Many of us have lived during bear markets, financial shocks, inflation, and global economic downturns. Within this group, there lies perspective. We know this is for a time, and what will emerge will come from the innovators. Innovators drive creativity and risk-taking during periods like the one we're experiencing. Financial technology has the power to transform many sectors to benefit the end-user. In this newsletter, we're highlighting industries that are innovating—insurance and agriculture. We're also highlighting emerging markets, as these landscapes are places we can learn from and collaborate with.
Nicole Valentine
FinTech Director
InsurTech in Emerging Markets
According to the Gallagher Re Global InsurTech Report for Q1 2022, funding for InsurTech startups was down in 2022 to $2.2 billion from an all-time high of $5.5 billion in Q4 2021. However, the report notes that while investment has slowed down in the US, InsurTech startups in Latin America are beginning to outpace the US in M&A activity and transactional volume.
New insurance technologies enable firms to create customized policies and harness new data streams from internet-enabled devices. This allows firms to dynamically price premiums, reduce risk, and expand access to insurance.
One area where these innovations can make the greatest difference is in emerging economies. Without a robust insurance sector, investment in many of the world's developing economies remains unattractive and hinders growth. A host of startups and legacy insurers are emerging to meet this deficit. They harness cellular internet, mobile banking, and big data to service the underinsured.
The risk pricing models used by traditional insurance companies have limited effectiveness in data-poor emerging economies. Poor models have raised premiums and priced people out of the market, reducing the efficiency, equability, and overall insurance coverage. In its report on InsurTech in East Africa, Deloitte noted that big data and mobile tech enable customized insurance policies that more accurately reflect risk in emerging economies.
InsurTech in Africa
In a recent report by McKinsey, despite representing a potential insurance market of $68 billion, Africa has some of the world's lowest insurance penetration rates. Excluding South Africa, sub-Saharan Africa has an average 1 percent insurance penetration rate. South Africa has an anomalously high 12 percent penetration rate because of its centuries-old insurance industry from the colonial period, which still ranks beneath the global average penetration rate. This low insurance penetration hinders Africa's economic growth, innovation, and opportunities. Comprehensive insurance coverage is necessary to mitigate risk in sub-Saharan Africa to encourage capital flows.
InsurTech startups in Africa have focused on improved access, wide distribution, mobile phones, cellular networks, and innovative partnerships to reach a broad network of non-traditional insurance customers. Many of these startups cater to customers without traditional bank accounts or formal employment.
Reliance on physical agents and brick-and-mortar brokerages has historically reduced access to insurance in emerging economies. Companies like BIMA in Africa and Southeast Asia are digital-only insurance firms accessible to anyone with a smartphone. Firms like this solve the distribution issue by simplifying complicated processes. They create easy-to-use web forms that can be completed anywhere and submitted anytime.
KoboCare, a Nigerian online trucking insurance company, offers drivers discounts on maintenance, fuel, and tire replacements. Kobo bears these extra costs to mitigate the risk of accidents by incentivizing regular upkeep and maintenance. Nigeria is also home to RelianceHMO, a fully mobile-enabled health insurance provider that dynamically uses big data to price policies.
Kenya-based Pula uses big data aggregation to price insurance against climate risk for smallholder farmers in Kenya and Nigeria. The company operates a network of meteorological sensors to accurately price insurance policies for farmers against drought or excess rainfall. Because climate change continues to make weather patterns less predictable, this insurance product may become an essential feature of the African agricultural sector.
The Milken-Motsepe Prize in AgriTech
The inaugural Milken-Motsepe Prize in AgriTech is a global competition for innovative solutions to increase economic value for farmers, from seed to sale. The 25 finalists announced in February will participate in an investor roundtable this fall. A grand prize of $1 million is available for the winning team and $1 million in additional prizes.
The Milken-Motsepe Prize in AgriTech seeks to help alleviate hunger and poverty in Africa by increasing productivity and the value of small and medium-sized farms. Only 3 percent of smallholder farmers in Africa actively use any digital service. Innovative, affordable integration of technology is needed to close the digital divide, increasing farm productivity, decreasing food loss, and bringing value to farmers.
AgriTech is a fast-growing industry ripe for innovative business models and opportunities. New Africa Magazine notes that AgriTech can allow for tremendous progress in crop yields, farm productivity, plant and animal health, sustainability, waste reduction, and scalability. Two of the finalists in the AgriTech prize have submitted FinTech solutions for the agricultural sector.
Esoko is an agricultural marketing and messaging service based in Accra, Ghana. The service sends market data and other information to agribusinesses via text messaging. The service offers personalized price alerts, buy and sell offers, bulk text messaging, stock counts, and polling via text. Esoko has been helping enterprises manage rural communities since 2008.
Kenya-based Producer's Direct operates a peer-to-peer lending scheme allowing producers to lend to each other. Its low-interest loans support smallholders who are unable to access bank loans. Much of its impact focuses on young people and women who use loans to strengthen or launch honey, poultry, dairy, and banana farms.