When would you buy life insurance for a week? New products for the informal market

A South African company has figured out the back-end technology required to provide easily accessible prepaid or pay-as-you-go insurance products that can be serviced via your smartphone. Their solutions are designed for the unbanked, informal trader, typically living on an average household income of US$8 a day.

At first glance, I wondered who on earth would want to purchase health insurance or life insurance for just a day or week, or, even a month. The article just leaves it at “in case that’s all you can afford” – which doesn’t make sense from the informal trader’s perspective. Intermittent insurance is a form of gambling.

On the other hand, what’s left unsaid, is that South Africa’s informal traders face unpredictable violence whenever a bout of xenophobia shakes the community. That’s an unmistakeable period of insecurity and the risk is obvious, since most of those targetted in these riots are the informal traders themselves. If you can quickly purchase health and/or life insurance, through your phone, for a short duration of time, you’ve covered your responsibilities to your family in case of an accident.

The duo realised that while low-income consumers were willing to insure themselves against risk, these products needed to cater to their specific social and economic circumstances. They came up with a voucher system, where insurance could be purchased in more affordable packages to cover shorter timeframes. For example, life or medical insurance could be bought to cover just one day, a week, or a month – perhaps while a consumer makes a risky trip to visit family…

While their use cases mention funerals, I have a suggestion for a product meant specifically for small businesses like informal trading, particularly on irregular incomes. Can they design a insurance product that falls in between health and life categories? One that’s not quite disability, although it might include this.

Mitigating the random effects of uncertainty is what insurance is about. The challenge for many in the lower income segments, such as these traders, is that there will be times when their income will be affected by factors out of their control – an illness, when they’re the sole head of household/single parent; or drought, as is happening in SA right now. Or even, a known season of low income – informal manufacturing has a low season over the Christmas holidays unlike retail – such an insurance product could be purchased a few months in advance and money put away towards a payout at the start of the New Year.

These are just ideas based on what I’ve seen during my fieldwork over the past 8 years. There are probably more such opportunities available that can be fleshed out with a bit of research. The point is, that if you’ve worked out the technical aspects of how to make “Insurance on Demand” work, why stop at conventional categories from the formal economy like health or life?

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