New opportunities in microinsurance distibution

New opportunities in microinsurance

distribution

Presenter:Peter Gross

Regional Director - AfricaMicroensure

Presenter:Jeremy Leach

DirectorBankable Frontier Associates

Presenter:Craig ChurchillTeam Leader

Microinsurance Innovation Facility

Presenter:Rajeev KarunakaranHead of Insurance

FINO Fintech

Moderator:Jasmin SuministradoKnowledge Officer

Microinsurance Innovation Facility1

Discussion flow

1. Why alternative distribution?2. Alternative distribution models

2.1 Mobile phones2.2 Retailers2.3 Banking correspondents2.4 Direct agent2.5 Public-private partnership

3. Issues and challenges4. Conclusion

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1. Why go alternative?

Traditional distribution channels, agents and brokers unfamiliar with target market Scale is a key component of the business model Entry point is often embedded or bundled with

another transaction (e.g. loan, paying utility bill, buying cell phone minutes) Insurers’ brand is often not trusted

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2. Range of alternative distribution channels

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2.1 Mobile insurance

2.3 Banking correspondents2.2 Retailers

2.4 Direct agents

2.5 Public-private partnership

2.1 Mobile insurance

In 2012, 12 initiatives were launched 8 of 9 markets outside South Africa with more than 1 million insured have

reached 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) cover overnight in Zimbabwe5

M-Insurance: MNO driven models offer huge scale if you get the timing right

Loyalty – Embedded Airtime deduction Mobile MoneyMicroEnsure – Tigo Mobile, Ghana / Tanzania / Rwanda

&Others

Zong – Adamjee Life, Pakistan

&MTN Zambia - African Life

MTN – Hollard

6 For further information, see Leach, COVER August 2010

High cost (for MNO), high scale

Greater cost effectiveness, higher cover

High cost (for consumer), high scale

Why African consumers do not have insurance today:

Cost• Typical insurance premiums can represent 6-8% of a typical

income in mass market

Trust• Insurers are not seen as trustworthy due to product

complexity and poor claims payment record

Access• Insurance agents are not sufficient to cover a whole country,

and they do not serve the low-income market

Under-standing

• Clients lack financial, legal, health education to understand complex coverage, terms and conditions

Mobile Insurance and DemandMobile insurance and demand

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Cost• Offer “free” or low-cost introductory products

Trust• …through a trusted (ie telecom) brand

Access• …that is located everywhere

Under-standing

• …and begin with simple products

How mobile insurance overcomes demand obstacles:

Mobile Insurance and DemandMobile insurance and demand

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Mobile insurance branding examples

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Telecom viability: ARPU Increase of 10-15% leads to $5 new revenue per subscriber in

year one Churn reduction of 20% address a critical need for telecoms yuMobile, Kenya – “yuCover is the most successful product we have

ever 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 profitable

product in the portfolio” Breakeven on free insurance for insurer: 3-5 Months Loss ratios on MicroEnsure free insurance products: 30-60%

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Commercial 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 to

Kenya, Tanzania, Uganda, where there are many active mobile money users

Insurer viability: Voluntary, paid-for products attract anti selection, risk

rate must be 3-5X that of free products for same cover

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Without agents, yuCover is economically sustainable, but client understanding is low. What will we do about it?

IVR option on yuMobile customer service menus to provide voice education on product

Auto-outbound “welcome” calls to registrants after successful 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 staff and maintain awareness and understanding of product

Addressing client understanding: yuCover

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Three very different brands requiring very different sales approaches

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2.2 Retailers

Take 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 to

prevent fraud Trust is important and a strong retail brand is key Selection remains a challenge in these cash based models as there is no

screening Scale comes from a combination of a strong brand, effective collection

system 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 agents

are addressing this

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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 control

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FINO’s robust technology supports numerous products and channels

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Branch

FINO Technology supports all channels and front-end architecture.

Its not about the architecture though!!

SavingLoanCredit ScoringRecurring Dep.Term DepositGovt. BenefitsCash Credit OverdraftRemittanceInsurancePre-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 income segments of the country due to extensive reach of BCs. 15,000 BCs active in microinsurance, 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 is about 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 up their 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.

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FINO success in distributing microinsuranceusing BC model

Biometrics

Foolproof Identity

Illiterate Populace

Accessibility & Reach

Infrastructure

Information Gap

Business Correspondent

Model

POT, Smart Card, MDM, Banker

on Feet

Financial Literacy & Education

.

BC Challenges and Solutions

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2.4 Direct agents

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Seguros (Brazil) sells funeral assistance and income replacement policies for ~ZAR 50 pm. SINAF policies are sold through a sales force of 110 broker representatives. SINAF covers more than 500,000 lives (100,000 primary policy holders). Flyers are sent for two weeks prior to the sales force arriving in the area. Sales force proceeds door to door and returns in a month. South African retailers are now experimenting with alternative agents 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 as commission? Is the commission structured to incentivise sales or

minimize lapses? Does the product provide good value to the

policyholders?

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2.5 Public-private partnership

Some of the largest schemes are organized by governments and implemented by insurance and reinsurance companies Insurance can be a critical input to achieve public policy

objectives (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 challenges

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FINO serving some of the big government schemes

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Rashtriya SwasthyaBima Yojana (RSBY) provides health insurance coverage for below poverty line families

FINO manages the end to end process from enrolment to claim processing for these families by providing them with an identification and transaction mechanism

World’s largest healthcare coverage

The National Rural Employment Guarantee Act (NREGA) assures rural residents with hundred days of assured livelihood through low-skilled work

FINO pays the laborer directly through smart card – cutting out the traditional middlemen and ensuring greater transparency and accountability of government spending

World’s largest employment act

Social Security Payments (SSP) are made by the government to old, widowed and disabled individuals to assist with living expenses

FINO pays the recipient directly through smart card –ensuring greater transparency and accountability of government spending

World’s largest social security plan

3. Issues and challenges

1. Managing partnerships2. Role in the claims process3. “Agent” training

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Effective Mixed results Weak results• MFIs and banks• Cooperatives• Formal retailers• Agriculture input

suppliers• Mobile phone

operators• Utility companies

• Faith-based organizations

• Trade unions• NGOs• Call centres• Alternative agents• Public-private

partnerships• Banking

correspondents

• Informal retailers

Comparing distribution channels

Issue 1: Managing Partnerships

Issue 1: Managing partnerships

Telecom Type Internal Goals Stage 1 Product Stage 2 Product

Recent Entrant Establish the brand, steal customers

Simple Embedded, Free Product

Free ProductEnhancement

Embattled Competitor Reduce churn,change direction

Subscription Product with In-Life Benefits

Reward for loyal customers only

Market LeaderDiversify income, reduce churn, innovate

Simple Subscription Product

Offerings targeted to customer type

Practical Steps: How to Pitch a Telecom

Brand & Sales

Under -writing Claims Executive

Human Resources

Know Your Customer: Fitting the Product Set to the Telecom’s Position

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Keeping and growing the partnership

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Maintain client value by connecting to business intelligence or analyst departments in telecom: conduct market research, analyze loss ratios, and make revisions where necessary

Stage 1: Simple Life/Accident

Market Creation(6-12 Months)

Start with “free” loyalty product to generate fast uptake and introduce customers to insurance

Stage 2: More Complex; Hospi-Cash/Education Fees

Market Development(9-24 Months)

Respond to demand for more product offerings as insurance scales up

Stage 3: Mine the database

Full Service Provision(18-36 Months)

Target customers with data: telecom now the customer's insurance provider of choice for 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 only

2% of the adult population in Nigeria & Mozambique have insurance2. To build trust that insurance is valuable - claims ratios show low value eg one

model 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 – averaging

3 months in the Philippines4. To address the promise of the distribution partner – whose brands are often

much more trusted than insurers.

27Grupo Elektra, a retail chain in Mexico now owns an insurer and bank

Vodacom South Africa, an MNO, now owns life and general insurance licenses

If servicing does not improve the distribution partners may take insurance in house:

Distribution partners are more focused on claims than insurers – which creates opportunities and threats

Technology-integrated claims reporting (mobile based) so there are less chances of delays.

Solution for the claims challenges in the BC Model

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Issue 3: “Agent” training

Challenges 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 higher

Solutions Mobile/ SMS-based training module – the BC gets updates

on his mobile through a SMS in a timely manner (cost-effective, convenient and no lag time)

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4. Concluding thoughts

Success in microinsurance remains a story of distribution – where one is able to manage scale, collections and risk management. What can insurers do to have greater control over

distribution? To succeed at distribution, insurers need to get into

the minds of the distributors. Technology can play a key role in reaching low-

income segment; but “trust” serves as foundation

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New opportunities in microinsurance

distribution

Presenter:Peter Gross

Regional Director - AfricaMicroensure

Presenter:Jeremy Leach

DirectorBankable Frontier Associates

Presenter:Craig ChurchillTeam Leader

Microinsurance Innovation Facility

Presenter:Rajeev KarunakaranHead of Insurance

FINO Fintech

Moderator:Jasmin SuministradoKnowledge Officer

Microinsurance Innovation Facility31