With low margins, insurers need low-cost and efficient distribution channels to reach clients in large numbers. In 2010, the Performance Indicators for Microinsurance acknowledged that “distribution effectiveness is one of the most important requirements for the long-term sustainability of a microinsurance programme.” So, why is cost-effective distribution still a challenge?
Data sharing, commission negotiations, and quality control are some of the key challenges to efficient distribution. Other pitfalls include reputational, legal, and financial risks, which thorough due diligence can mitigate, but does not eliminate. Roshaneh Zafar’s, Managing Director and Founder of the Kashf Foundation in Pakistan, top tips for successful distribution included monthly premium payments, training and refreshers for staff and clients, coverage for the entire family including children, no exclusions for pre-existing conditions, maternity cover, and branch-led distribution of health insurance cards and documents.
The Microinsurance Network (MiN) identifies ‘partner-agents’ as one of five distinct distribution models, but finding the right partner is often tricky. This is since a distribution partnership ought to deliver value to the insurer, the distribution channel, and the clients. “The most innovative and successful distribution strategies come from understanding, creatively responding to, and balancing the needs of each,” Pranav Prashad, Senior Technical Officer at the ILO’s Impact Insurance Facility explains.
Essentially, the aim is to create a ‘win-win-win’ situation. Zafar elaborates “costs and risks of doing business should be distributed fairly among the partners, which is imperative for the successful mainstreaming of an insurance programme.” According to Gilles Renouil and Shilpi Shastri of Women’s World Banking, the best way to avoid difficulties between insurer and distributor is to ensure clarity on roles and responsibilities, with commission or profits being appropriately distributed.
In addition, the choice of a distribution channel has a significant impact on pricing; a high commission can mean higher premiums. “In Latin America, distribution partners expect very high commissions, and that leads us to question the value for customers. Where do you draw the line between what the distributor gets, what the customer gets, and what the insurance company gets?” asks Laura Elena Rosado, Strategy and Finance Manager for AXA Emerging Customers. Above all, distribution partnerships must add value for low-income clients. A2ii suggests that increasingly complicated value chains mean more intermediaries and third parties wanting a slice of the cake - with the potential to push up costs to the end-user.
Nevertheless, and despite the digital hype, conventional distribution via partnerships remains the preferred model in many markets. According to a 2020 study by Infomineo, 68% of African microinsurance companies distribute through brokerage and agency channels, and 22% partner with microfinance institutions (MFIs). Only 12% use a tech platform as their main distribution channel.
Technology has increasingly challenged the need and affordability of human interaction. However, which areas to be taken over by technology, and how rapid the progression is, will depend on a series of factors, claims Carlos Boelsterli, CEO of Microinsurance Catastrophe Risk Organisation - SCC (MiCRO). Boelsterli continues that it would be a mistake to rely solely on usual distribution channels since more affordable and better services can change habits rather fast- “we need to take advantage of the time left to swiftly adjust current approaches to lower touch business models.”
In countries with high smartphone penetration, digital distribution is taking off in innovative ways. In some instances, insurers bypass physical distribution in favour of embedding insurance into e-commerce and ride hailing apps. However, not all mobile partnerships work out successfully. The 2018 Landscape of Microinsurance in Africa study found that in certain countries, the implosion of ‘freemium’ insurance policies sold through mobile network operators significantly reduced the number of people insured.
Mantra Labs identifies six main criteria for successful digital distribution: being a forerunner amongst competitors; online policies; user-friendly interfaces; improving efficiency by automating processes; responsive support for both agents and customers; and quick and easy claims payments. AI-powered chatbots can handle general queries or quickly settle claims without the cost of human intervention.
Women’s World Banking believe it is a mistake to assume that human interaction is costly; it is rather relative. “There is no point building a high-tech platform for customer engagement if no one is able to use it. There must be a transition period for customers to adopt digital technology, and the distributor plays an important role in that transition,” Renouil and Shastri clarify.
Despite the upsurge in telemedicine services provided by insurers during the current pandemic, it is unlikely technology will eliminate the human touch altogether. “Especially in this time of COVID, we are seeing a change in the willingness of more people to use technology,” says Denis Garand of Denis Garand & Associates. He adds, however, that understanding the correct touch points for human interaction will improve the value of inclusive insurance. “Where the main beneficiaries are low-income households, especially women, it is important to take a more nuanced approach to technology,” explains Zafar. “A necessary precondition for mainstreaming technology is the willingness and comfort of the insurer and the end beneficiary.”
In countries with low digital access, microfinance institutions, banks, and local agents are the preferred channels, with technology platforms some way behind. Nonetheless, distribution through local shops is uncertain. “For voluntary products, it appears that just having them available at kiosks or retail outlets is not successful,” notes Garand. “Mom-and-pops, airtime agents and convenience stores usually process orders – they are not usually active salespeople,” agrees Peter Gross, Senior Advisor at AXA Emerging Customers. He suggests insurers must be careful before considering these outlets as less-expensive points of sale for insurance.
Insurers across the globe seek to master distribution in a digital world. Success requires innovative and traditional channels to work more collaboratively. “Successful microinsurance programs use technology where they can, and human interaction where they must. They use a combination of digital marketing and physical sales to create scale,” Gross recaps.