'Blockchain will radically transform the microinsurance market'

At the forefront of the microinsurance narrative are some big numbers: the hundreds of millions being covered and the potential marketplace of billions requiring cover.

There is no doubting the potential for micro­insurance to address the protection gap and create resilience in some of the world’s poorest communities. For me, the most important motivator and success factor in microinsurance is based on smaller metrics. Achieving success must start with the end customer. Does the insured understand it, see its value and easily obtain the benefits when they really need it? Does it provide them with the security to create a better future?

These inclusive insurance solutions, in the words of the Insurance Development Fund (IDF), empower individuals and families to make choices they would otherwise not be able to make.

We need to consider the value of microinsurance cover not just as getting people back on their feet but also creating the environment for their potential to develop. First and foremost, it must clearly demonstrate it can drive economic growth, build a sustainable future and resilience for communities. It is important to recognise the multiplier effect with benefits to the wider economy. These are important considerations in assessing and measuring their impact.

Organisations such as the IDF and the UN Development Programme that can deliver microinsurance initiatives will look to insurers and distribution partners for proof that these projects are effective. The longer-term and broadening of impact are likely to be important considerations in the face of growing calls for the insurance industry to embrace and drive its environmental, social and governance agenda.

Value across the chain

Microinsurance is delivered very much as a partnership and everyone in the chain needs to “win” – the insured with a product that supports them, the insurer with profitability and distribution partners and tech providers delivering their margins.

Embedding the product into an existing service the customer uses can support the education process and aid take-up, with policy­holders seeing the link to a service they are already comfortable with. We have seen this work effectively with accident and life protection offered by farming co-operatives and financial guarantor cover included within the services of university co-operatives.

For most of us in the micro­insurance space, education and creating an understanding of the role and benefits of the products is at the top of our agendas. As technology develops, this education needs to be widened so insurers and distributors can understand how some of the biggest challenges can now be overcome.

Microinsurance is delivered very much as a partnership and everyone in the chain needs to “win” – the insured with a product that supports them, the insurer with profitability and distribution partners and tech providers delivering their margins

When I started looking at the microinsurance world, the cost of distributing a single cover policy was very high, sometimes greater than the premiums charged. Now it is possible to build sophisticated products that more closely match the needs of consumers, with different types of protection combined in a single policy covering different events (for example, life and general insurance sold as a single, simple to understand policy).

Finding the technology to build microinsurance networks as well as manage the costs and affordability of the products is another major hurdle to overcome. When blockchain is combined with cloud infrastructure, the creation and roll-out of these networks becomes easier as a result of the automation, security and ecosystem capabilities that are inherent.

Data, as we all know, is the lifeblood of insurance, but no amount of technology solutions can really tackle the challenge created by poor data. As the old adage goes “you put garbage in, you get garbage out”. Being a smart insurtech is not enough, you need to understand the practical aspects of the data requirements in the territory or country, so working with local partners is crucial to understanding specific needs. The right partners can help to address the complexity and territorial nuances, looking beyond the specific regulatory requirements to the cultural issues and showing how business is done. There is no underestimating the value of the “soft” skills your partner can teach you.

Subtle role

The term insurtech means different things to different people. From the days of being the industry’s “disruptor”, insurtechs are now embedded across the insurance value chain, partnering with incumbents across the whole value chain from product development to point of sale and claims.

For me, though, the role of insurance technology in microinsurance is more subtle. Insurtechs and technology such as blockchain are helping to redefine the microinsurance landscape and through collaborative partnerships are helping insurers and distribution partners to address the needs of many. It is a core component for the back-end processing of microinsurance distribution and claims processing.

Blockchain technology leverages automation to streamline the flow of data and smart contracts to provide the necessary controls across underwriting, compliance and governance. It helps parties deliver the necessary benefits to those it is covering and supports partners across the value chain that understand how to address the challenges of each individual scheme. Blockchain provides the toolkit to make this happen.

Blockchain has been lauded for some time in the industry, but it remains the victim of a particular misconception in relation to benefits and costs. Controlling back-office and processing costs is a core factor in the take-up and success of microinsurance. While our target level for back-office costs across a microinsurance business is 10%, for our current partnership in Indonesia that figure has been reduced to 5%, which means 95% of the premium accounts for coverage and distribution costs. This is a level of cost reduction that should be attractive to insurers and distribution partners alike.

In my own journey to launch Blocksure and to leverage blockchain to support microinsurance schemes, the drive came from numerous visits to where my parents grew up in rural India and seeing the impact of poverty first-hand. However, it was also from experiencing how small amounts of support were able to drive change and the commitment of sustained investment could make a real difference to those communities. For me, the focus of insurtech and technology business in micro­insurance is personal.

Ranvir Saggu is chief executive of Blocksure