class seem to grasp its power with penetration rates in the continent below 5%. Insurance agents have also failed to inspire its uptake with a general feeling that they are unreliable, untrustworthy and missell the complex product they represent.
Let us underline the fact that more than 48.5% of sub-Saharan Africa live on $1.25-a-day, 414 million people as of 2010. More than 70% of the poor in Africa live in rural areas and depend on agriculture in smallholdings.
The grim picture is that they are faced with poor crop production, lack of access to markets and poor infrastructure. They are poorly organized, isolated beyond the reach of social safety nets and poverty programmes. HIV/ AIDS is also a burden…
There was a predominant lack of customer focus, and lack of market intelligence to appreciate the needs of 90% percent of market, that is, the middle-low income to those living below $2 dollars per day (as shown in the diagram below). Before the mobile phone revolution, it would have been next to impossible and costly for the insurance industry in Kenya to tap into this segment of the market.
Technology is the primary reason microinsurance is one of the fastest growing microfinance products in the world. Does it then mean Insurance companies are on a trajectory to a massive disruption in a “software is eating the world” era?
The disruption that faces the insurance industry in Kenya will be driven by the entity that understands and captures the microinsurance segment.
Digital disruption is driven in three dimensions simultaneously: new product, lower price and better customer satisfaction; cheaper, better and highly intimate. Information will become the tool of disruption and will bring about a competitive advantage.
Insurance is an intangible product therefore the entire value chain can be digitized. To this end, there is a lot of experimentation happening in the market and innovation is inevitable.
The potential client in the microinsurance market needs financial instruments to empower themselves. They need support and knowledge in farming. They need weather prediction. They need market intelligence on where to sell their produce profitably. They need cost efficient storage for their produce. They need instruments that allow them to pool in groups and buy life- changing machinery or equipment; they need subsidies et cetera. The intention is to ultimately reduce their risk and ensure their success, which in term guarantees their upward mobility.