With the continued rise of mobile phone users in Africa, insurers now have a huge opportunity to grow their revenue as they tap into this large consumer base – targeting the population in the middle of the economic pyramid – that does not live on less than $2 a day but cannot afford access to traditional insurance products.
Microinsurance has no doubt been beneficial to some SME’s (small and medium sized enterprises) and may be applauded as an innovative way of reaching a large proportion of people who previously relied on informal ways of managing their risks, such as relying on the support of their family or their community. However, the drawbacks of this financial product and the lack of transparency by the companies that offer this mechanism of risk management need to be scrutinised. There have been concerns that microinsurance may not be quite what it seems.
The lack of transparency by some companies means that more and more unscrupulous insurers are exploiting consumers who are unaccustomed to the concept of insuring their assets and income. There are already some insurers claiming to offer free insurance, who fail to inform consumers that their premiums are linked to product purchases such as mobile phone top ups.
This deliberate choice by insurers not to disclose the truth to less financially savvy consumers is largely based on the assumption that most consumers will not be aware of the deceptive marketing practices being used. Misleading marketing tactics are the order of the day for some insurers. Questions need to be asked with regards to the way in which insurance products are being marketed in an unethical manner.
It may not be a stretch to suggest that because profits in the micro-insurance business are hard to come by, companies are less open and transparent about their insurance products as they require large volumes of insurance contracts to make the business viable. This may be the case particularly in countries where regulation of the industry is not stringent.
While countries like South Africa, have made great strides in the regulation of the insurance industry to ensure customer confidence, by introducing a “Twin Peak” model of financial regulation aimed at addressing the shortcomings of the regulatory structure, other countries in Africa still have a long way to go.
Better regulatory practices need to be developed to deal with the risks of potential abuse in the insurance business. The regulatory models that currently exist in some countries in Africa are largely ineffective because of the slow law making process and unreliable judicial systems.
Rigorous reform of the insurance legal framework is needed in many countries across the continent as well as the establishment of independent regulatory institutions to ensure consumers are not vulnerable or exploited.
By Kabukabu Ikwueme
The author is a freelance writer and law graduate with a postgraduate qualification in Marine and Insurance Law.