Relationship between Mobile Network Operator and the Insurer in Mobile Microinsurance

The Impact of the Relationship between Mobile Network Operator and the Insurer in Mobile Microinsurance


Microinsurance is becoming a significant part of the world economy. The sector, whose primary focus is the low-income population, is growing at a fast rate in the developing world and other emerging markets. The broader goals of this branch of microfinance are to reduce poverty, decrease maternal and infant mortalities, eliminate child labour and boost productivity in agriculture. Though microinsurance has rapidly developed in the last several years, it is a relatively new sector attracting many economic scientists. Most of the studies in this area have concentrated on impact assessment. Of fundamental interest to many has been its effect on the financial protection, the health sector and the general productivity of small-scale business persons and farmers. Advancement in technology has also played a significant role in the effectiveness of the industry. Particularly, the high rate of mobile phone use has led to what is now commonly known as mobile microinsurance.

Insurers have developed microinsurance products that leverage mobile networks. They collaborate with the mobile network operators, banks, government and other third-party players in implementing these schemes. The phones are essential for enrolment, payment of premiums, making of claims and the consequent compensation. Additionally, these gadgets are used to educate the masses about the need for insurance covers.

Problem statement

Whereas literature shows tremendous success and explores various factors that lead to the success of mobile microinsurance, the effects of the nature of the relationship between the mobile network operator and the insurer to the industry have not been adequately evaluated. As literature establishes, there are numerous contributors to the effectiveness of an insurance scheme. These factors range from market regulation, the size of the market and the quality of products among others. However, despite all these variables being perfect, some insurance providers have had problems providing quality services due to an unhealthy relationship with the mobile network operators.

The purpose of the study

There is a lack of well-researched information about the impact the type of relationship between the mobile network providers and the insurer brings to the business. The knowledge gap leaves many insurers ignorant about the significance of establishing the right partnership with the MTOs.  The purpose of this study is to evaluate the impact of the nature of the partners’ relationship on the efficiency of mobile microinsurance. It focuses on several countries in the third world.

Research questions

There are always alternatives with regards to value-added-services. Some mobile network operators may agree with an insurer but later opt to go for other services and drop the insurance. Such a move is a big blow to the insurer. In some cases also, the MNOs seems to have a bigger say in the running of the scheme. The insurer’s decision to partner with the operator looks like a desperate move, and they will always heed to the operator’s demands. The strength of the brand with which the insurance products sell matters a lot.

The following research questions guide this study:

  • How has the lack of sustained commitment from the mobile network operators affected the insurers’ business activities?
  • How do the mobile operators influence the decisions concerning the insurance covers and how does this affect efficiency in the market.
  • How do the insurers use the mobile network operators’ brands and how do the brands increase the effectiveness of the microinsurance.

Literature Review

Microinsurance products are beneficial for low-income earners. In Africa, these products are common among the people living in remote areas (Chummun 2017, p.13). In his research, the author finds out that traditional insurance companies have been facing immense challenges in reaching this emerging market. According to Kumar and Kaur (2015, p.158) however, courtesy of the innovations in technology, the low-income earners are no longer an exempt in the global market. The authors also note that most of these people lack financial buffers when unexpected expenses or calamities occur. Microinsurers are thus an essential part of the economy in securing a stress-free experience when the unexpected misfortunes come (Chummun 2017, p.14).

Kumar and Kaur (2015, p.158) find out that, just like the rest of the developing world, agriculture and the health sectors are leading in Nigeria with regards to microfinance. According to Biener and Eling (2016, p.199), microinsurance, just like the regular insurance, covers a wide range of risks ranging from the health to property risks. Some of the insurance covers available are those for the crop, livestock, theft or fire, disabilities and natural disasters. It is primarily based on the idea of risk-pooling regardless of its small unit size. The small units are combined into a network of risk pools.

Mobile phones have emerged to be essential elements in African microinsurance. In a continent where most of the countries have poor infrastructure, especially concerning the road network in the rural areas, Chummun (2017, p.15) notes that the devices are vital in the delivery of microinsurance products. The lack of the necessary infrastructure has barred the mainstream insurance companies from accessing the rural market. But according to Tellez (2012, p.16), mobile microinsurance is very promising on the continent given the high rate of cellular circulation.

Nevertheless, many challenges face the industry. First, according to Biener and Eling (2016, p.204), most of the clients in microinsurance are not well informed about insurance. This poses a significant challenge to the insurer. A significant percentage of the customers have never been insured before, and it thus calls for the insurer to educate them about the cover and its importance. Another significant problem has been the poor partnership between the mobile network operators and the insurers. Tellez (2012, p.20) observes that more than 50% of the mobile insurance platforms in Nigeria have collapsed within the first ten years. He further notes that the partnership between MTN and Mansard insurance in Nigeria was temporarily suspended at some point due to disagreements between the parties. Many clients were lost during that short duration.

Another emerging market for microinsurance is India. According to Gupta et al. (2018, p.2), small-scale farmers and small businesses are the primary beneficiaries of the microinsurance products. Being a high population nation, the market is up-and-coming. Mobile microinsurance is relative more effective given the client base that the telecom companies have in the country. The total mobile subscribers are 1.13 billion (Gupta et al. 2018, p.5). Airtel, the leading operator, has a total of 344.55 million subscriptions which is equivalent to 30.46% of the entire market.

In the country, however, a significant challenge in sector has been the collection of premiums as Karmakar (2009, p.22) says. The problem arises from the fact that low income, irregularity and unpredictability characterise the customers’ cash flows. The customers are also distributed across remote geographical locations. As such, the use of mobile phones to pay the premiums is an effective method. According to Karmakar (2009, p.22), mobile microinsurance reduces some costs making it more convenient. It removes the need for physical travel to the agents to pay the premiums or to process the claims. As a result, time wastage is also avoided as all the transactions can be done from the comfort of their homes or places of work.

Given the large client base that the mobile network operators enjoy and the diversity of the value-added services, the operators usually play a more prominent role in laying out strategies and making important decisions concerning the mobile microinsurance schemes (Gupta et al. 2018, p.5). More often, the insurers have to abide by the terms and conditions as proposed by the operators. They look very desperate to use the mobile channels. The imbalance of powers between the two parties denies the insurer, who in essence should have a more significant say in the administration and management of the insurance activities, control over the scheme.

As seen in the case of Africa, in India also, some of the partnerships between the two parties do not last for long. Along the way, the partners decide to part ways leaving clients helpless. According to Bullens (2006, p.2008) however, many governments have developed satisfactory regulations to protect the public in case of conflicts between the mobile operators and the insurers.

According to Cole (2015, p.424), mobile phones are useful in two ways as far as microinsurance is concerned. First, they are used as reminders. The insurer seeks the services of the mobile network operator to continually inform the customers of the expected premiums to be paid and the timelines. The phone can also be a means of educating the subscribers by sending them some relevant information (Garrity 2015, p.47). Secondly, the phone is used to submit the premiums. There are also different forms in which one can make premiums using the mobile device. The most common is the use of mobile money transfer systems. Many mobile network operators have developed a platform for money transfer. This is a technology that has its roots and is well established in the in the third world.

Also, premiums can be made by deducting the airtime. The customer loads their mobile lines with airtime, and the mobile operator deducts the amount of airtime equivalent to the premiums agreed upon (Cole 2015, p.426). This mode is efficient and easy. According to Kumar and Kaur (2015, p.158), with the growth of mobile money, however, it is no longer common. These approaches create significant cost efficiencies on the side of the mobile network operators and the insurance schemes. They, however, differ to some extent concerning costs and the size of the market they can serve.

Several comparisons can be looked at regarding the use of airtime and direct money transfer for the payment of premiums. First, it should be noted that pre-paid airtime balances do not equate to the same value in cash (Cole 2015, p.427). Whereas mobile money operates on 1-to-1 deposit-to-balance value, the airtime mode does not. For any amount of airtime purchased, there is a value that will go to the service providers as commissions. A portion of the purchase will also go to the taxes. According to Cole (2015, p.427), the fee could be in the form of value added tax, sales tax or exercise tax.

This is not to say, however, that mobile money services are free. According to Kumar and Kaur (2015, p.159), it also factors in the costs of distributor commissions and transaction charges. However, these costs are by far much less compared to the ones involved in the airtime mode as Cole (2015, p.427) puts it. Thus, designing such a payment mechanism requires all these costs to be put into consideration. More often, the costs fall on the consumer. Airtime has a broader captive market compared to the mobile money. According to Garrity, (2015, p.49), in many parts of the world mobile money has not been fully embraced in the market. Relying on it only as the means of submitting premiums will severely cost the insurer. On the other hand, every mobile network subscriber depends on airtime as a means of paying for their mobile services (Cole 2015, p.428). It, therefore, captures a relatively more significant market.

Market regulation may also determine the choice of the mode of premiums paid. (Kumar and Kaur 2015, p.159). Every market has got its own regulations. For instance, some countries do not allow the use of airtime for purposes other than the mobile services. On the other hand, some states may not have a strict regulatory framework (Cole 2015, p.428). They may be open to growing mobile money through such services as insurance.

Airtime and mobile money do not, however, need to be exclusive of each other. Since airtime mode reaches a bigger market and is familiar to most of the potential customers, it may be preferred for a relatively new market or insurance offering (Kumar and Kaur 2015, p.159). As the mobile money industry grows and as the client base gain a satisfying knowledge about the insurance product, the providers can consider shifting to mobile money mode which is cheaper. Some insurance companies may opt to have the two methods of payment from the start to enhance multiple channels of making the payments.

It is estimated that by the end of 2017, 6billion mobile phones were in circulation worldwide (Woo 2015, p.35). According to the author mobile-based delivery channels are among the most effective ways to achieve personal and market development visions. In China, there are the microinsurance market is growing at a very high rate. According to Woo (2015, p.35), the mobile phones circulation is very high with quite a good percentage of the workforce being low-income earners.

Concerning the mobile microinsurance, Bullens (2006, p.2008) identifies two ways how the insurer uses the mobile network operators’ brand. The insurer can sell their products in its name via the operator’s network. The second way is to sell the products using the operators’ brand. According to Bullens (2006, p.2009), the latter is more useful since the mobile network operators are usually stronger and trusted among the subscribers. But on the other hand, it gives the network operator more power in the partnership

Some key things are essential to the success of mobile microinsurance. To start with, the product design and processes must be simple (Tellez 2012, p.18). According to the author, the insurance providers should make sure that there is no complexity in enrolment, administration and processing of claims. For, instance, a platform where one can enrol through an SMS or can be registered automatically by the mobile network provider based on the existing data can be very attractive to the consumers (Tellez 2012, p.19).

For a relatively new market, loyalty models can do wonders. This type of models can help reach immediate scale by automatically enrolling those consumers who meet specific airtime or mobile money thresholds (Karmakar, K.G., 2009, p.23). From the study, this approach has been employed in Zambia and Zimbabwe. After the insurer has established a good client base, they can now up sell their products with suitable payment mechanisms.

Thirdly, there should be a focus on both quality and quantity (Tellez 2012, p.21). The size of the market is critical for an insurer. More importantly, however, excellent quality of the insurance products ensures growth especially in a market that has not fully embraced the culture of insurance. Quality insurance policies address the needs of the consumer, charge affordable premiums and have easy access to the products (Karmakar, K.G., 2009, p.23). Besides, there is sufficient customer education and timely and efficient processing and paying of claims.

There exist many methods and models for delivering micro-insurance policies. These methods, however, vary from one provider to the other. But generally, there are four such methods. The first one is the partner-agent model. According to Biener and Eling (2016, p.211), it is through this method, that the microinsurance scheme partners with the agent. At times, there may also be a third party, e.g. a healthcare provider. The scheme delivers and markets the product while the agent designs and develops it (Biener and Eling 2016, p.211). In this kind of a model, the insurer enjoys limited risk, but on the other hand, their control is limited to some extent.

The second method is the full-service model. Here, the insurer is in charge of everything; from design to the delivery of the products (Biener and Eling 2016, p.212). A third party may, however, come into place in some of the policies. The insurer enjoys the full control but on the other hand, faces higher risks. The third model is the provider-based one. In this case, the service provider, e.g. the health care provider is the microinsurance scheme. They are responsible for the design, development, delivery and service. This model, however, is limited in the products and services that can be offered (Chummun, B.Z., 2017). The last type of model is the community-based or the mutual model. The policyholders or the clients are in charge of all the operations (Cole, S., 2015, p.733). They cooperate with external service providers. The design and marketing of products using this method are relatively easy and effective. However, it has got a small scope of operation.


This research adopted review of literature methodology, as secondary sources were used to inform the researcher. The information gathered from different authors and reliable databases were taking into consideration, in order to allow forming the conclusions. Similarly, interpretative research philosophy was employed in this case. Based on this philosophy, it enables the researcher to have an in-depth consideration of the topic under study, hence reducing the biasness (Schroeder 2018, p.18). Moreover, the phenomenological design was used, as it helps in comparison of concepts in regards to themes (Mills 2014, p.140). The current study did not use any primary data; hence the findings of the previous authors were consulted throughout the process. Specific search terms were utilized to look up for best academic papers relevant to the topic. The following paragraphs will elaborate the findings from the literature, and propose recommendations for future applications.

Findings and Discussion

The literature review gives helpful insights into the research questions the paper seeks to answer. It also reveals the importance of the mobile network operator infrastructure in supporting the insurance providers penetrate the new and remote markets.  Though the different authors concentrate on different geographical markets, there are a lot of similarities that one can draw from them. This section will look into the how the relationship between the mobile network operator and the insurer will affect the efficiency of mobile microinsurance.

Firstly, the literature review reveals that the commitment to the cause on the side of the mobile network provider is a big challenge in the sector. To increase its average revenue per user, MTOs often offer value-added services to their subscribers. Insurance is an example of such a service. A partnership in an insurer is very transactional, and the MTO is not bound to stick to the insurance cause. The service provider can go for other alternative value-added services such as ringtones. As Gupta et al. (2018, p.5) find out in his case study in India, the network operators can quickly move out of the partnership with the insurance company given the diversity of services that can be offered to the clients. The story is the same or worse in Nigeria where Tellez (2012, p.20) says that 50% of the partnerships don’t last for more than ten years.  There is a lack of total dedication on the side of the operators. They will prefer to offer services that will quickly be accepted to the subscribers without many efforts such as educating them. An example of such services is entertainment through ringtones.

The literature review also reveals that the balance of power between the partners is a challenge. The imbalance of power occurs because generally the network operator’s brand is considered stronger and trusted than the insurers. The mobile network provider owns an infrastructure that reaches to millions of potential consumers. Before the insurer reaches out to the client, the clients are already loyal subscribers to the network. On the other hand, the insurer may be desperate to access this distribution network especially if they depend on the network operator’s brand name to sell their products. The MNOs may feel that the insurance providers need them more than the MNOs require the insurers. In India, Gupta et al. find out this is a significant problem especially with the leading networks such as Airtel and Celone. Their relationship with insurance partners is sometimes intimidating the insurers preferring to the weaker networks.

The strength of the brand is vital for the success of microinsurance. In some situations, the mobile network operator lends its brand to the insurer. The lending of the brand has the advantage that the MTO has extensive market coverage, and the brand is strong. In his research Bullens (2006, p.2008), finds that when the insurance provider uses the network operator’s brand name, they can conquer a bigger market. But further he observes that such a move would make the former superior over the latter. That notwithstanding, however, Biener and Eling (2016, p.199) say that the success of mobile microinsurance significantly depends on the network operators’ brand strength. According to Cole (2015, p.427), 70% of potential customers would prefer buying an insurance cover from a mobile service provider rather than from the insurer.

Conclusion and Recommendations

Mobile microinsurance has had many successes in general. Likewise, many challenges exist. In particular, from the research findings, it can be concluded that poor partnership between the mobile network provider and the insurer results in the collapse of the sector. Once, the two parties fall out, the effects are felt by the clients who may end up losing their money. Even if the insurance scheme were to re-establish itself, it would be challenging to market itself given the loss of trust among the customers. For guaranteed productivity, therefore, commitment, reasonable sharing of power and unhealthy competition between the partners is essential. The regulatory authority, the government should ensure also ensure adequate operational structures are put in place to empower all the stakeholders and at the same time protect the consumers.


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