Microinsurance booming in Tanzania

Dar es Salaam. Tanzanian microinsurers benefit from robust growth – often in collaboration with mobile companies – with recent pro-consumer reforms expected to support further take-up and expand insurance penetration.

In March Jamii, a local start-up, offering micro-health insurance services announced ambitious plans to expand into East and Central Africa this year.

Launched in January 2015, Jamii is a mobile policy-management platform that performs administrative activities of an insurer, while also providing access to low-cost insurance policies ordered on mobile phones using “quick codes” (formally known as unstructured supplementary service data (USSD, codes).

Partnerships with Jubilee Insurance and Vodacom Tanzania have enabled Jamii to implement a cashless premiums-collection system at more than 400 hospitals. This has helped it reduce insurance administration costs by up to 95 per cent and allowed it to offer microinsurance policies for as low as $1 per month. Since it set up the platform a little over two years ago, almost 8,000 Tanzanians have signed up.

Having won Tanzania’s portion of Seedstars World, an emerging markets start-up competition, in September, the firm recently closed a $750,000 round of seed funding, split equally between grants and venture capital. This came on the back of a $250,000 grant from the Bill and Melinda Gates Foundation and the firm will pitch for another $1 million in investment in Switzerland in April.

Jamii’s plans include a new educational campaign to improve domestic growth, while also extending its reach into Kenya, Uganda, Ghana, Nigeria and South Africa over the coming months. The firm has set a target of expanding its customer base to 200,000 in 2017, rising to 720,000 next year.

Room to expand

Jamii’s expansion highlights the innovative approach insurers are taking to broaden their consumer base in Tanzania.

As with many of Africa’s economies, low insurance penetration, average incomes and product awareness make Tanzania’s market of 52 million people a tough one for insurers to tap, with per capita GDP at just $879 as of 2015, according to the World Bank.

As a share of GDP, premiums averaged under 0.7 per cent between 2012 and 2015, up from 0.5 per cent in 2006, but still low by regional standards, according to the 2015 “Annual Insurance Market Performance Report” by the Tanzania Insurance Regulatory Authority (TIRA). Meanwhile, a report by global reinsurer Munich Re reveals that 7.31 per cent of the population had a microinsurance policy in 2012, the fourth-highest rate in Africa.

As a result, Tanzania’s high and rising mobile penetration – subscriptions spiked by 24.4 per cent in 2015 to reach 39.7 million (81 per cent of the population), according to the Tanzania Communications Regulatory Authority – has become a key driver of industry growth, according to a feasibility study carried out by Switzerland-based microinsurer Stonestep in October 2014.

In its report, the firm found effective distribution to be a critical component of microinsurance development in the country – the segment being characterised by large volumes of small premiums. At present, it said, most microinsurance products are offered through mobile network operators and financial service providers, suggesting that rising mobile penetration and the launch of new distribution channels will support future growth.

The insurer also noted that Tanzania had one of the highest proportions of citizens using non-bank financial services and could soon challenge Kenya as the world’s largest mobile-money market. A growing middle class, higher levels of consumer spending and low penetration rates, it said, indicate ample room for growth.

“Microinsurance will not necessarily bring in a revenue stream, but it will increase inclusiveness,” KVA Krishnan, managing director of Alliance Insurance, told OBG.

Pro-consumer reforms

The sector has also benefitted from a regulatory overhaul in 2014, which focused on serving low-income and informal workers by boosting financial inclusion and innovation.

For years the TIRA has actively promoted expansion of microinsurance in the country, a key part of this being the introduction in 2013 of its “Microinsurance Regulations and Guidelines”. These regulations – which focus on fairness, consumer protection, innovation, participation and transparency – describe microinsurance as an ideal channel for low-income Tanzanians to access insurance coverage.

To help secure this, they require companies offering such insurance to also provide risk-pooling instruments for low-income households, lower premiums than conventional policies, and insurance for informal workers such as farm hands.

They also lay down comprehensive standards for agent education and – to address payment delays recognised as a big contributor to slow uptake – mandate that claims be paid within three working days of receiving a claim, with a maximum five-day extension.

Enacted in 2014, the guidelines were a key step in paving the way for innovation in the age of mobile finance, thus bolstering prospects for long-term increases in insurance coverage across the country, as it becomes ever easier to reach low-income people through the supercomputers in the palms of their hands.