SaaS and Micro-insurance

Software as a Service, a.k.a SaaS has gained greater recognition and attention as its impact on the long tail of the market is getting better understood. Although ASPs and hosted environments have been around for a while now, this concept has gained greater relevance as companies figure out newer and more efficient methods of reaching out to their customers. However, what I think is significantly different this time around, is the far greater integration of Information Technology into mainstream business processes and business strategy. Apart from lowering costs through shared infrastructure, the ability to create new and probably more efficient revenue streams has made IT an integral part of the business.
The ASP model has met with relatively lower levels of success; the problem has been the lack of preparedness for such a model. Firstly, the architecture required for a hosted model has not been fully understood! Most first-generation applications that were hosted were traditional client-server architectures in the garb of n-tier hosted applications. This resulted in performances that were far below customer expectations. Secondly, customers themselves have been wary of hosted applications because of security considerations. More importantly, the level of customization for each instance (read customer) resulted in higher levels of maintenance making it quite unviable for the application service provider to pursue such a model. Software as a service, through appropriate application architecture is now becoming the linchpin that binds the operational infrastructure to the business model.
I thought I’d use micro-insurance as a concept to explain the impact of SaaS on the long tail of the market; micro-insurance, in a sense, represents that spectrum of the market which has not been addressed by the traditional insurance. This segment is characterized by:- a) low-income groups with irregular income streams, b) low levels of awareness of products and services c) geographic inaccessibility and other factors like language and literacy, to name a few. A solution that is appropriately technology-enabled and has the right kind of business facilitators who can service this market segment has a higher likelihood of making economic sense than what can be achieved by traditional methods. I outline below some of the key ingredients for this solution:
a) The insurance company, in alignment with the regulator will identify products that are well-suited for this market segment. Typically, this segment is likely to have an agrarian demographic profile, and therefore insurance products that address the rural markets like crop insurance, poultry insurance and weather insurance are likely to figure over other kinds of insurance. Also, the product structure and premium ratings need to be designed keeping the irregular income streams and / or poverty levels in mind.
b) A concept similar to motor pool insurance (prevalent in India) will need to be adopted; this means that more than one insurance company (by choice or by mandate) will need to be co-opted into serving this segment. Having partners reduces risk and lowers cost of operations.
c) Business facilitators who can provide the logistical and distribution support. A model similar to e-Choupal (ITC’s rural initiative – http://www.echoupal.com) which enlists the support of the local populace is perhaps the most effective method of addressing issues relating to reach, language, culture and even for creation of awareness.
d) A strong and robust application architecture that is scalable, configurable and preferably multi-tenant; the required infrastructure, to allow centralized delivery, deployment and maintenance of the application.
e) A SOA-based insurance application that is component-based and can be configured to meet market requirements; this is especially important since most products may be non-standard, and it should be possible to configure these products without having to custom-build them from scratch; the workflows are also likely to be different, as are the business rules that will govern them. Hence, an application that can accommodate these changes through configuration, rather than custom-development is more likely to be successful.
f) Mobility-based solution that can work asynchronously with the core application. Typically, due to geographical inaccessibility in these regions, the application is loaded onto a hand held device that can be used by business facilitators to offer services to customers. This solution will communicate to the core application in offline mode (as well as on-line mode, where possible), to update the transactions at the end of business day (or as required to ensure regulatory compliance)
g) Human interface devices like biometric identification and smart cards that will ensure secure transactions. This is especially significant in market segments (regions / countries) where unique identification of customers is an issue and / or customers are illiterate.
h) Business Intelligence tools to provide the right kind of customer analytics for further refining the product and bridging the information gap. Given the lower levels of awareness of this market, capturing customer information and using this information proactively is of paramount importance.
Of course, what has been presented above is a generic and simplistic model. However, what I think is most significant here is the fact that this whole business model can become viable and feasible only if the right kind of software service is in place. The fact that such a market has been ignored for so long, but is now gaining significance is perhaps proof that technology is enabling and opening up such possibilities. While this is at the far right of the long tail, closer to the “hits” market, SaaS will have a far greater role to play – one that will make it almost mainstream.
This article has been significantly influenced by the success of ITC’s rural initiative e-choupal (http://www.e-choupal.com) and more recently by the launch of FINO (a similar initiative by ICICI Bank – http://www.fino.co.in)
Financial inclusion has become a key thrust area in a number of countries. Financial inclusion has become a buzzword in the financial services sector, and several initiatives are afoot to reach out to this segment.