From TheAfricaReport. Story by Charlie Hamilton.

Telecoms companies are redefining Africa’s insurance landscape, using their brand recognition and wide customer reach to offer micro-insurance products to the tens of millions of uninsured Africans.

The continent’s largest mobile telephone network operators, such as Airtel, Safaricom, Tigo, MTN and Vodacom, are battling it out to attract new customers through innovative business models that rival the traditional premium payments system popular in the West.

“Mobile telephones have huge potential to completely revolutionise the insurance sector, and that step change has already begun,” said Samuel Kiruthu, chairman of Kenyan telecoms firm Cellulant.

Africa has a unique set of challenges and the insurance market has responded with a unique payment solution.

“The possibilities are enormous. It’s just that you need a very dynamic and innovative insurance business to exploit this space,” Kiruthu said. “It’s the firms that move fast that will really succeed.”

Low penetration

Africa has an insurance penetration rate (measured as premiums as a share of gross domestic product) of only 3.5 percent, according to reinsurer Swiss Re, which is far below the global average of 6.3 percent.

However, the continent’s insurance heartland, South Africa, is second only in the world to Taiwan with 15.4 percent. If this outlier is discounted, the continent’s insurance penetration rate tumbles to under 1 percent.

Meanwhile, mobile phone penetration is soaring, with around 65 percent of sub-Saharan African households owning a mobile phone, and this number is set to rise to 79 percent in 2020, according to market research group Frost & Sullivan.

…In Ghana, mobile network operator MTN’s life insurance product mi-Life is battling it out with Tigo’s Family Care Insurance, while in South Africa Clickatell’s funeral insurance Cover2go is rivalling the My Funeral Card product offered primarily by the network operator SharedPhone.

Airtel and Tigo both offer micro-insurance life products in Tanzania, while Vodacom launched a micro health insurance product in January called bimaAFYA.

Econet now offers mobile phone users in Namibia and Zimbabwe its Ecolife life insurance.

Safaricom dominates the Kenyan micro-insurance sector with health insurance via Changamka, life insurance through Akiba Sure, personal accident through Kopa Bima and flood/drought insurance via Kilimo Salama.

Systems such as M-Pesa allow consumers to pay premiums, file claims and receive payouts through their mobile phones.

Such a platform means administration costs are kept to a minimum, a key factor in keeping low-margin micro-insurance profitable.

“Africa has a unique set of challenges and the insurance market has responded with a unique payment solution,” says Richard Leftley, CEO of micro-insurance provider MicroEnsure, describing the “freemium” payment structure, in which varying levels of telephone airtime use are rewarded with free insurance coverage.

Read more at TheAfricaReport.