Microinsurance landscape • Market estimated to be 3bn people by Swiss Re of which only 3% have access to any insurance products • Most dominant product is credit life for borrowers of MFI’s; limited benefit for the poor, it protects the lender • Strong demand for a “safety net” from the poor • Increasing interest in the market from insurers • Issue is how to cost effectively provide access, education and claims servicing whilst generating profit across the value chain
Microinsurance challenges • Risk carrier: relatively easy to find willing risk carrier for life and property, weather index and health are harder. • Back office: key driver to cost but more importantly a key driver to level of service and hence “success” • Front office: we have to “white label” with companies that have existing client bases. Why will they partner with us? Are microfinance companies the best fit?
2The economics across the value chain for health insurance INDIA Typical insurer economics for a MicroEnsure health insurance policy in India (USD) Insurer TPA Distribution partner MicroEnsure provides MicroEnsure will split MicroEnsure enrollment admin services MicroEnsure marketing costs with insurers Impact from as part of their service fee, does most of (e.g., printed materials, ads) higher claim ratios and sometimes supports the product Working Draft - Last Modified 11/19/2010 5:39:50 PM Printed 11/19/2010 5:39:09 PM salary of TPA staff design MicroEnsure’s USD/ 10.0 MicroEnsure: 1 revenues are policy 8.0 supposed to cover 6.0 cost of developing MFI: 1 0.4 0.6-0.7 products, supporting 0.6 0.5-0.6 distribution and 14.0 administration -13.4-13.3 Price to Distribution Risk Claims Marketing Admin fee Other Margin to 1 end fees premium other to TPA overhead insurer customer paid to acquisition costs insurer costs Percent 100 20 80 60 4 6 3-4 6-7 Based on target claim MicroEnsure’s Currently often not Margin to insurer Economics of other ratio of 60%; however, reduces insurers’ sufficient to cover negative if claim players in the value claim ratio varies distribution costs costs of servicing ratio too high chain are tight, in depending on state/ (from 25% to 24%) policies particular for TPAs partner and stage of and increases their and (depending on product maturity control over cost claims) for insurers1 Based on target claim ratio of 60%. Actual claim ratios vary from 25% to 300%Source: Interviews McKinsey & Company |
Profit drives scale • MicroEnsure works with a range of “front office” partners Working Draft - Last Modified 11/19/2010 5:39:50 PM Printed 11/19/2010 5:39:09 PM • Strong brand, accessible points of sale and ability to transact cash are all key attributes for a “front office” • Started by partnering with microfinance lenders • 67 MFI’s together serving 12m active borrowers • To date, less than 1m insured with MicroEnsure – why? • Economics: loan = $10+, insurance = $0.20 • MFI’s happy to introduce credit life to protect themselves but launching more complex products requires investment of core personnel who could be used more profitably elsewhere in the operation McKinsey & Company |
If not MFI’s; then who? Working Draft - Last Modified 11/19/2010 5:39:50 PM Printed 11/19/2010 5:39:09 PM • MFI’s provide loans to circa 150m families out of the 3bn available market; how else can we reach the poor? • Need partners that are trusted, accessible and can transact payments for premiums and claims • We tried using VSLA groups and churches – trusted and accessible but the cost of implementing a cash transactional system made them not viable • We asked our clients who they trusted; the most common answer was “Coke” and “my mobile company” McKinsey & Company |
Using mobile networks • Typically start by embedding simple product into the sale Working Draft - Last Modified 11/19/2010 5:39:50 PM Printed 11/19/2010 5:39:09 PM of airtime. Increased loyalty pays for the “free” product • Aim is to get millions of people using insurance for the first time and for them to see that claims are paid quickly • Second stage is to offer a “freemium” product; for example increase your benefit or include your wife for a small fee • Third stage is to sell a stand-alone complex product, like health, with premiums deducted monthly from mobile wallet McKinsey & Company |
MicroEnsure growth Growth in Lives Insured3,000,0002,500,0002,000,0001,500,0001,000,000 500,000 0
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