IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure Region: Africa and Asia Sector: Insurance IFC Investment: $2.2 Million MicroEnsure The insurance industry has long been perplexed by the economic realities of insuring the world’s poor. As a group they represent a $40 billion market opportunity,1 yet they also present greater risks than typical insurance customers and are able to afford only miniscule premium payments. How, then, can this group of four billion people become a viable business opportunity? One company, MicroEnsure, has found solutions. MicroEnsure has developed pioneering insurance solutions MicroEnsure bundles insurance with products that for low-income people in Africa and Asia living on less than potential customers already use, including micro loans $4 per day. The company is a microinsurance solutions and mobile phone airtime. provider and, in some countries, an insurance intermediary— an agent or broker that matches the needs of potential The company currently operates in 15 countries, including customers to appropriate insurance options and that 10 in Africa. Its customer base has grown from two million receives a commission from insurers for each policy sold. 2 in 2008 to more than 40 million today, and to date it has paid more than $20 million in claims. Its distribution MicroEnsure has introduced over 200 types of insurance network includes 17 mobile network operators, 90 including for life, health, and accidents (Table 1). Since microfinance institutions, and a wide array of other low-income customers are often new to insurance, partners such as agricultural suppliers, health clinics, the company distributes its products through mobile nongovernmental organizations, faith-based networks, network operators, microfinance institutions, and and associations. The International Finance Corporation, other organizations that low-income customers trust. global insurance company AXA Group, the impact investor 1 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure Omidyar Network, and Sanlam Emerging Markets are First, MicroEnsure analyzes a country’s market for MicroEnsure’s backers. The company is headquartered in microinsurance. It then identifies insurance and reinsurance the United Kingdom with offices in nine countries. companies and brings them on board to bear the risk of insuring customers. The idea for MicroEnsure originated in 2002 as a program within the microfinance institution Opportunity International; Second, MicroEnsure mobilizes distribution partners— by 2005 it had grown large enough to become a separate companies and organizations with high levels of trust nonprofit known as the Micro Insurance Agency (MIA); it was among the poor—to get insurance into the hands of re-launched in 2008 as the for-profit company MicroEnsure. customers. THREE CRITICAL ROLES TO Third, MicroEnsure provides integrated back-office services to its insurance and distribution partners, including product INSURE THE POOR design and marketing, risk selection, underwriting, and MicroEnsure works with partners across the insurance pricing. In most cases, MicroEnsure also collects premiums value chain to develop and deliver affordable insurance from customers and facilitates claims payments on behalf solutions. It tailors its role depending on the needs of its of insurers. It also collects and analyzes customer data, partners, but broadly plays three key roles. enabling it to develop new insurance products. Table 1: A Selection of MicroEnsure’s Products INSURANCE TYPE INDICATIVE COVERAGE OPTIONS • Payment of a borrower’s outstanding loan amount plus interest • Fixed payment to cover funeral costs for a borrower/bank customer and his/her family Life • Basic coverage at no direct cost to customer, but linked to the amount of mobile airtime purchased each month or the amount of money held in a savings account at a bank or micro finance institution • Covers the total or a part of the borrower’s outstanding loan payment installments after Credit Health hospitalization • Payment of a fixed amount to cover cost of hospital stay and/or for any type of expense per day Hospitalization of hospitalization based on monthly mobile airtime purchase Disability • Benefits for disability through illness or accidents, with simple and clear definitions • Payment of an unemployed person’s outstanding loan amount plus interest or a multiple of his/ Redundancy her bank deposit amount in the event of an employer downsizing or similar redundancy Political Violence • Payment of outstanding loan amount plus interest if a borrower’s business is destroyed • Payment of a borrower’s outstanding loan amount in the event of fire, flood, or damage from Property another catastrophic event3 Note: Insurance premiums are paid by different parties. They can be embedded within loans and paid by borrowers as an upfront fee. A microfinance institution, bank or mobile network operator may cover premiums for basic insurance to incentivize customers. For example, these companies may link basic insurance coverage to a certain amount of mobile airtime purchased or the amount deposited in a savings account. 2 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure MicroEnsure’s Value Chain An Overview of Challenges and Solutions Product Distribution Marketing & Customer Development Sales Service Value Chain • Mainstream • Sales agents • Limited • Large number insurance does increase understanding of documents not address key distribution of insurance needed for needs costs claims • Negative Challenges • Complex terms • High perception • Lengthy claims in Insuring and conditions distribution of insurance process Low-Income are difficult to costs increase companies • Discrimination Customers understand premiums against poor customers • Tailors products • Works with • Creates trust • Simplifies to grassroots partners through word- documents realities that already of-mouth required for a have large marketing claim • Simplifies terms MicroEnsure’s and conditions distribution and customer • Guides customers networks testimonials Solutions • Uses innovative through the • Selects • Insures common claims process approaches distribution events to build to design new • Accepts claims partners that understanding products through mobile have built trust of insurance applications and credibility • Enables • Settles claims • Uses mobile customers to try quickly phones to enroll basic insurance customers with airtime • Uses mobile purchases or wallets to bank deposits facilitate payments to unbanked customers 3 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure Figure 2: Key Milestones in MicroEnsure’s History Micro insurance For-profit MicroEnsure launched incubated at Opportunity Scale-up through mobile International network operators IFC investment 2002– 2005– 2008– 2013– 2004 2007 2012 2016 Gates Foundation grant AXA Group and other private sector Multiple MFI* partnerships investment Transition to independent nonprofit 40 million+ customers *Micro finance institution GETTING AN IDEA OFF THE In 2002 Leftley, who would eventually go on to become GROUND chief executive officer of MicroEnsure, quit his job to join microlender Opportunity International. He set out to The seeds of MicroEnsure were planted in 2001 when design insurance for people living on just a few dollars a Richard Leftley, a 29-year-old broker with reinsurance firm day, convince them to purchase it, and then to find a cost- Benfield Greig in London, took a volunteer trip to Zambia. Leftley encountered a young mother who lost her child because she could not pay $3 for hospital admission and another woman who had fallen into poverty after a death Within four years, the in her family. And while micro loans had helped many women start businesses, some borrowers were unable to initiative expanded repay the loans due to family deaths or illnesses, natural disasters, or other life events, and could be driven to debt from Zambia to the and poverty as a result. Leftley believed insurance could Philippines, Uganda, provide many of these people with a safety net. The evidence was in India, the Philippines, and Uganda, where Malawi, and Ghana, a handful of microinsurance products were already on the reaching 300,000 market. And he saw the gap between supply and demand for insurance in these poor communities as a significant customers. untapped opportunity. 4 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure effective model to distribute insurance on a large scale. SETTING A GOAL: HOW TO SERVE To do so he launched a microinsurance initiative with an FOUR BILLION PEOPLE operational budget of $100,000 for the first year. MIA faced a strategic choice in 2008: Stay small or Opportunity International selected Zambia for its pilot expand to serve a potential multi-million customer base? insurance program because of the country’s dire health The latter path would require access to debt and equity situation. In 2002 one of every four Zambians had HIV/ financing to provide the necessary operational flexibility, AIDS, and the average life expectancy was 36. Working rather than relying on donors who tend to support with ZSIC, a local insurance company, Opportunity clear-cut projects tied to specific outcomes. The choice International rolled out an insurance product called Credit was clear, and in 2008 MIA’s board voted to establish Life that it could offer with its micro loans. A borrower paid MicroEnsure Holdings, Inc., a for-profit company which one percent of the total amount of the loan upfront to get took over MIA’s operations. insurance coverage for the outstanding loan payment in the event of his/her death. The policy reduced the default By 2009, MicroEnsure had reached four million people risk for Opportunity International and gave borrowers through partnerships with more than 30 microfinance reassurance that their death would not leave their institutions, rural banks, and savings and credit families burdened with debt. Within a year, Opportunity cooperatives in seven countries. Its groundbreaking International added funeral coverage, which could cost work was having an effect on the broader market: More between three and six months of a family’s income, to microlenders were linking with insurers and with other Credit Life. insurance intermediaries that had entered the market. The Zambia pilot was a success. Opportunity International The roughly 130 million microfinance borrowers4 around reduced the workload and the costs for insurers to serve the globe were the original target for MicroEnsure’s this relatively low-margin market by tapping into its own products, yet the company was aware that reaching customer base and by collecting insurance premiums beyond that base to the four billion uninsured people living on behalf of insurers. Within four years, Opportunity on less than $4 day was essential to keeping its insurance International’s microinsurance initiative expanded from products affordable in the long run.5 Without a large Zambia to the Philippines, Uganda, Malawi, and Ghana, enough risk pool the costs of insurance products would reaching 300,000 customers. At the same time, it began cease to fall, an essential condition for the company to to offer coverage for disability and for property damage achieve financial sustainability. Also, it was clear that solid from fires and natural disasters. underwriting and operational discipline were necessary but not sufficient to the goal of reaching individuals To expand further, Opportunity International launched without insurance or back accounts; finding the right the Micro Insurance Agency (MIA) in 2005 as a nonprofit distribution channel was also critical. subsidiary, with Leftley as its CEO. MIA developed products for insurance companies in a comprehensive process that MicroEnsure needed a distribution partner with a large ranged from market assessments and product design to geographic footprint, a strong brand that low-income selecting distribution channels and providing back-office customers trusted, easily accessible points-of-sale, and the support. By 2007, MIA had partnered with more than 20 ability to facilitate cash transactions and payments when microfinance institutions in 11 countries. That same year needed. It also needed a partner that wanted to leverage a $24.25 million grant from the Bill and Melinda Gates insurance to help grow its own business, which would Foundation launched a period of rapid expansion for the align incentives and create a beneficial relationship for company. both parties. 5 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure SERVING THE MASS MARKET unique access to millions of customers, including many in remote rural areas. Those customers could be reached Mobile network operators emerged as particularly frequently and cost-effectively through mobile phones. promising partners for MicroEnsure for several reasons. That access could lower the costs associated with Low-income customers were increasingly using mobile marketing insurance products, registering customers, financial services to pay utility bills, send remittances to collecting premiums, and paying claims. Mobile family members, and recharge airtime. Insurance products operators also had large agent networks for face-to-face would be a natural addition to that list of mobile phone- interactions with customers and, perhaps most important, delivered products. the poor often trust their mobile service providers more than other institutions. Also, MicroEnsure believed that mobile operators could use insurance as a way to build loyalty among subscribers. In 2009, MicroEnsure created an innovative “freemium” Mobile phone subscribers in many emerging countries hold product that would provide a certain amount of life or multiple (two to four) subscriber identity module (SIM) health insurance at no cost to a mobile phone subscriber. cards from various providers in order to save money using The insurance amount would be based on the total airtime different airtime and messaging rates. A mobile operator the subscriber purchased each month and would be could stand apart from its competitors by bundling basic communicated to customers by text message. Coverage insurance with airtime. would apply to the subscriber and a designated family member. Mobile operators would pay a fee to MicroEnsure And with mobile phone technology widespread in and the local underwriter for providing basic coverage, and developing countries, mobile network operators have Design for the Local Context. Create Simple Policies. Low-income customers are not It is important to state clearly what homogenous, so insurance products is and is not included in an insurance must be tailored to their particular needs. policy and to have minimal exclusions Rather than designing products in and understandable terms and a boardroom, directly engage conditions. Also, waiting periods, potential customers in interviews age restrictions, and limits on MicroEnsure’s to understand what they need to the type and number of claim Product Design cope with risk. documents must be removed. Principles Cover Likely Events. Think Outside the Box. A low-income customer’s first Insurers need creative solutions inclination is to go without insurance. to address the broad range of So insurers need to focus on designing risks that low-income customers products those customers are likely to use, often experience (see page 41, i.e., products with high potential for a claim “Three for Free” Mobile Insurance). such as those that cover accidents. 6 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure customers could upgrade to premium coverage after six FREEMIUM PRODUCTS FOR HEALTH CARE months for as little as $1 per month. AND SAVINGS MicroEnsure and Tigo Ghana, a subsidiary of the global Medical Freemium: In Kenya, MicroEnsure worked telecom firm Millicom, launched the first “freemium” with Airtel and Pan Africa Life Assurance to offer insurance product in 2010 and MicroEnsure played a hospitalization coverage to Airtel customers. pivotal role in bringing the product to life. It also tested With monthly airtime usage of approximately options for paid insurance and learned that customers $2.40, customers received $9.60 in hospitalization were willing to pay $0.50 to $1.50 per month in premiums coverage and $96 in life and accident coverage. to increase their coverage. The partnership with Tigo soon The more customers spent on airtime, the expanded to Tanzania and Senegal, reaching one million greater their insurance coverage would become. people within 14 months. Customers could earn up to $48 in hospitalization coverage and $960 in life and accident coverage ATTRACTING COMMERCIAL based on their airtime usage. INVESTORS Savings Freemium: MicroEnsure worked MicroEnsure benefited from the backing of a strong and with banks such as Barclays and microfinance diverse but changing group of investors at critical points institutions such as Women’s World Banking in its development. The Gates Foundation grant fueled to incentivize customers to open a savings MIA’s rapid expansion into 10 countries and boosted its account rather than keeping money under their subscriber base from 2 million to 15 million between 2008 mattresses. Financial institutions paid insurance and 2012. It also enabled the company to reach the critical premiums on behalf of their customers, which stage where it could attract commercial investors. enabled them to earn a certain amount of life insurance based on the balance in their savings By mid-2012 MicroEnsure decided that equity financing accounts. Mary Nkenshen, a food vendor in Ghana, would provide it with greater flexibility to rapidly test was paid $329 upon the death of her husband, different approaches and products. Recognizing this need, who had saved $114. Other products provided a Opportunity International—which had maintained a fixed payout of five times the savings account majority stake in the company since its founding—made a balance in the case of a customer’s death or strategic decision to divest and retain only a minority stake disability. in MicroEnsure. This allowed MicroEnsure to attract new investors. IFC, Omidyar Network, and select members of MicroEnsure’s management team became shareholders in 2013. IFC invested $2.2 million in equity and debt to help MicroEnsure attract more commercially-minded investors and support the company’s transition to a financially sustainable, for-profit entity. This was IFC’s first direct investment in an insurance intermediary and presented an opportunity to support innovative approaches in the microinsurance space. 7 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure In addition to financial institutions, MicroEnsure sought THE VALUE OF SIMPLICITY mobile network operators as investors because of their large customer bases. The Norwegian multinational MicroEnsure discovered that, while low-income telecom firm Telenor Group became a strategic partner in customers experience risk in their daily lives, they 2013 and launched MicroEnsure Asia as a joint venture to are often unfamiliar with the potential benefits serve over three million mobile phone subscribers. With of insurance. To remedy this, the company used the capital infusion, MicroEnsure expanded to 15 countries. word-of-mouth to educate potential customers. It also paid claims at public events to increase DRIVING DOWN DISTRIBUTION awareness of and exposure to its products, circulated customer testimonials, and made COSTS rapid claim payments to alleviate commonly held With small insurance premiums, distribution costs had to concerns and doubts about insurance. be minimized in order to generate enough revenue for all parties. As it scaled up its mobile network partnerships, To simplify enrollment through mobile phones, MicroEnsure opted for a low-cost model that allowed MicroEnsure reduced its registration process customers to self-enroll for insurance and pay premiums to a few easy-to-follow steps. Mobile network through a mobile phone instead of more costly models that customers automatically received insurance with required an agent. In the latter model, network operators airtime recharges, but could opt-in for additional would have paid commissions to agents to register coverage through a drop-down menu or a voice customers which would have required agents to quickly response system on their phones, or by contacting register a large number of customers to be cost effective. a call center. Moreover, the Tigo Ghana experience demonstrated that customers purchased insurance based on the perceived value of the insurance and its connection to the network operator’s brand, regardless of an agent’s presence to explain the product. And it became clear that the poor were all too aware of the potential for risks to devastate their lives. So the company decided to expand insurance benefits to address a wider variety of risks rather than spend money on agent-based customer education and enrollment. This strategy included the decision to offer “Three for Free,” another “freemium” product that combined life, accident, and hospital coverage, and also helped mobile network operators attract and retain subscribers. 8 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure GETTING THROUGH CRISES AND “THREE FOR FREE” MOBILE INSURANCE LOOKING AHEAD Funerals in Ghana are costly, and for Cornelius In a crisis, poor customers need money right away to Tetteh’s father, a pastor, there would be hundreds address immediate needs. So MicroEnsure established of guests traveling across the country to pay a 72-hour turnaround time for claim processing. The their respects. Tetteh had little money to pay company found that customers who had a negative claims for the event. Luckily, his father had enrolled experience were more likely to drop coverage altogether. in a life insurance policy over his mobile phone MicroEnsure took several steps to ensure this didn’t through MicroEnsure’s partner Airtel, a giant in happen: telecommunications services in Africa and Asia. • Hand-holding. Because claimants often had difficulty Airtel subscribers can qualify for life, disability and identifying the necessary documents to file a claim, hospitalization insurance designed by MicroEnsure causing delays, MicroEnsure realized it could create based on the amount of monthly airtime they use. powerful visibility for its products by providing assistance. The company established call centers to Tetteh learned about the policy through a text contact customers who submitted claims. In doing so message sent to his father’s phone. As next of MicroEnsure simultaneously raised customer awareness kin, he received the equivalent of $725, enough to about insurance and reduced fraud. properly celebrate his father’s life. “Airtel Insurance comes in handy in Ghana where funerals are • Accepting Simple Documentation. In many remote tremendously expensive,” said Tetteh. areas in emerging countries it is difficult or even Source: MicroEnsure. “Cornelius Tetteh’s Story.” http://www. impossible to get formal documentation for insurance microensure.com/clientimpact-stories.asp?id=309&start=0. claims. In these cases, MicroEnsure created alternative means of identifying claimants. In Kenya, a life insurance claim typically required a government-issued death certificate. Since beneficiaries in remote areas often struggled to obtain that document, MicroEnsure was additional capital to pursue new growth opportunities. willing to accept a letter from an imam or pastor who Existing investors provided $10.4 million in capital in 2014. officiated at the funeral. And that same year French insurance giant AXA Group, which operates in 59 countries, became a shareholder. • Facilitating Claims Payments Through Mobile Wallets. Sanlam Emerging Markets, a financial services group, also Mobile payments enabled customers who lacked bank invested, and both companies brought critical capacity and accounts or proximity to a bank to receive claims skills to help MicroEnsure continue its expansion. payouts on their phones. These payments could then be cashed-out quickly through local mobile money agents. In early 2016, MicroEnsure raised an additional $15 million from existing investors, including IFC, and AXA Group As other insurance intermediaries engaged with became its largest shareholder. mobile network operators and the early growth rates of “freemium” products slowed, MicroEnsure needed 9 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure CONTINUOUS LEARNING In less than a decade MicroEnsure grew from a small For more information on initiative housed in a microfinance institution into a inclusive business at IFC, visit for profit company serving millions of customers. Its “fail www.ifc.org/inclusivebusiness fast” mindset, which looked to constantly innovate and rapidly revise strategies that weren’t working, helped the company learn and adapt along the way so that it RIGHTS AND PERMISSIONS could remain responsive to the needs of the low-income © International Finance Corporation 2016. All rights reserved. customers it aimed to serve. The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. IFC does not guarantee the Since the poor largely didn’t value insurance and wouldn’t accuracy, reliability or completeness of the content included in pay outright for premiums, MicroEnsure found ways to this work, or for the conclusions or judgments described herein, and accepts no responsibility or liability for any omissions or make insurance more palatable and attractive to them. errors (including, without limitation, typographical errors and Partners were critical to the endeavor. Microfinance technical errors) in the content whatsoever or for reliance thereon. institutions could use insurance to lower the risk of loan default by embedding insurance within a loan at a low fee to the borrower. Mobile network operators paid customers’ premiums for basic insurance coverage as an incentive to attract and build loyalty. MicroEnsure found that once the poor experienced the benefits of insurance at little or no cost, they quickly became willing to pay a small premium to expand their coverage. MicroEnsure has made great strides in insuring the poor, but continues to strive to change perceptions of insurance. The company will maintain an iterative approach to refine its business model as it embarks on the next phase in its evolution. ENDNOTES 1 Figures based on insurance premiums. Swiss Re. 2010. “Microinsurance—Risk Protection for 4 Billion People.” 2010. 2 Other sources of revenue are back office support and consultancy fees. 3 MicroEnsure provides property insurance to microfinance and small-business borrowers for their business premises. These borrowers include traders and vendors who operate small stalls or kiosks in markets, mom-and-pop shops that sell a variety of products, and service providers such as small auto repair shops. 4 IFC. 2015. Microfinance. http://www.ifc.org/wps/wcm/connect/Industry_EXT_Content/IFC_External_Corporate_Site/Industries/Financial+Markets/ MSME+Finance/Microfinance/. 5 Based on World Bank statistics, there are around 4 billion people living on less than $4 per day, including 2.6 billion people living on under $2 per day (in 2005 international dollars based on purchasing power parity). Source: Swiss Re. 2010. “Microinsurance—Risk Protection for 4 Billion People.” 2010. 10