Delivering Health Micro Insurance through Mobile Money Channel

Summary Impacting lives beyond basic connectivity

In the last decade, mobile services have become the fourth dimension (after food, clothes and shelter) of livelihood for

Indian middle class and “Base of Pyramid” segments. This has further accelerated the deployment of vast telecom

networks and distribution infrastructure to service customers in remotest of territories. Next phase of this

infrastructure utilization will require delivery of life impacting services to provide medical consultancy, online education

and financial services.

Health (micro) insurance is considered the most important protection mechanism for low income households that are particularly

susceptible to health shocks because of their low saving buffer and poor living conditions. This paper outlines a collaborative model

involving Telecom operators and Micro Insurance companies to deliver community based insurance service at minimal incremental

expenditure to “Base of Pyramid” population.

Indian Insurance Sector – Key Facts India has lower insurance penetration of 4.7 percentage (ratio of premium to GDP) and insurance density of USD 46.6 (ratio of

premium to population) compared to world average of 7.5 percent and USD 607.7 respectively. Only around 10% of the total Indian

population is covered by public or private health insurance.

Last 5 years have seen launch of more than 50 micro insurance schemes in partnership with micro finance institutions covering

around 5.2 million people. Most of these insurance schemes (around 74%) operate in 4 southern states: Andhra Pradesh (27%),

Tamil Nadu (23%), Karnataka (17%) and Kerala (8%). A study conducted by Centre for Microfinance Research (CMR) predicted that

around 88 % of the respondents had some idea about life insurance with limited unclear understanding. However, lack of

understanding, information and options was found as one of key constraints for wider outreach of insurance. On the greener side,

regulatory efforts by government have resulted in a surge in Rural-Social premiums collected by General and Life Insurers from

2005-06 to 2009-10.

Reasons for low micro insurance penetration Following are some of the key reasons for low penetration and acceptance of health micro insurance as identified by various studies:

Related to Policy Holders

o Weak Insurance Culture - Limited knowledge and understanding of mechanism behind insurance, products and their

benefits.

o Problems and associated delays related to Insurance premium submission and claim settlement.

o Feeling that all the premium money will go waste in event of no illness. Perceived utility and value in health insurance as

an expense rather than investment.

o Limited local health care providers to avail advanced medical healthcare.

o Low income levels and high dependence on local Ayurveda doctor or local government medical representatives where

insurance companies have no association.

o Little experience of dealing with formal financial institutions, with the exception of the co-operative banks and

government agencies.

Related to Insurers o Microinsurance is a low-price, high-volume business and its success and market sustainability is dependent on keeping

the transaction costs down.

o Irregular frequency of collecting premium and often linked with other transactions (e.g. loan repayment).

Proposed Solution Mobile money services offer access to core banking services like cash deposits, money transfers and cash withdrawal through access

channels like SMS, USSD and Mobile applications. Banks, telcos, non-banking financial companies (NBFC) and regulatory bodies are

doing their respective bit to develop the overall ecosystem. However, the real service adoption will happen only when end users

start using it frequently for most of their financial transactions.

Further, base of pyramid segments are cautious of technology enabled solutions and need initial handholding in adopting and

developing trust. This requires regular opportunities to do transactions.

Community Based Health Micro Insurance through mobile offers a valuable opportunity for telecom operators and insurance

companies to offer a utility service to a vast base of consumers at no significantly extra cost. In the initial phase, community

approach will reduce perceived risk and as communities develop, opportunities for more formal and regulated products will emerge.

Insurance product portfolio should be flexible to include models ranging from hospital cash model (which provide a fixed sum per

day in hospital) to targeted benefit model (which provide coverage for a precisely defined list of treatments).

How will it work? Insurers will have to appoint telcos as business correspondents. Telcos with their wide retail network will enroll Insurers as

merchants and collect monthly insurance premiums from policy holder(s) through their local retail outlets. Also, it is imperative to

consider the following for improving chances of success for the model:

Product design to ensure a hassle free way to deposit monthly premium at any local telecom retail outlet.

Policy holders should be provided with a receipt, physical or on mobile via SMS, for each monthly premium deposit

transaction.

Retailer should propagate benefits of health insurance to get fixed income on each deposit and increase customer walk-ins.

Local NGOs should be partnered in educating customers about benefits of health insurance.

Insurance companies to ensure tie-up with suitable health care providers in the service area.

Benefits For End Users

Health covers for all major life threatening diseases and ailments.

No extra effort to avail the service. As easy as doing a prepaid recharge. Deposit premium at nearest Mobile money retail

outlet.

Claim settlement up to an agreeable amount can be done directly by insurance company through P2P transfer transaction

to Insurer followed by cash withdrawal at any retail outlet.

Direct access to insurance company with no involvement of agents.

Benefits of local community bonding to support medical treatment of individuals.

Health tips from insurance company on preventive healthcare at no extra cost.

For Telecom Operators

Regular monthly Cash – In (by registering Insurance companies as merchants) for sustaining platform and operations at no

extra cost of customer acquisition.

Additional barrier to customer churn leading to increase in customer life on network.

For Health Insurance Companies

Minimal distribution or customer acquisition cost to tap new markets.

Opportunity to innovate and tailor their services to serve large uninsured segment of population.

Leverage an established procedure to verify insured patients’ eligibility through mobile number and photo identification.

Reputation gain in the short term, knowledge base in the medium term and scalability in long term.

References 1. Basanta K Sahu (2008), Micro Insurance in India: Outreach & Efficacy, Centre for Mircofinance Research (CMR), Bankers

Institute of Rural Development, Lucknow

2. ALL IANZ AG, GTZ AND UNDP (2006), Micro Insurance Demand and Market Prospects in India

3. Rob Rusconi (2012), Savings in Micro Insurance: Lessons from India, International Labor Organization

4. Pascale Le Roy and Jeanna Holtz (2011), Third party payment mechanisms in health Microinsurance

5. Taara Chandani (2009), Microinsurance Business Models, Primer series on Insurance, The World Bank

About Author Satinder Pal Singh is working in product management role with a leading telecom operator. Having worked in mobility space for

more than 6 years, he has acquired a blend of product management and business planning acumen. Satinder holds an MBA from

Great Lakes Institute of Management – Chennai, B.Tech from Punjab Technical University and tracks developments in areas of

mobile commerce, computational advertisement and mobility applications. sp.singh84@gmail.com