Travel restrictions due to the COVID-19 pandemic were no barrier to the Actuarial Research Virtual Conference at the University of Nebraska-Lincoln, which featured several MiN members among the expert panellists and presenters. Actuaries are key to helping microinsurance companies price their products in a way which are attractive to large numbers of low-income people, add value to the client but at the same time ensure profitability over the long term.
In the session on microinsurance and lessons learned, experts tackled one of the most challenging issues faced by microinsurers: the marketing and distribution of their products. Executive Director Katharine Pulvermacher presented alongside MiN members Lisa Morgan of the ILO’s Impact Insurance Facility and Richard Leftley of the Micro Insurance Company. The session - moderated by Luis Arcila of MAPFRE - also featured Saurabh Sharma, General Manager of MicroInsurance at Britam.
“Poor people are poor, but that doesn’t make them stupid,” said Katharine. “Poor people have a very highly developed sense of value, because for them every cent counts. Inherent in this is a more customer centric approach. Understanding the needs of the customer is extremely important. Microinsurance really has to be delivered at scale or it will not be sustainable.”
Katharine highlighted the four keys to successful microinsurance including an enabling regulatory environment. “I’m not suggesting you can’t make money out of microinsurance, but there are a number of barriers to penetration. It would be foolish to assume that a country which has established microinsurance regulations is necessarily providing an enabling regulatory environment,” she noted. “There are cases where the microinsurance regulations themselves undermine market development.” Other key ingredients for success include aligning incentives across the value chain; understanding customers’ needs; and effective distribution channels.
Lisa called on actuaries to be more proactive, pointing out that they have a crucial role to play in educating consumers about risk. “Actuaries must be more assertive. They don’t put themselves forward, they tend to sit in the background and do pricing, but they can be more proactive. Not everyone understands risk,” she said. Actuaries can identify key financial risks; design and price appropriate funding mechanisms to pool risk; help set up tracking and monitoring systems; evaluate the financial consequences of different policy proposals; identify inefficiencies; assist with implementation; and build actuarial projection models. All these help to scale up penetration. “Scale is incredibly important. If you don’t have scale, microinsurance will not work. It has to be cheap to be affordable, and that means margins are very thin. There needs to be efficiencies all along the value chain, not just in distribution.”
However, microinsurance can be sustainable - Lisa highlighted the example of MiN member Cebuana Lhuillier Insurance Solutions (CLIS) in the Philippines which used a traditional distribution model through a chain of 1500 pawn shops - from a small start selling property and life insurance in 2004, by 2013 it was selling a million policies a month.
“People need a simple safety net, so when the unexpected happens they can bounce back swiftly,” said Richard. Digital distribution can help with that simplicity, although digital doesn’t always equate to efficient - looking at the evolution of digital insurance from its origins in loyalty-based free insurance through to day’s offerings via ride-hailing and e-commerce, he pointed out that trust was a key factor in persuading people to buy insurance from their mobile network operator (MNO). “Digital insurance as a way of distribution makes a lot of sense. Customers already trust MNOs to deliver, and they can remove friction from the customer journey. Digital platforms have the ability to collect money easily.” By way of evidence, Richard gave the example of the African MNO Airtel who signed up eight million customers in eight countries in 18 months.
Britam uses a combination of traditional and digital distribution channels, said Saurabh Sharma, but whatever the channel, trust and client value are the overriding factors for success. “You need access to large populations and you need to find ways to collect premiums very easily, so channels with that existing financial relationship such as telcos work well,” he said. However, traditional community-based distribution can also be successful - Britam reaches around 30-35 percent of the two million smallholder tea farmers in Kenya with their health insurance product, which is distributed through local tea associations. Saurabh appealed to the up-and-coming young actuaries in the audience to help develop the next generation of digital distribution models, applying technology, behavioural science and design thinking to improve client value.
Given the differences in success of the various distribution partnerships and models, can insurers actually make money out of the microinsurance market, asked Luis. Katharine pointed out that those in the microinsurance target market - earning between two and twenty dollars a day - are not homogenous and have completely different risk preferences. “We need to understand what keeps them awake at night, what are their priorities, what can be covered,” she said. “The microinsurance segment represents nearly 70 percent of the world’s population. Insurance companies have been late adopters in frontier markets, but why would you want to ignore a market that large? Insurers can make money. Yes, it’s true that it has to be at scale - but that’s also true of other products, not just insurance. Insurers should keep an eye on the long term - low-income customers may start off buying lower value products, but if they perceive value they will gradually progress, become more affluent, and therefore spend more money on insurance and other financial services.”