Innovation in Insurance in Cape Town, South Africa
Metropolitan, an insurance company based in Cape Town, South Africa, has developed a new insurance product to address the need of the financially challenged to protect themselves against the consequences of traumatic injuries. The product is innovative in several aspects.
Traditional insurance products send a bill to the client whenever a premium is due. The agreement with the client is that they will pay by cheque, deposit, direct debit, credit card etc. Metropolitan's target market for this product doesn't have access to these payment methods. Metropolitan's clients pay with the airtime in their cell phone accounts. Telecommunications providers make it possible to buy airtime at just about any shop including grocery stores, pharmacies and gas stations. This is how customers obtain an airtime balance which represents a monetary value. The possibilities for spending this go well beyond making phone calls and sending text messages. You can send airtime to somebody else's cell phone and that capability essentially creates a new payment method.
The consequence of paying through airtime is that the insurance product can't follow a regular monthly billing cycle; the insurance company cannot count on a monthly commitment from the insured. The insured's airtime balance may be depleted at the time the premium is due. In order not to break the bank, the insurance policy would need to be suspended for the time there is no premium. As the insured starts paying their premiums again (with airtime) the policy needs to be reinstated. This traditional practice of suspending and reinstating the policy would imply an inordinate amount of transactions and it would simply not be cost effective (given that the premiums are very small). The solution given here is to make the insurance contract also work on a pay as you go basis: when you have paid you are covered, when you haven't paid you're not covered. Each payment buys a cover period which is properly recorded such that the claims system knows exactly when coverage can be granted or not. (Note: Metropolitan does provide a grace period after the client has missed a payment, but that is not of the essence to illustrate the innovation.)
Doing this with a traditional policy administration system and billing system would have been a great challenge. To create a platform that supports this type of micro insurance products, Metropolitan built on Silvermoon's LUNOS platform for setting up the new product and to support the associated transactions. LUNOS enabled Metropolitan to set up the new premium collection processes via airtime in a very short amount of time. The key feature of LUNOS that was important for Metropolitan is the fact that LUNOS doesn't force the insurance company to follow a fixed set of processes.