48 International The EconomistAugust 24th 2019
2 But that was a lot better than nothing.
Mobile-phone adoption has outpaced
both financial inclusion and insurance
coverage. According to gsma, an organisa-
tion of mobile operators, 5.1bn people—
two-thirds of the world—had mobile
phones in 2018. It expects the number to
rise to 5.8bn, or 71% by 2025. According to
the Findex, 78% of the world’s unbanked
adults receiving wages in cash had a mobile
phone. Even Zambia, a poor country, has a
mobile-penetration rate of over 80%.Seeds of distrust
This makes it easier to reach the unbanked,
both to market insurance services to them
and to manage and even pay claims. It is
still, however, a tough sell. An agricultural
fair in Zambia’s Mumbwa district is a three-
hour drive from Lusaka, much of it through
maize fields desiccated by drought. A farm-
er at the fair says the year has been so bad,
“it will send all but the very strong to the
wall.” But he and others there find the idea
of crop insurance tricky to grasp. Trying to
explain are representatives of Pula, the “in-
surtech” firm that designed the coverage,
and the Zambian subsidiary of Bayer, an
agribusiness giant, that sells it with its
maize seeds. The idea is unfamiliar. And
sometimes farmers buying seed do not go
through the minimal registration proce-
dure needed for insurance—the seed shop
may not explain it to them, or they are in
too much of a hurry.
In selling insurance to the poor, three
things seem most important: trust, price
and ease. The most important way of estab-
lishing trust is the demonstration effect.
One of the seed-marketers in Mumbwa la-
ments that more fuss is not made about
payouts like the one Mr Chomba received.
Kamlaben Dayabhai Parmar, a midwife and
an insurance agent for sewa in Gujarat,
would agree. In her village, 35 families are
insured through sewa; she receives a small
cut of the premiums. Her main sales tactic
is to make payments public—large claims,
for example, are paid at village meetings.
Correspondingly, where claims are not
paid, or met in full, insurance can soon get
a bad name, often unjustifiably. So Ms Par-
mar is interrupted while advertising the
benefits of insurance by an assertive wom-
an in a pink sari, who complains that she
made a health claim, and received 2,000
rupees when her total costs were 10,000 ru-
pees. She terminated her policy when the
premiums rose.
Similar problems have dogged some
“index-insurance” schemes. A number of
firms in east Africa offer farmers crop-in-
surance that will pay out automatically to a
mobile-phone account, without the need
to put in a claim, if, say, a rainfall index
drops below a certain threshold. This is in-
genious. Following an index is cheaper
than assessing farmers’ lost crops, orcounting how many of his cows have sur-
vived a drought. And since the index is out
of the farmer’s control, “moral hazard” is
reduced—he cannot do anything to make a
payout more likely. But the enthusiasm for
index insurance has waned somewhat. It
has to make some general assumptions.
Some policyholders might lose their crops
but receive no payout, discouraging others.
The other important elements in in-
creasing take-up of insurance—price and
ease—are often linked. MicroEnsure, a
British-based “insurtech”, signed up mil-
lions of customers by offering life-insur-
ance policies given away with mobile-
phone top-ups, as an incentive to loyal cus-
tomers. It provides cover to 8.6m people in
Africa and Asia. But its boss, Richard Left-
ley, says that asking customers to answer
even three simple questions (name, age
and next of kin) could be enough to deter
them from taking up a free offer.
Or insurance may be bundled with a
product, making the price invisible and
buying it as straightforward as possible.
People, says Ndavi Muia of Bayer, will not
pay for insurance unless it is a statutory re-
quirement, like motor insurance. So Pula’s
premium is paid by the seed company,
which absorbs the cost and bundles the in-
surance with its product to boost sales. It
can afford this because the payout is in
seed and the risk period relatively short.
The idea of buying insurance against
the failure of a product you are purchasing
seems obvious to many people in devel-
oped markets, but not to many poor people.
Lumkani, a Johannesburg-based firm, sells
fire-detection equipment (Lumkani means
“beware” in Xhosa). South African town-
ships suffer lots of fires. Lumkani’s devices
are networked, so that an alarm triggers
those nearby, and users get an sms alert of a
fire in their district, or indeed their ownhome. They also come with fire insurance,
with coverage for total losses up to 40,000
rand ($2,600). For smaller losses, says Da-
vid Gluckman, Lumkani’s boss, policy-
holders often have to be chivvied into
claiming.
An Indian insurer, called Toffee (as in
“as easy as...”) offers a range of products,
such as theft and damage cover for bicy-
cles, “commuting” insurance (for acci-
dents riders might have); and insurance
against mosquito-borne diseases such as
dengue (which it hopes pharmacies will
promote to people buying insect-repel-
lent). It boasts that it takes less than 200
seconds to buy a policy on its app or web-
site and less than three days to pay claims.
Such insurtech firms can win business
by serving the poor, venturing into parts of
the market long neglected by insurers, and
through digital processes, exploiting the
chronic inefficiency of well-established
competitors. But it is hard for them to make
large margins. They are intermediaries be-
tween customers and the insurance com-
panies that actually underwrite the poli-
cies. Many also find it hard to achieve the
volume of business that would bring econ-
omies of scale.Insurance as a service
Many working on insurance for the poor
believe that, to make a real difference, in-
surers need to do two things. The first is to
think of their role rather differently, “to
move beyond providing merely an indem-
nity for losses”, in the words of Hugh Terry,
founder of the Digital Insurer, an online
trade journal. Rather they should be help-
ing clients reduce and manage risk, using
the new technologies to advise and incen-
tivise them into better practices: farmers
into planting the right seeds at the right
time; health-policy holders to manage
medical conditions online and so on.
Second, in poor countries, they proba-
blyneed to work with governments, and
governments will need to use some of the
money they spend on their poorest citizens
topromote insurance. Pula, for example, is
ona pilot scheme in Zambia, involving
150,000 farmers. They will be offered crop-
yield insurance, sold with seeds and fertil-
iser, under the government’s Farmer Input
Support Programme, which subsidises the
cost of inputs to small-scale maize-pro-
ducers. This will be the first time the gov-
ernment has used a “yield index”, covering
a wide range of risks affecting the harvest,
asopposed to a simple weather index. Pula
already has a similar collaboration with Ni-
geria’s government.
The upshot should be that more farmers
willbenefit from the comfort Mr Chomba
received from having something of a safe-
ty-net. And, as insurance becomes more
commonplace, fewer, presumably, will be
sotaken by surprise. 7At their own riskSource:WorldBankAdults living in a household where growing crops
or raising livestock is a main source of household
income,selected countries, 2017, %0 20406080
Mozambique
Ethiopia
Zambia
China
Indonesia
India
Pakistan
Tu r ke yWhoalsoreceivedcompensationWhoexperienced a bad harvest or significant
livestockloss in the past five yearsTo t a l