Microinsurance products distributed through innovative Insurtech represent the real potential of a positive impact on the financial security and quality of life for those on limited and low incomes. In Pakistan and other emerging economies, the provision of microfinance products is a key factor in improving financial enablement and security for sections of the population living in more remote locations. This market has been difficult for traditional financial services companies to reach but is now being increasingly served by innovative technology-driven solutions provided by more agile fintech companies.
Insurance products can be particularly important to financial stability as unexpected expenses can have a particularly negative impact on consumers who lack a significant financial buffer. Expenses or the inability to earn an income due to ill-health, accident or death can lead to unnecessary stress and financial difficulties for uninsured individuals and families. Microinsurance products can go a long way to relieving the negative impact of unforeseen circumstances and keep families and communities on the kind of stable financial footing that allows them to enjoy positive economic and social progress.
In this article we will examine the benefits and challenges of insurtech and microinsurance products within the specific environment of the Pakistan market.
What is Insurtech?
Fintech refers to technology-centric solutions that lead to product, cost, process or service improvements and efficiencies in financial services. Insurtech is the insurance-focused subcategory of fintech. While traditional insurance companies also develop technology innovations in-house, smaller, more agile start-up companies are often more successful in developing technology-driven innovations and introducing them. This is especially the case in bringing products to markets that traditional insurance products are not the best fit for.
What is Microinsurance?
Microinsurance is simply, as the term suggests, insurance products that are much more affordable premiums that correspond to the lower value coverage suited to consumers on lower incomes. Insurance products which are the ‘right size’ for the economy they are being sold in. Microinsurance products generally refer to insurance policies designed to fit the needs of consumers that earn less than $25 a day. Premiums can be as low as 2 cents a day.
This market accounts for around 4 billion individuals globally and most commonly focuses on life and health insurance protection. Low income individuals and families can be particularly vulnerable to the impact of unforeseen medical expenses or loss of income through the injury or death of an income earner.
The Need for Microinsurance in Pakistan
Unfortunately, Pakistan is still not able to provide universal access to timely, acceptable and affordable health care for the entire population. This is a particular issue in more isolated, rural areas. A 2016 report by Pakistan’s Ministry of Planning, Development and Reform showed that almost 40% of Pakistanis still live in multidimensional poverty. The country is second only to Afghanistan in its ranking for health indicators. Microsinsurance can make a huge impact in providing low income families and individuals with access to suitable health care.
People often cannot afford to access health services or suffer from a lack savings or any other kind of financial cushion. Microinsurance provides the means for people to be able to resolve problems in the event that setbacks like these come up.
Insurtech as the Most Effective Distribution Platform for Microinsurance in Pakistan
The Pakistan market for microfinance and microinsurance products mirrors those of other emerging markets in that many of the consumers such products bring the greatest advantage to live in rural areas. Consumers often do not have traditional physical banks or other financial services buildings within convenient walking distance. This means that taking out policies and paying premiums can be a logistics challenge. Using simple technology can go a long way to solving this issue.
Microinsurance products are generally sold to consumers by travelling vendors with portable tablets that visit more isolated areas. One of the most convenient and practical ways for policy holders to then make small, regular payments towards their insurance premiums is through simple mobile phones. This can often be done either through SMS or simple mobile payment solutions that do not require a smartphone or mobile internet access.
The Education Challenge for Microinsurance
BIMA, a microsinsurance fintech company that operates in Pakistan, considers education as one of its key challenges. Deputy CEO Mathilda Strom commented to online media ‘TechCrunch’:
“Seventy-five percent of our subscribers have never had insurance before. We need to educate people about what it is, and also why you need it.”
BIMA’s insurance policies are an example of those which can be paid for using prepaid mobile phone credit. The company recently received $96.6 million in investment from insurance giant Allianz.
In recent years the Pakistani fintech market has matured considerably. There are now comparison and review sites such as Mawazna.com which allow Pakistani consumers to compare the leading insurance and microinsurance providers and policies available to them. Now , consumers can objectively compare and review pricing, qualities and comprehensive information on a huge range of financial services and products available on the Pakistani market. Financial services and product providers have the platform to access and present their offers to huge numbers of Pakistani consumers.