Amidst the unfolding COVID-19 disaster, the microinsurance industry — whilst facing considerable challenges — is already applying lessons learned in the past six months to reach more vulnerable and low-income people and help them manage future risks.
According to the French development agency, Proparco, the pandemic is a major challenge for microfinance institutions (MFIs), mainly because MFIs have a significantly high proportion of the informal sector in their client base. MFIs provide financial services to 140 million low-income people around the world, with a combined credit portfolio of US$124 billion in 2018. Globally, 80 percent of their customers are women and 65 percent live in rural areas. These clients often lack the means to cushion the impacts of a prolonged economic slow-down, generally save little, and invest all their resources in their economic activity.
Nonetheless, a post-COVID world offers MFIs a unique opportunity to fight back by partnering with microinsurance providers and deliver added-value and low-cost inclusive insurance products. In a time of crisis, MFIs can leverage their social impact by offering complementary products and educate their customers about the value of insurance cover, while at the same time creating new business opportunities. Taking full advantage, however, would require MFIs to move beyond compulsory embedded products to voluntary products, such as health or business interruption packages which provide better value for clients. These products can be provided by microinsurance companies, which can help MFIs achieve an all-encompassing goal.
“In order to encourage MFIs and insurance companies to work together in the development of inclusive products, the most important thing is to develop products which meet the needs of both industries whilst serving the end customers,” said Dennis Aleman, General Manager of SERINSA, a social enterprise providing technical support for promoting microinsurance in Latin America. He added that it is in the hands of proactive insurers to redefine the critical business and financial path that MFIs must take to offer microinsurance products.
Aleman spoke at the latest Expert Forum for Latin America, co-organised by the Microinsurance Network (MiN), ADA and SERINSA, which aimed to identify prospects for MFIs and microinsurance providers to work together to help vulnerable populations confront and manage the risks posed by COVID-19. The pandemic continues to wreak havoc across Latin America, with more than a quarter of a million deaths reported across the region by mid-August. Brazil is battling the second biggest outbreak after the USA, while Mexico has the third highest death toll in the world.
The crisis has once again focused attention on the long-standing challenge of how to reach large numbers of low-income people with affordable and relevant products. Whilst digital channels and mobile devices offer mass distribution models which are superficially attractive, MFIs — with their grassroots networks and existing client bases — could play a significant role in reaching more people.
“There are four billion people at the base of the financial pyramid,” said Eloisa Acosta, General Manager of FAMA OPDF in Honduras. Microinsurance is essential for inclusive finance, but to ensure MFIs are sustainable, microinsurance must be promoted at scale. Acosta further explained that MFIs must train their staff properly on both the products and the clients, adapt their business model to incorporate technological solutions, and establish strategic alliances. Only then will they be able to design affordable, convenient, and value-added products which build customer loyalty, introduce innovative sales and marketing to reach the entire population, and educate clients that microinsurance is an investment rather than an extra expense.
InsurTech and digital distribution channels are certainly a valuable part of the solution, but they are unlikely to replace traditional distributors including MFIs. Despite an increase in telemedicine services provided by insurers during the pandemic, the human touch will remain a critical component in persuading clients that paying for additional cover is vital. In many Latin American markets, the barriers to digital distribution are further compounded by poor connectivity. “There is high use of mobile gadgets and the internet, but the quality of the internet and the technology available must be worked on,” argued Erik Jarrin Peters, founder of Tunajali. Salvador Da Cunha, CEO of Affinity Marketing International, added that it was essential for technology to be safely integrated into the customer experience, and for vendor-user relationships to be improved. They should be simple and fast. Technology should be a tool to make all processes easier and safer. However, we must not forget that most low-income populations still use cash.
For Francisco Astelarra, Secretary-General of FIDES and MiN Board Member, while the current crisis has generated great challenges for the industry, “it has also served to raise awareness about the role of insurance as a protection instrument for the population and has given MFIs and microinsurance companies the opportunity to establish synergies and work on the development of complementary products that lead to greater inclusion in insurance.”
The COVID-19 crisis is far from over, but it is becoming clear that digital and mobile distribution alone is not going to enable microinsurance providers to reach vulnerable populations at scale. MFIs are frequently better placed to distribute microinsurance products because of their existing client base and close personal connection with low-income populations, who already and mainly rely on MFIs for credit and savings. The ‘Partner-Agent Model’ is a tried and tested collaborative model which can benefit both MFIs and insurance companies. In this respect, the pandemic has served to underline what many industry experts already know, successful microinsurance programmes use a combination of digital technology and human interaction to create scale.