Brokers have played a dominant role in the distribution of insurance products since the birth of the modern sector. In important lines, such as accident, fire and aviation, they account for over 70% of underwriting activity, according to the Tanzania Insurance Regulatory Authority (TIRA).
Many Tanzanian insurers rely on their relationships with local brokers for the bulk of their business, a dependency which costs them considerable sums in commission. As with insurers across the globe, finding lower-cost alternatives to broker-led insurance is a priority for the more advanced players in the market.
In Tanzania this is a challenging task. The relatively undeveloped nature of the local industry and an early-stage regulatory framework provide few alternatives to traditional distribution channels like brokers and agents. Low levels of financial inclusion have also contributed to constraining growth. For example, in 2015 only 8% of Tanzanian adults had a full-service bank account, according to the Financial Inclusion Highlights programme, a project supported by the Bill & Melinda Gates Foundation. For insurers looking to increase premiums, an unbanked population has traditionally been inaccessible.
This, however, is no longer the case, thanks to the conjunction of mobile phone take-up and the emergence of mobile payment technology. Tanzania’s mobile operators had signed up around 40m subscribers by March 2017, according to the Tanzania Communications Regulatory Authority (TCRA), while research firm BuddeComm reports that mobile penetration had risen to 83% by the same point (see ICT chapter). This figure compares favourably to an aggregate mobile penetration rate across the continent of approximately 67%, according to a report by StarTimes Group in 2015.
Significantly for insurers, mobile handsets are playing an increasingly prominent role in the financial activity of Tanzanians, a trend which stems from the arrival of four mobile money operators to the domestic market – Airtel Money, Tigo Pesa, M-Pesa and Ezy Pesa. More than 60% of Tanzanians have registered a mobile money account, far outstripping the number of conventional bank account holders.
Tanzania’s rapidly developing mobile payment infrastructure represents a useful new distribution channel for the nation’s insurers, and one which is growing rapidly: in January 2017, according to the TCRA, there were around 18.1m mobile money account subscriptions in the country, a figure that had risen to nearly 19.2m only two months later.
Utilisation of this new distribution model has come primarily from local and foreign start-ups, as opposed to more established insurers. For example, Sweden-based BIMA, which also trades as MILVIK, has partnered with Tigo, one of the largest telecoms operators in the country, to provide products such as life insurance, hospitalisation and personal accident cover to customers who use Tigo Pesa – the mobile payment platform.
Having started operations in 2011, by 2016 Tigo Bima had 500,000 subscribers. In 2016 the service – which has also been rolled out in Ghana and Senegal – was enhanced by the formation of a new partnership between Tigo, MILVIK Tanzania and Resolution Insurance. Rebranded as Bima Mkononi (“insurance in your hands”), the new platform intends to significantly increase its subscriber base. “This service helps to bridge the gap between customers, and due to the increase in mobile penetration in both urban and rural Tanzania, we believe Bima Mkononi will be a major boost for pushing financial inclusion in the informal sector by enabling Tanzanians to access affordable insurance services from their phones,” Tom Chaplin, MILVIK country manager, told the local press at the launch event in Dar es Salaam.
Jamii, a Dar es Salaam-based micro-insurance start-up, is a good example of the impact of local influence in the market. Launched in January 2015, the company recently raised $750,000 in seed funding to expand its mobile policy management platform into east and central Africa, starting with Kenya, Uganda, Ghana, Nigeria and South Africa.
Its target demographic is the traditionally underserved low-income and informal segment, offering a mobile policy management platform that performs all the administrative tasks of an insurer at a low cost level, which allows more people to have access to cheap insurance via mobile.
According to Jamii, its technology-based approach has allowed it to cut administration costs by 95%, enabling it to offer insurance policies for as little as $1 per month. Payment of the premium is made by mobile money transfer, in return for which the customer receives a unique ID number to use on visits to any of over 400 participating hospitals and clinics.
The company has developed its technological platform in partnership with Vodacom Tanzania, while the underwriting side of the business is carried out through a strategic partnership with Jubilee Insurance. This model, by which a start-up joins forces with established players in order to tap into an untapped corner of the market, represents a promising route to growth for the domestic insurance industry.
In the context of low penetration and a history of reliance on brokers, mobile insurance (m-insurance) offers an opportunity to leverage the more than 60% of the adult population that has subscribed to mobile payment services. Looking ahead, one of the primary questions related to m-insurance growth is the ability of the regulatory structure to support it.
Gaining approval for a new m-insurance product involves securing the permissions of three government bodies: TIRA, the Bank of Tanzania (BoT) and the TCRA. According to Finmark Trust, an independent, South Africa-based body, an informal, multi-jurisdictional process has evolved with regard to m-insurance approvals in Tanzania.
The first stage involves the insurer approaching TIRA with its proposal, while the partnered mobile network operator (MNO) approaches TCRA. Both bodies then review the application, and TIRA waits to receive a letter of no objection from the TCRA. The TCRA may send requests to TIRA for more information. The final decision regarding product approval rests with TIRA. In the meantime, the MNO must have gained approval from the BoT for its mobile wallet platform, if that is the proposed payment model.
The airtime deduction payment model is currently unregulated but, according to Finmark, the BoT has raised the possibility of requiring approvals here also. This convoluted system has not yet prevented first-movers from rolling out their m-insurance products, but as offerings become more complex the prospect of a regulatory bottleneck increases.
However, any streamlining of the regulatory process will have to balance the competing concerns of efficiency and stability. The failure of an m-insurance operation would have a detrimental impact on the industry, as the experience of other African markets has shown. After the 2011 failure of EcoLife in Zimbabwe, 63% of its customers ruled out the use of similar products in the future, according to a report by strategy firm Bankable Frontier Associates and the Centre for Financial Regulation and Inclusion, a think tank. The collapse of the operation was brought about by the unilateral decision of the technology provider to withdraw, which highlighted the vulnerability of multi-party insurance arrangements.
Regulating in order to encourage the growth of m-insurance will undoubtedly be a priority in the country in the years to come. However, ensuring the sustainability of the broader market will by necessity remain of paramount concern to policymakers.