Insurance: New horizons for microinsurance

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on January 15, 2018 - January 21, 2018.
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Microinsurance used to be mainly targeted at the uninsured as it is an affordable form of protection. But today, even those who are already insured can purchase such products to get coverage for events that are typically not included in traditional insurance policies. 

Unfortunately, many consumers do not know that they are underinsured and may not be aware of microinsurance products that can solve that problem, says Luciano Pezzotta, co-founder and strategic adviser at Neosurance.

“In general, we tend to underestimate the need for insurance or we aren’t aware of the possibility of insuring against a specific risk. And even if we know, getting coverage may be a cumbersome exercise,” he points out. 

“There are many areas that are not covered (by traditional insurance) such as extreme sports, risky activities and temporary car insurance. What kind of limitations, terms and conditions does your insurance policy come with? Are you aware of them?”

Although the insurance penetration rate in Malaysia has remained at about 55% for the last five years, many of the insured face the problem of protection gap, according to a 2016 Bank Negara Malaysia report. 

“Although we are open to working with the bottom of the pyramid, what makes us unique is that we see the opportunity to fill the protection gap of the higher-income group. It is not because they cannot afford it or they are not willing to get insured, but it is because the current process is oftentimes not engaging. Also, insurers struggle to capture the emerging risks that individuals need to insure against,” says Pezzotta.

The underinsured trend can be observed in the region, he adds. However, the high mobile penetration rate in Asia presents the opportunity to increase access to microinsurance products. 

“There is massive economic growth, but the willingness to be insured is at a much lower level than in Europe and the US. On the other hand, we see the fast and widespread adoption of technology among the lower-income group, compared with countries with higher insurance expenditure,” says Pezzotta.

The need for microinsurance products and the penetration of mobile technology have resulted in the emergence of one-time or short-term insurance products that are available on the mobile platform. Pezzotta points to Tokio Marine Group’s partnership with mobile network operator NTT DoCoMo last year as one of the earliest to come out with such products. 

“Neosurance is doing something very innovative that in theory has been proven successful by Tokio Marine, thanks to its partnership with DoCoMo. With the technology mobile network operators have developed over the years, the group found that it was possible to push microinsurance products this way as well as insure against the risk of hitting a hole-in-one in golf,” he says.

“It has never been exported globally. But in Japan, it has been very successful.”

These one-time insurance products are sold “on the go” and cover things such as travel, sports and driving. These short-term policies can be bought via a mobile app, which uses the GPS function to determine the customers’ location and prompts them to buy certain products when they are at relevant locations.

Neosurance works in a similar way. It informs mobile users of relevant microinsurance products at the right moment to help them cover events that may not be included in traditional insurance policies. These include insurance for travel, luggage or events such as marathons.

“We are the first to advocate the use of microinsurance to bridge the protection gap without necessarily looking at the lower-income group. We are seeing a huge adoption of microinsurance and there are a lot of players, but the general perception is that microinsurance is really something affordable for those who cannot afford a yearly product. But there are still risks left uncovered with the yearly products,” says Pezzotta.

“We are the first to launch a mobile-based solution using the push approach, which means we use the mobile phone to send notifications of the right product at the right time in the right context. We are targeting those occasions that are not possible to be covered via the traditional means of pen and paper. 

“With access to data and the possibility of using predictive analysis to understand when an individual has a specific need, we want to offer new products that create opportunities and allow individuals to better manage their risks and provide coverage for their activities.”

Use cases of microinsurance products

Neosurance partners communities such as online travel planners, running groups and insurers. It analyses the protection needs of these communities and works with insurers to come up with products or links their needs with existing products. 

Then, it sends out notifications via its digital channels such as apps to inform users of the products when they need them the most. For instance, a user may be notified of a travel insurance policy when the app detects that he is at the airport or out of the country.

Neosurance was founded in Italy in 2016. Last September, it was chosen to be part of the SuperCharger financial technology accelerator — a 12-week accelerator programme organised by Standard Chartered Bank Malaysia Bhd, Allianz Malaysia Bhd and Malaysia Digital Economy Corporation.

“The idea is to use Malaysia as a regional base. We were established in Europe and selected by Plug and Play, which is an accelerator in Silicon Valley. That really gave us a lot of traction in North America,” says Pezzotta, adding that the company currently provides travel insurance.

“But the adoption of travel insurance is well below its potential. We are helping insurers reach users that have a need at the right time with the right message via an engaging process. But it will take a while because we are actually at the dawn of radical change in the way insurance products are designed and sold.”

Neosurance chose to start with travel insurance because of the large demand. “There are different kinds of travel insurance. One of the cases we are developing in Malaysia with global insurers is travel that is not necessarily overseas,” says Pezzotta.

“Through geolocation tracking, we are looking mainly at the Klang Valley and targeting drivers who are returning to their hometowns during public holidays. We all know that these are critical times, when a higher number of accidents can occur. 

“Through our community partners, we can propose products that cover such risks. Other products can be designed in a very creative way as we look at the lifestyles of and what is needed by consumers.” 

Last July, Neosurance announced a partnership with AXA Italy to sell travel insurance to Tiassisto24, a car concierge community. In Malaysia, the company signed a memorandum of understanding with the KLCC Runners Group last year to distribute microinsurance products. 

This month, Neosurance formed collaborations with peer-to-peer car rental app Moovby and location-based currency comparison app Currenseek. The company is also working with US-based lifestyle community BeeBell to analyse its needs. 

Neosurance aims to launch products for Malaysian users this year. “We haven’t launched a product for KLCC Runners Group yet, but we are starting with the community because this will be a good innovation model that we may be able to replicate in other parts of the world,” says Pezzotta.

By working with the group, Neosurance managed to figure out when was the best time to ask members if they wanted insurance coverage for running events and the best way to engage them.

The company can also integrate its solutions with the services of entities such as airports, where consumers can be persuaded to buy luggage insurance after their luggage has been checked in, for instance. Other examples include a collaboration with a skiing community so that users can be notified of relevant insurance products upon arrival at a ski resort.

“We have had some discussions about buyer protection as well. When you buy anything online, you can get notifications for additional cover for your products. What is very interesting is the context, which means we can look at your experience and needs and come up with innovative solutions,” says Pezzotta.

“Nowadays, we are looking at car parks. So, if you park your car in a very unusual location, you can have temporary cover against damage. We are also looking at a lifestyle community we partnered in the US for the possible number of risks related to all the sporting activities you engage in.” 

The car community and sharing economy are two other areas they are exploring.

Pezzotta says the premiums for the short-term travel insurance the company provides could range from RM10 to RM20. But Neosurance is not an insurer, so ultimately whether there are relevant products that could be designed for specific communities depends on the insurance companies. They also need to find a sufficiently large community to insure. Each insurer Neosurance works with will have exclusive access to a community for one type of risk such as short-term car insurance.

Pezzotta says it is still in talks with insurers globally on possible products and is actively analysing the needs of its community partners. “For 2018, the goal is to move to the next level and launch in more countries and with more products. At this stage, we want to go beyond travel.” 

“We have several innovative use cases that we want to launch globally. We have at least five use cases around the world and 30 communities. The use cases can be in travel and sports, and could apply to several communities around the world. 

“Malaysia is a mature and sophisticated market when it comes to car use. We see the country as a global innovation centre for use cases built around car use.”