The Cellphone Minutes That Come With … Insurance?

Cell-phone adoption in Africa continues to grow at a rapid pace; the continent is on track to hit the billion cellphone mark in 2015. Many African mobile users don’t have monthly plans with a carrier. Instead, they own phones and buy minutes as they go, “topping off” as their call-time dwindles.

Competition for selling minutes results in fierce mobile-carrier price wars; customers buy minutes from whatever company offers the best deal at the moment. It’s cheaper to call numbers within a carrier’s network, so users often buy minutes from different networks and rotate SIM cards, depending on whom they’re calling. But developing customer loyalty is a huge challenge for prepaid phone-card marketers. How can any one carrier gain a stable edge over its competitors?

Perhaps with a small add-on of ... insurance. That's right: a number of carriers have teamed up withmicroinsurance providers to offer policies when customers meet a minimum amount topping off their prepaid cards. For many of those who live on a few dollars a day—for whom it is worth taking cell phones apart and swapping SIM cards to save a cent or two—this plan will be the only insurance they have. The system is win-win-win: a great deal for the mobile carrier, the insurance company, and the newly insured. 

For extremely low-income families, insurance payouts for a health crisis or to cover costs associated with death can make the difference between destabilization and a downward economic spiral. With no safety net, a family can quickly lose all it has managed to scrape together. Quick payouts help people avoid classicpoverty traps often used to cover unanticipated expenses, like selling productive assets, pulling kids out of school, or borrowing money on unfair terms. The coverage is modest—just a few hundred dollars or less, typically—but for bottom-of-the-pyramid customers, such settlements have enormous impact.

One such provider, MicroEnsure sells its products in 13 countries in Africa and Asia. Its CEO, Richard Leftly, told me they pay health claims within an hour and life insurance payouts within a day. Imagine low-income customers suddenly collecting a lump sum windfall on an insurance claim. News of such a payout is likely to spread very quickly, perhaps the best ad possible for insurance. Customers become motivated to stick with the prepaid calling provider which is also insuring them, and once they understand the benefits of insurance, they often add other family members. 

Indeed, MicroEnsure has a very high conversion rate of customers buying more insurance once they’ve qualified for their first policy. Airtel in Zambia offers customers insurance by spending just $1.80 a month in minutes. As the amount they spend goes up, so does their coverage. Reaching this market is notoriously difficult, especially if the potential clients have no experience with insurance. Using cell-phone calls as an entrée has been very effective, and offers customers a free opportunity to learn about insurance services. And the mobile carriers, the go-betweens, brand themselves as companies that care about their customers.

The payouts are done in a variety of ways. Some are sent directly to mobile moneyaccounts. A customer may receive a text chit to be redeemed at the nearest kiosk. Or they might simply opt for payment in cell-phone minutes, which have gradually become negotiable currency to pay for groceries and other basics. The shopkeeper simply transfers the minutes, using or reselling them.

Insurance is an elusive product. If it turns out you don’t get sick or die, you don’t collect on it, in which case it may feel like a bad investment. But a sense of security adds to quality of life. If peace of mind can be purchased along with cell-phone minutes, that's quite a deal.