Mediating microinsurance: the techniques of translation

Article in the Journal of Cultural Economy by Christopher Paek, The American Institutes for Research

Abstract

Over the past decade, microinsurance has taken off in South Africa. The strength of this market is fuelled almost exclusively by funeral insurance, unsurprising considering the immense cultural value South Africans place on funerals. Moreover, insurance companies have achieved scale by working through brokers who are embedded within community-based institutions like burial societies and funeral parlours. The incursion of ‘insurance culture’ into this sphere has thus resulted in an ecosystem in which formal and informal institutions are in fluid states of tension and cooperation. Mediators sustain this ecosystem and enable the extension of microinsurance into low-income communities. I employ Bruno Latour’s notion of ‘translation’ in my analysis of three types of mediators: insurance agents, funeral parlour operators, and burial society administrators. The paper, which is based on fieldwork I conducted in Cape Town, South Africa, focuses on these actors’ specific techniques of translation, i.e. the different strategies/practices used to reconcile the disparate rationalities and institutions of the formal insurance system with those of the informal risk management sphere. An analysis attuned to the various social identities and positions embodied by these brokers reveals the dislocations, ambiguities, conflicts, and opportunities generated by the expansion of microinsurance markets into the low-income terrain.

Access Journal of Cultural Economy: https://www.tandfonline.com/doi/full/10.1080/17530350.2019.1639528

Access through ResearchGate: 
https://www.researchgate.net/publication/335637013_Mediating_microinsurance_the_techniques_of_translation

Read up on original IMTFI-funded research project: https://www.imtfi.uci.edu/research/2015/paek_2015.php

Micro Insurance Claim Payments through Pre-paid Cards: Technology and Regulation Driven Financial Inclusion in India

By Debashis Acharya (University of Hyderabad) and Tapas K. Parida (State Bank of India)

It was the sweltering summer of April 2016 and we were with a few microfinance clients of Utkarsh Micro Finance (one of India’s leading MFIs granted a Small Finance Bank license) near an ATM machine located in Harhua, a small town close to the city of Varanasi. The executives of Utkarsh led by Mr. Atul Tripathy were distributing the first set of pre-paid cards to some clients. The cards were loaded with their insurance claims. These five to six clients came from nearby villages located about 4 km away from the Harhua branch of Utkarsh. Except for one person all the others saw this M2P-DCB providing pre-paid card for the first time. In fact, none had never used an ATM card before. The executives explained to them how to use the card, how to withdraw their claim amount and helped them with inserting their PIN number to withdraw the money. We could see the anxiety on their faces. In fact, we were anxious too. The ATM machine dispensed part of the cash for the first client when the card was inserted. But since the claim amount was not a rounded number and the machine was not dispensing Rs100/- currency notes, the client was advised to visit another ATM machine to withdraw the full balance. The second case also had difficulty because the machine didn’t read the card in the first instance and only upon repeating the operation did the client succeed in getting his cash.

We had already interviewed several senior executives about this pre-paid innovation and were well aware of its background. Regulations by the Reserve Bank of India (RBI) mandated not to pay by cash to micro finance clients while settling death claims. Adding to this the Insurance Regulatory and Development Authority of India (IRDAI) mandated direct payment of the claim dues to the client and outstanding to the MFI, the master policy holder. Because many clients did not have bank accounts, payment by cheque or electronic funds transfer was out of the question. Many claim payments were stalled for a long time and many cheques turned stale since they could not be cleared by banks due to KYC mismatches. The option of mobile-based payments was also ruled out since it hasn’t taken off in general among the rural population. During our visits to Varanasi and nearby villages we saw sign boards of Airtel Money and Vodafone M-pesa but our interactions with the locals revealed very limited use of mobile money. Mr. Satyen Dash of Bajaj Allianz Insurance, Mumbai says, “There were difficulties in going for mobile phone-based solution due to issues of connectivity, non-possession of smart phones by poor people, KYC issues and the individual perceptions.” Hence came the idea of pre-paid cards as they comply well with the regulatory requirements of the RBI and IRDAI and pay the claim amount directly to the client. The process is illustrated in the figure below.

Our project moved further with a survey of 200+ MFI clients to elicit their salient beliefs and we also conducted a few in-depth interviews. Societal image and perceptions of enhanced financial security and hassle free claims settlements were the most important determinants for acceptance of the technology. Many of these clients benefitted from the use of cards since their claims were pending due to regulatory changes restricting the insurance company from settling claims in cash. A good number of cheques had also not been realized since these clients didn’t have bank accounts. Vodafone M-pesa has not really taken off in this region and mobile-based payments were almost non-existent. The primary use of mobile has been to be in touch with families and recreation/entertainment. Overall, absence of formal banking coverage, distance to ATMS being 3-7 miles, and difficulty in using mobile based payments have made the pre-paid card experiment successful in this case.  

An interesting finding was that people often preferred soiled banknotes to new banknotes for fear of counterfeit currency. This emphasis on tangibility and trust based on physical signs of repeated use explains in part why mobile money has not taken off as a mode of payment and why some did not take as well to the pre-paid cards. A female respondent from a village near Varanasi said, “I don’t believe in new notes. The MFI agent once refused to accept them because the metallic part [the machine readable security thread and electrotype water mark] were damaged in the new currency note I had as part of  my fortnightly deposit. The new notes have not been used before and I don’t know if they are genuine. I think many of my friends share this feeling too.” Other beneficiaries felt that cards were better substitutes of cash. They felt that they could store their cash in this mode and use it as needed, which made them save a bit more in the process. The spouse of a female client said, “I think I overspend if I have cash. If I have money in my card I will spend when I need and save the rest.” This implies that employing card-based services for even collection and disbursement of loans by MFIs could be useful and could also serve other existing needs of potential clients.

Some design issues in this experiment also merit attention. The seven cases of settlement of claims by cards that we witnessed in our field visits were related to first time users of such cards. None of them previously had bank accounts or ATM cards. Though their perception of the utility of such cards was positive, one could see potential problems of using this new instrument. First, ATMSs dispensing cash belong to different banks and possess distinct display features. Second, the cards used in these machines are either credit or debit cards and the accounts too are of different types. Finally, the currency dispensed by the machine is sometimes limited to relatively high denominations. For instance, some machines do not dispense notes of Rs100/- denomination. In such cases some quick user guides for these pre-paid cards would help the users to effectively use the card. As mentioned earlier, claim amounts were not rounded off and the clients ended up losing a few Rupees in every transaction. If the claim amount was Rs. 5329 the machine would not dispense Rs. 29. But the MFI executives became aware of this lapse and there was an attempt to correct it in the next lot of cards by rounding off the amount to benefit the client.

The Prayer/Pledge - A Financial Literacy Move by Utkarsh

It is also important to note that the level of insurance and financial literacy among these rural poor was very high. Most clients knew how much they paid for the insurance premium, the purpose of insurance, and how much was expected in case a death occured. They were also aware that due to some technical difficulties, their payments could get delayed. This can be attributed to Utkarsh’s financial literacy drive by executives specifically appointed for training clients in literacy. One example is that of a pledge taken by members at end of each meeting to adhere to the financial discipline of spending loan amounts on the activity for which it’s taken, paying the fortnightly instalments on time, spending income earned on family’s wellbeing, not applying for loan beyond one’s repaying ability and helping each other at bad times. The MFI representative also reciprocates by pledging to advance loans on time.

Is the pre-paid card based settlement/payment method sustainable in the changing environment of MFIs in India? Are MFIs fading away or are their roles shifting since some of them have been granted Small Finance Bank (SFB) licenses? These are some of the questions that remain. So far only eight MFIs have been issued SFB licenses by the RBI and others may follow in future. A majority of them will however probably continue as MFIs of small & medium sizes with the use of not very high-end technology. Pre-paid cards seem to fit that bill and may be well-suited to providing services like disbursement of loans and collection of repayments in addition to insurance claim payments discussed in this study.

Read more in Acharya and Parida's Final Report.

    

Mobile Phones, Insurance and a Funeral: A Closer Look at South Africa’s Mobile Micro-Insurance Market

By IMTFI Fellow Christopher Paek 

About halfway through my fieldwork in Cape Town, South Africa, tragedy befell Goodwill Nxusani for the second time. He had been one of my key sources and interlocutors, connecting me to local residents of his township, Khayelitsha. Earlier that year, his grandmother had passed away and he was generous enough to invite me to her funeral. Just a few months later, he received word that his father-in-law, who lived in the Eastern Cape, had also passed. As the only income-earning household in the immediate family, Goodwill’s family was responsible to pay for the whole funeral.

A traditional Xhosa funeral in Khayelithsa, South Africa (Photo credit: Christopher Paek)    

Funerals are sacred among the Xhosa. Whether poor or rich, families do whatever they can to ensure that their beloved kin are sent off properly in death so that their souls can join with the ancestors. Goodwill’s father-in-law, the male head of household, was to be honored, as customs dictated, with a slaughtered cow. Since he died near Cape Town, transportation would also have to be arranged so that his body could be returned to the Eastern Cape, a common story for many Xhosa who had migrated to the Western Cape in search of work.

Between the transportation costs, the livestock, food, and the funeral ceremony itself, Goodwill faced a price tag of R42,040 ($3,123). If Goodwill had spent every rand he earned, which was R2,000 ($148) per month, it would still take him nearly 2 years to fully pay for the funeral. Fortunately, Goodwill was among the lucky few who had taken out a funeral insurance policy that covered R14,000 ($1,040) of the cost. Still, the death of his father-in-law posed a considerable financial burden on his family. As he broke the bad news, he informed me how he and his wife had gone three days without food in order to pay the first installment on the cow.

Economists and insurance professionals see Goodwill’s story, which is fairly common in communities across South Africa, as a story about financial risk. In their view, the financial toll imposed on a grieving family can be alleviated by finding ways to extend financial services into low-income spaces…no easy feat. Insurance, widely considered a grudge purchase, is a hard sell to even middle-upper class people. How do you convince the poor to spend what little they have on insurance?

South Africa is unique in this regard because demand for micro-insurance (insurance products designed for low-income clients) is high, driven by the cultural imperatives placed on funeral rituals. Of the nearly 62 million lives insured by micro-insurance on the African continent, South Africa alone accounts for more than half of these lives, making it one of the world’s largest micro-insurance markets.

While microfinance enthusiasts might see these numbers with unbridled optimism, there is an important caveat to consider. Micro-insurance sales in South Africa are almost exclusively driven by funeral insurance policies. Other products including life, health, and asset insurance have found no success in the low-income market. Many are hopeful that exposure to high-quality funeral insurance products can serve as a sort of Trojan horse into this market, but this is yet to be seen.

As might be expected, building profitable micro-insurance markets presents a number of challenges, especially the need to achieve scale, since the sustainability of insurance operations relies heavily upon building a sizable risk-pool. Fortunately, the advancement and proliferation of technology across the developing world, particularly mobile phones and its networks, have been a game-changer for many industries including micro-insurance. Since mobile penetration is deep in South Africa (mobile phone subscriptions per capita stand at 1.47, according to the World Bank), insurance companies have partnered with mobile network operators (MNOs) to tap into this expansive distribution network. Insurance products that are sold through and with mobile operators are commonly referred to as mobile insurance, or m-insurance for short.

By overlaying their operations upon a mobile infrastructure, insurance companies have been able to generate efficiency gains across the entire micro-insurance value chain from product design, marketing and sales all the way to enrollment and claims administration. From the MNO perspective, m-insurance is an appealing product insofar as it stimulates average revenue per user (ARPU) and reduces churn, i.e. increased loyalty/retention. And for the end-client, efficiency gains translate into affordable premium rates that compare favorably to traditional micro-insurance products or even their informal sources of insurance coverage. Sensing the market opportunity, insurance companies and MNOs launched several varieties of m-insurance products including (but not limited to):

1. Loyalty Based Models- Clients receives “free” coverage paid for by the MNO if the client behaves in an incentivized way (e.g. more airtime usage, data purchases, etc.)
2. Airtime Deduction Models- Clients can make their premium payments with their airtime balance.
3. “Dumb Pipe” Models- The mobile phone is used only for data capture, enrollment, and communications functions, but not for premium collection/payout.

A non-exhaustive typology of m-insurance products on the South African market    

It would seem, then, that South Africa, with its high demand for micro-insurance, a corporate commitment to m-insurance, and high levels of mobile penetration, would be fertile ground for the wide-scale uptake of mobile-based micro-insurance. But it came as a surprise to many in the industry when the anticipated m-insurance market failed to achieve scale. What happened? And what does this mean for other financial service providers who are looking to break into the low-income market through mobile channels?

The research I conducted in Khayelitsha, a large township outside Cape Town, indicated that a major reason why this market failed to materialize had to do with trust. Even longtime micro-insurance clients who were well familiar with how insurance worked, would not trust using their mobile phones to conduct financial transactions. What drove this mistrust?

To answer this question, it’s important to understand clients’ experience with m-insurance within a much wider context of mistrust in which they live and operate. For township residents, in particular, this environment is typically characterized by high crime rates, lack of formal legal recourse, a lack of consumer advocacy and education, countless experiences with money/phone scams, and high unemployment. Anthropologist Erik Bähre observed how, in the midst of such a volatile environment, township residents would seek out and form “islands of trust” where they felt safe enough to keep/grow their money (i.e. informal financial mutuals).

Filtered through this perspective, it’s useful to see m-insurance products as operating outside the boundaries of these islands of trust. M-insurance was instead interpreted through a lens developed and used over time to guard against fraud. For example, many respondents dismissed m-insurance because of their past experiences dealing with phone and money scams. When they come across so-called “free” insurance coverage (i.e. loyalty-based m-insurance), they are understandably skeptical.

What may have been the most unexpected finding was the extent to which even very poor clients were willing to pay a higher premium to deal with insurance sales staff face to face. When presented with an m-insurance product that had a stronger monetary value than traditional retail insurance, clients often expressed how important it was to them that their premium payments and claims were being administered in an office. An office is tangible, it can’t disappear in the night; it is, for lack of a better phrase, Bähre’s “island of trust.”

A funeral m-insurance product. 

A partnership between an insurance company, Hollard 

and a clothing retailer, Pep (Photo credit: Christopher Paek)    

Among m-insurance developers, there is an on-going debate as to the virtues and drawbacks between “high-touch” products, which incorporate sales agents into their models and “low-touch” products, which are typically passive models that eliminate sales agents in order to lower cost. Results from this project seem to suggest that at least initially, a more high-touch approach is required to first develop trust, especially in environments where the use of mobile phones to cross-sell financial products have become synonymous with fraudulent activities.

A related example may reinforce this point. When ATMs were first introduced into South African townships, initial reports suggested that there was widespread mistrust among residents. It took concerted time and effort—i.e. bank tellers would walk through each step with individual customers again and again—for clients to eventually trust ATMs enough to deposit their hard earned cash. Examples like this demonstrate that trust in m-insurance products can eventually be earned, but that an initial investment in time and financial resources may be required to do so.

As this research shows, efficiency, convenience, and price are necessary but not sufficient factors in building a successful m-insurance market. If the trust gap can be overcome, insurance companies may be in a good position to fully leverage the potential of mobile phones and networks to deliver financial services at a meaningful scale.

Read Christopher Paek's Final Report