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The opportunity for financial inclusion in health insurance coverage

November 12th, 2020

By Duncan Oyaro and Stephanie Gogo

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For a continent composed mainly of the youth, only 26% of people between the ages of 15 and 24 have financial accounts in sub-Saharan Africa. With the acceleration in global technological advancement, these young people are more likely to own a phone than to have a bank account. In Kenya, mobile internet penetration rates stand at 83%, thus illustrating that banking the youth could be highly dependent on the creation of more digital financial service solutions.

On the other hand lies an issue of health insurance coverage in Africa. In the past six years, 14.9 million people on the continent have been pushed into poverty due to health expenditure. Unexpected medical emergencies often result in community fundraising, taking out loans and selling assets in order to cater for the out-of-pocket costs that arise. For young households, these health emergencies perpetuate a vicious cycle that traps them in a constant state of financial volatility, thus leading to high debt accrual and loan default. In consequence, growing economies are stunted with the speed of economic mobility declining.

As innovative digital solutions continue to crop up in a bid to drive financial inclusion across Africa, solving the health insurance coverage problem is essential to boosting the uptake of financial products, especially within the low-income market segment.

Embedding health finance to digital credit

In 2019, FSD Kenya extended a grant to Turaco, a Kenyan microinsurtech startup providing simple, low-cost health and life insurance products to emerging market consumers. This financial support was in line with FSD Kenya’s mission to create value and improve lives through inclusive finance. The grant was used to conduct a three-month pilot programme in collaboration with a leading digital lender in Kenya.

The key objectives of the project were to investigate whether mobile loan app customers are willing to buy insurance and to assess how insurance as an added product feature can incentivize on-time loan repayment. A sample size of about 5,100 of the digital lender’s customers were randomly assigned to a treatment group for the pilot. This treatment group was exposed to messaging about Turaco’s health insurance offering through an onboarding communication protocol customized specifically for the loan app. Once a customer opted in, they received free insurance for as long as they remained in good standing with their loan repayments. The longer a customer was in good standing, the more benefits they could gain from Turaco insurance through the loan app.

An initial phone survey was conducted to understand the customer’s reasons for taking out loans. This revealed that 4% of the sample size take loans to pay for medical emergencies. Further probing was done to investigate default behaviour and the findings indicated that 14% of respondents default on loans due to financial shocks caused by medical emergencies. Thereafter, the pilot sought out to identify the key incentive that could get defaulters to change their behaviour. They were most interested in an in-patient cover that can cushion the cost of hospital admissions, with 80% of the survey respondents saying that getting this insurance for free is incentive to repay their loans on time. Upon a consistent promotional campaign, almost half of the treatment group opted in to having insurance payments added to their future loans. They appreciated the idea of low-cost insurance from a financial service provider they know and trust.

A key observation from the pilot was that once insurance was lost, only 23% of defaulters fully repaid their loans, thus illustrating that insurance is a worthy incentive as borrowers would want to keep their free benefit. Secondly, with more marketing and communication, lower default rates can be expected as improved product knowledge ensures customers appreciate and clearly understand the value of health insurance. Deactivating insurance, once the loan becomes delinquent,  and notifying the customer is also an effective punitive measure in preventing loan default.

Since the end of the pilot, Turaco has been working alongside the pilot partner to design customer-centric products based on lessons learned from the exercise. Turaco is presently getting a better understanding of the needs of different customer segments and working out what insurance products best address these needs. Enhanced tech development is also being considered as they plan a larger scaled partnership for up-sold products. In addition, there will be further testing done to investigate other behaviour change outcomes.

Away from the pilot, Turaco launched an insurance offering earlier this year designed to ease the financial burden associated with hospital admissions of any kind, including the Coronavirus. The cover (Hospital Cash), which is underwritten by Prudential Life Assurance Kenya Ltd., is a safety net for the insured in the event that they fall ill and are hospitalized for three nights or more as a result. It is available in Kenya as an individual and family cover that retails for as little as Ksh. 100 (USD $10) a year. With more businesses implementing initiatives to protect their end-users from COVID-19, this offering goes a long way in furthering Turaco’s efforts to make simple, affordable health insurance accessible to those who need it during the COVID-19 pandemic and beyond.

Duncan Oyaro is Innovations Specialist at FSD Kenya. Twitter: @FSDKe

Stephanie Gogo is a Marketing Associate at Turaco. Twitter: @turaco_insure

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