Demystifying automation in insurance

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The black and white of microinsurance

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The concept of microinsurance emerged with the aim to act as a boon for vulnerable and impoverished communities. The Global Risk Forum Davos describes it as ‘the provision of insurance products specifically targeted to individuals and households at the grassroots level of society.’ But when you really look at the ‘why’ behind it, the concept can be expanded to include other verticals as well that might not be in a position to afford expensive premium rates outrightly (hint: it’s the largest generation on the planet today and we reveal the details below).

In last week’s article, we investigated the basics of microinsurance and what opportunities it holds for the insurance industry at large. In this week’s article, we look at the various advantages and disadvantages it has for both the supplier and the consumer.

 

The advantages of microinsurance

 

Security to the less fortunate

The biggest advantage to the end-users is, by far, the most crucial and is the driving principle behind this concept for the insurers as well. Poor communities are constantly vulnerable and face plenty of hardships due to poverty, underdevelopment, and undernourishment as well as climate disasters and the diseases borne from them. Uprooted crops, low life expectancy, childbirth, stillbirth, and little to no capital make life difficult all around. No wonder, these communities need the most protection and security.

There are plenty of barriers to securing this protection, though, and the biggest one is money. However, microinsurance makes it easy for these people to get a life and/ or health insurance at cheaper premiums with a higher degree of flexibility.

 

Helps in the upliftment and developmental goals

Instead of simply providing money for assistance or as a benefactor, microinsurance actually helps in positive and proactive development. It develops the enterprising spirit in people who otherwise would have felt incapable of achievement due to their financial circumstances.

This individual upliftment also converts into societal development at the economic, social, and healthcare levels. With the help of microinsurance, resilience after disasters increases without disrupting or damaging economic conditions. Education, health, and accident insurance will add to the welfare of these people and strengthen the overall national economy. When individuals thrive, the nation thrives.

 

Can also be targeted at millennials

It is not necessary that microinsurance is limited to the impoverished sector only. The vertical can be expanded to include millennials as well who are fresh out of college or in their early working years. Economic slowdowns and financial instability, in the beginning, can prevent young people from investing in getting better protected through insurance.

Traditionally, microinsurance can be implemented through a partner-agent model, a community-based model, a full-service model, or a provider-driven model. These can be tweaked and scaled up to better fit the culture, environment, and financial state of the majority of millennials.

 

Claims can be handled faster

Because the amount loaned out is not in thousands or millions, the premiums to be paid aren’t large as well. This amounts to a small claim amount overall- an amount that can be provided easily. The claims-handling process, thus, becomes faster, easier, and more efficient by deploying automated solutions that can allow for end-to-end processing of small and straightforward claims.

 

Disadvantages of microinsurance

 

There are plenty of hurdles- both internal and external- when it comes to microinsurance. Here are the top ones that you need to watch out for:

 

Lack of awareness

The biggest hurdle is that the very people for whom microinsurance has been created, are unaware of it. People in third-world countries and backward areas have no way of knowing that a model exists to help uplift them and their lifestyle. Digital mediums are next to zero and prevailing news channels also aren’t well-aware of the existence of microinsurance. How are the benefits of microinsurance to be reaped when people do not know such benefits are possible and actually do exist?

 

Difficult to market

Once the initial awareness stage is crossed, generating interest becomes a problem. When you only have a few cents or rupees in your pocket, you would think a thousand times before investing them in something that is new and relatively foreign to you. Most poor people have had the experience of being swindled or exploited due to misinformation or a lack of information. This makes it harder to gain their trust especially if first-world professionals arrive at their doorstep trying to sell them something.

 

Short term policies not suitable for the long term

Since microinsurance involves small credits and amounts, there is little scope for a long-term commitment. While the short-term policies save up on money now, they do not protect and insure in the long run, something which the intended target group does need. This calls for constant renewal.

 

Highly regulated industry

Due to a lack of stringiness and a general informality owing to the nature of the target market, the microinsurance industry can very quickly nosedive and lose its sense of purpose. As such, the insurance industry as a whole is highly regulated and monitored which leads to multiple barriers in laying down processes and functions in microinsurance.

 

 

Hence, as an insurance business, whenever you are about to invest in microinsurance, the above pros and cons list will help to steer you in the right direction. To find out how Spixii can help you dive into the world of microinsurance, engage with the Spixii bot today!

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