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Microinsurance is key to Southeast Asian financial inclusion

Southeast Asia is a region that has both the richest, and poorest, people in the world, Insurance offerings rarely are tailored to the specific person

This article was written by Keith Lim, the CEO of Hearti. If you would like to contribute, click here

Scoot has not had the best of times in recent months.  Lengthy consecutive flight delays in November and December have not only earned the airline the ire of thousands of passengers and their families but has also cast an uncomfortable spotlight on passenger rights when it comes to air travel; specifically, their rights to recompense and restitution.

The problem with compensatory models is that inconvenience is difficult to measure, and agreements on how much a passenger’s time is worth not only varies from carrier to carrier and person to person, but is also at best arbitrary, and at its worst, a downright insult to those affected.

Take for example, the 29-hour delay to flight TR869 on November 26. Based on the airline’s Guest Promise, all passengers were given accommodation and meals, but is it arguable that a person who had to take two extra days of leave as a result should be entitled to the same as a student travelling on vacation? From the airline’s perspective all is fair, but to those actually in the situation, the inequity is obvious.

This is where micro-insurance comes in.

The very principle of a consumer determining their own value of objects, time, and opportunity and apportioning monetary premiums accordingly is rooted in the fundamentals of financial inclusion. The reason why microinsurance has enjoyed a rapid surge across Southeast Asia in the last decade is precisely because traditional bundled insurance policies are also inherently unfair.

In the earlier example, the working adult would have logically purchased a travel policy, say AIG’s Travel Guard Classic plan for instance, and would have been entitled to claim up to US$1000 for flight delays.

However, at a premium of US$500 per annum, such an option is usually out of reach for the student on the same flight, and these passengers end up not simply not purchasing, which serves them well until the precise moment peril strikes.

This situation is a reflection of the 80 per cent under-represented by insurance policies – who will inevitably find themselves the most caught off-guard when a crisis hits.

Micro-insurance sits in between the domains of insurance and financial inclusion. While it is a relatively young sector, micro-insurance has experienced exponential growth due to the proliferation of technologies and an equally young customer base that makes this possible.

This growth is driven by the twin forces of geography and demographics. As an emerging market, most of Southeast Asia has come to quickly embrace technology, and its largely cash-driven economy now eschews traditional finance in favour of mobile payments and the like.

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The population of Southeast Asia continues to grow, and as a result it is now one of the largest markets for insurance products due to sheer population size and to some extent, its advanced insurance regulations.

In a landscape study, over 500 insurance products were identified across the markets, with life insurance being the most ubiquitous at 48.5 per cent.

Yet while the number of people covered by micro-insurance policies is substantially higher in Southeast Asia, the total percentage of its population covered (18.1 per cent) is still smaller than the equivalents in Europe and the Americas, again owing to population density.

Hence, more needs to be done to increase representation. Additionally, Southeast Asia alone houses some of the world’s richest, and a lot of the world’s poorest – catering to both is a challenge for traditional finance and insurance models, which is why companies just simply exclude the latter, most of whom have no access to banking and financial services with which to service their insurance premiums anyway.

With mobile payments and other alternative finance methods gaining prominence and popularity, traditional insurance companies have themselves adapted their policies and updated their platforms.

While ten to twenty years ago it was common to see insurance salespersons approaching prospective clients in a mall and talking them through lengthy policies and contracts, most insurance products these days are sold online, through a website or even a mobile application.

Far from being a step backwards, it is actually a clear sign of a progressive march, even sprint, towards financial inclusion. As in the airline example, customers determine the value of their time, luggage, and various other components and purchase coverage for the specific items they want.

On a basic level, customers have much more choice as opposed to the old dichotomy of having insurance versus having no insurance.

In addition to being able to say, “I will only want to claim the basic minimum of daily compensation for flight delays, but I don’t want to pay extra for baggage coverage because I don’t have checked-in luggage”, customers are also able to do that on their mobile devices right before arriving at the airport. It is not only convenient, they also avoid paying a day’s more for premiums when it is not necessary to.

Also Read: The e27 Southeast Asia Startup Ecosystem Report 2018 is here

Since micro-insurance protects against “specific perils”, we see how it is fundamentally a key step towards financial inclusion across Southeast Asian markets.

Travel is one matter – statistically apart from life insurance, the top microinsurance policies in force are those for health (18.4 per cent), accident (21 per cent), property (1.5 per cent), and agriculture (14.9 per cent).

Evidently, there is not just a demand in specific sectors but also much room to grow still.

 

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