New opportunities inmicroinsurancedistributionPresenter:Peter GrossRegional Director - AfricaMicroensurePresenter:Jeremy LeachDirectorBankable Frontier AssociatesPresenter:Craig ChurchillTeam LeaderMicroinsurance Innovation FacilityPresenter:Rajeev KarunakaranHead of InsuranceFINO FintechModerator:Jasmin SuministradoKnowledge OfficerMicroinsurance Innovation Facility1
Discussion flow1. Why alternative distribution?2. Alternative distribution models2.1 Mobile phones2.2 Retailers2.3 Banking correspondents2.4 Direct agent2.5 Public-private partnership3. Issues and challenges4. Conclusion2
1. Why go alternative? Traditional distribution channels, agents andbrokers unfamiliar with target market Scale is a key component of the business model Entry point is often embedded or bundled withanother transaction (e.g. loan, paying utility bill,buying cell phone minutes) Insurers’ brand is often not trusted3
2. Range of alternative distributionchannels42.1 Mobileinsurance2.3 Bankingcorrespondents2.2 Retailers2.4 Directagents2.5 Public-privatepartnership
2.1 Mobile insurance In 2012, 12 initiatives were launched 8 of 9 markets outside South Africa with more than 1 million insured havereached that mark through mobile insurance By April 2013, 6 initiatives have launched already (that we are aware of): Mobile money Papua New Guinea: Pacific MMI Ins. Ltd & Nationwide MicroBank Tanzania: Liberty-Mobicash Airtime deduction SriLanka: BIMA- Dialog Kenya: MobiSure Loyalty Mauritius: BIMA Emtel Freemium Tanzania: MicroEnsure + TIGO - “Get well with Tigo” And one fall out in 2012 when 1,6m people lost their (loyalty) coverovernight in Zimbabwe5
M-Insurance: MNO driven models offerhuge scale if you get the timing rightLoyalty – Embedded Airtime deduction Mobile MoneyMicroEnsure – Tigo Mobile,Ghana / Tanzania / Rwanda&OthersZong – Adamjee Life,Pakistan&MTN Zambia - African LifeMTN – Hollard6 For further information, see Leach, COVER August 2010High cost (for MNO),high scaleGreater cost effectiveness,higher coverHigh cost (forconsumer), high scale
Why African consumers do not have insurance today:Cost• Typical insurance premiums can represent 6-8% of a typicalincome in mass marketTrust• Insurers are not seen as trustworthy due to productcomplexity and poor claims payment recordAccess• Insurance agents are not sufficient to cover a whole country,and they do not serve the low-income marketUnder-standing• Clients lack financial, legal, health education to understandcomplex coverage, terms and conditionsMobile Insurance and DemandMobile insurance and demand7
Cost• Offer “free” or low-cost introductory productsTrust• …through a trusted (ie telecom) brandAccess• …that is located everywhereUnder-standing• …and begin with simple productsHow mobile insurance overcomes demand obstacles:Mobile Insurance and DemandMobile insurance and demand8
Telecom viability: ARPU Increase of 10-15% leads to $5 new revenue per subscriber inyear one Churn reduction of 20% address a critical need for telecoms yuMobile, Kenya – “yuCover is the most successful product we haveever had for ARPU and churn” Breakeven on free insurance for telecom after marketing expenses: 8-10 Months Insurer viability: Vanguard Life, Ghana: “Tigo Family Care Insurance the most profitableproduct in the portfolio” Breakeven on free insurance for insurer: 3-5 Months Loss ratios on MicroEnsure free insurance products: 30-60%10Commercial viability – the good news
Commercial viability – challenges Telecom viability: “Free” product loses value after 12-18 months Cost of agents in Ghana is too high to sustain Mobile money-only products are currently limited toKenya, Tanzania, Uganda, where there are many activemobile money users Insurer viability: Voluntary, paid-for products attract anti selection, riskrate must be 3-5X that of free products for same cover11
Without agents, yuCover is economically sustainable, butclient understanding is low. What will we do about it? IVR option on yuMobile customer service menus to providevoice education on product Auto-outbound “welcome” calls to registrants aftersuccessful subscription Post-registration policy terms SMS Monitoring & Evaluation: SMS “tests” MicroEnsure Call Centre outbound call audits 3-5 Regional product managers to support telco field staffand maintain awareness and understanding of productAddressing client understanding: yuCover12
Three very different brands requiring verydifferent sales approaches132.2 RetailersTake it Eezi(informal cash retailers)PEP Stores(cash retailers)Jet Stores(credit retailers)
Insights on the retail models Simplicity is key - the product must also sell itself eg funeral insurance Need for strong systems to ensure a positive sales experience and toprevent fraud Trust is important and a strong retail brand is key Selection remains a challenge in these cash based models as there is noscreening Scale comes from a combination of a strong brand, effective collectionsystem and a product that sells. Formal retailers effectively subsidise the cost for the client – Edcon (Jet)and PEP prices are hard to compete with. Take It Eezi is the opposite. Advice and disclosure is a challenge but the rise of alternative agentsare addressing this14
2.3 Banking correspondent (BC) BC model aims to promote banks offering financial products,especially savings accounts, to previously un-reached population Promoting banking with low capital cost by enabling outsourcingof rural business to agents on a commission basis Distance criteria also was laid down with regards to the locationof the agents engaged by the bank branches Use of Information Technology: Smart cards for opening bankaccounts with biometric identification and mobile banking, etc. Benefits : Easier access and better fraud control15
FINO’s robust technology supportsnumerous products and channels16BranchFINO Technology supports all channels and front-end architecture.Its not about the architecture though!!SavingLoanCredit ScoringRecurring Dep.Term DepositGovt. BenefitsCash CreditOverdraftRemittanceInsurancePre-paidPurchaseBill PaymentPublic Dist. Sys.
Partnering with 24 banks, 3 government schemes, and 5 insurance companies Increase in penetration of insurance to the uninsured and lower incomesegments of the country due to extensive reach of BCs. 15,000 BCs active inmicroinsurance, each enrolling 5 new customers per month. Current outreach =1.2 million (microinsurance launched in 2009) Conversion rate in the cross-selling of the microinsurance product by the BC isabout 35% – 40 % which in turn results to higher penetration BC is authorized to offer banking services such as cash transactions, and cross-sell insurance to customers in places where banks do not find it viable to set uptheir own branches Since BCs are controlled by banks, possibility of “wrong” selling is very minimal.And with simple products, customers also understand the features immediately.17FINO success in distributing microinsuranceusing BC model
2.4 Direct agents19Seguros (Brazil) sells funeral assistance and incomereplacement policies for ~ZAR 50 pm. SINAF policies aresold through a sales force of 110 broker representatives.SINAF covers more than 500,000 lives (100,000 primarypolicy holders). Flyers are sent for two weeks prior to thesales force arriving in the area. Sales force proceeds door todoor and returns in a month.SouthAfrican retailers are now experimenting with alternativeagents with considerable success.Return of the direct agents - with a twist?
Critique to the direct agent model What percentage of premiums need to be paid ascommission? Is the commission structured to incentivise sales orminimize lapses? Does the product provide good value to thepolicyholders?20
2.5 Public-private partnership Some of the largest schemes are organized by governmentsand implemented by insurance and reinsurance companies Insurance can be a critical input to achieve public policyobjectives (e.g. rural development, universal health care,food security, disaster relief) Insurers can see governments as customers Opportunities to link premium payments to G2P transfers…but not without challenges21
FINO serving some of the biggovernment schemes22Rashtriya SwasthyaBima Yojana (RSBY)provides healthinsurance coverage forbelow poverty linefamiliesFINO manages the endto end process fromenrolment to claimprocessing for thesefamilies by providingthem with anidentification andtransaction mechanismWorld’s largesthealthcare coverageThe National RuralEmploymentGuaranteeAct(NREGA) assures ruralresidents with hundreddays of assuredlivelihood through low-skilled workFINO pays the laborerdirectly through smartcard – cutting out thetraditional middlemenand ensuring greatertransparency andaccountability ofgovernment spendingWorld’s largestemployment actSocial SecurityPayments (SSP) aremade by thegovernment to old,widowed and disabledindividuals to assistwith living expensesFINO pays therecipient directlythrough smart card –ensuring greatertransparency andaccountability ofgovernment spendingWorld’s largestsocial security plan
3. Issues and challenges1. Managing partnerships2. Role in the claims process3. “Agent” training23
24Effective Mixed results Weak results• MFIs and banks• Cooperatives• Formal retailers• Agriculture inputsuppliers• Mobile phoneoperators• Utility companies• Faith-basedorganizations• Trade unions• NGOs• Call centres• Alternative agents• Public-privatepartnerships• Bankingcorrespondents• Informal retailersComparing distribution channelsIssue 1: Managing Partnerships
Issue 1: Managing partnershipsTelecom Type Internal Goals Stage 1 Product Stage 2 ProductRecent EntrantEstablish the brand,steal customersSimple Embedded,Free ProductFree ProductEnhancementEmbattled CompetitorReduce churn,change directionSubscriptionProduct with In-LifeBenefitsReward for loyalcustomers onlyMarket LeaderDiversify income,reduce churn,innovateSimple SubscriptionProductOfferings targetedto customer typePractical Steps: How to Pitch a TelecomBrand& SalesUnder -writingClaims ExecutiveHumanResourcesKnow Your Customer: Fitting the Product Set to the Telecom’s Position25
Keeping and growing the partnership26Maintain client value by connecting tobusiness intelligence or analystdepartments in telecom: conductmarket research, analyze loss ratios,and make revisions where necessaryStage 1: Simple Life/AccidentMarket Creation(6-12 Months)Start with “free” loyaltyproduct to generate fastuptake and introducecustomers to insuranceStage 2: More Complex; Hospi-Cash/Education FeesMarket Development(9-24 Months)Respond to demand formore product offerings asinsurance scales upStage 3: Mine the databaseFull Service Provision(18-36 Months)Target customers with data:telecom now the customersinsurance provider of choicefor all risks
Issue 2: Role in the claims process Payment of claims are critical in order :1. To create a market - penetration levels are very low in emerging markets eg only2% of the adult population in Nigeria & Mozambique have insurance2. To build trust that insurance is valuable - claims ratios show low value eg onemodel we investigated had 0.05% claims ratio but are often only 20%3. To meet the risks in time - claims turn around times can be very slow – averaging3 months in the Philippines4. To address the promise of the distribution partner – whose brands are oftenmuch more trusted than insurers.27Grupo Elektra, a retail chain inMexico now owns an insurerand bankVodacom South Africa, an MNO, now owns life andgeneral insurance licenses If servicing does not improve the distribution partners may take insurance inhouse:Distribution partners are more focused on claims than insurers – whichcreates opportunities and threats
Technology-integrated claimsreporting (mobilebased) so thereare less chancesof delays.Solution for the claims challenges in theBC Model28
Issue 3: “Agent” trainingChallenges Coordination on the field and training of 25,000 BCs Updates : Time taken to communicate and give the update /changes in the products to the field is comparatively higherSolutions Mobile/ SMS-based training module – the BC gets updateson his mobile through a SMS in a timely manner (cost-effective, convenient and no lag time)29
4. Concluding thoughts Success in microinsurance remains a story ofdistribution – where one is able to manage scale,collections and risk management. What can insurers do to have greater control overdistribution? To succeed at distribution, insurers need to get intothe minds of the distributors. Technology can play a key role in reaching low-income segment; but “trust” serves as foundation30
New opportunities inmicroinsurancedistributionPresenter:Peter GrossRegional Director - AfricaMicroensurePresenter:Jeremy LeachDirectorBankable Frontier AssociatesPresenter:Craig ChurchillTeam LeaderMicroinsurance Innovation FacilityPresenter:Rajeev KarunakaranHead of InsuranceFINO FintechModerator:Jasmin SuministradoKnowledge OfficerMicroinsurance Innovation Facility31
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