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Evolving insurance distribution models: meeting the needs of the most vulnerable

Microinsurance has the potential to make a significant and enduring contribution to closing the people protection gap as it not only acts as a key enabler by protecting lives, livelihoods and assets against insurable risks, but also acts as a buffer for adverse events – providing critical risk mitigation, enhancing resilience and helping to attract capital to emerging economies.

However, the gap between current reality and the need for easy-to-access, affordable and relevant insurance products and services is still huge and the increase in climate change-related events, socio-economic challenges and the COVID-19 pandemic have only served to heighten people’s sense of anxiety and vulnerability.

As we adapt to the new post-pandemic normal – and to ensure resilience and economic development - access to insurance must be inclusive. For many, this simply isn’t the case and to be able to move this forward, first we need to know what is stopping people wanting - and being able – to access vital financial services. Effective financial education, product innovation and progressive distribution models are key to making this happen – particularly in the hardest-to-reach communities.

Knowing your customer

In many emerging markets, low levels of financial literacy and education is a real issue. Successful financial literacy programmes focus on making people aware of their exposure to loss and understanding its implications – as well as their ability to take steps to avoid or mitigate the impact of loss. While we have seen successful pockets of activity in some emerging markets, these programmes need to be developed at scale around the world as partnerships between governments, local regulators, global and local insurers, and development partners. Strong financial literacy, along with a sound legal and regulatory environment, is the bedrock of establishing trust in the insurance market.

Product design, cost and suitability are also crucial. There is absolutely no doubting the potential for microinsurance to address the protection gap and create resilience in some of the world’s poorest communities. However, achieving any sort of meaningful success must start with the end-customer – many of whom live in rural areas – and in particular, identifying whether those customers actually need the product, understand it and its value and are able to easily benefit from it when they need it most. In addition, we need to consider whether those products provide them with the security to create a better future as well as being relevant (what the customer wants and not what insurers think they need), simple, affordable and do what they say on the tin.

Evolving Distribution

A third critical area of focus is clearly distribution – something that has evolved rapidly over the last few decades, particularly in terms of innovation. Agents, brokers, and financial and microfinance institutions (MFIs) have traditionally been the most commonly used distribution channels for microinsurance – with MFIs often bundling insurance services with loans. Outside of MFIs, the early distribution models for microinsurance also relied on community-based organisations such as cooperatives, trade unions, utility providers, post offices and even faith-based groups – and those remain common distribution channels today.

Over a decade ago, microinsurance distribution began to develop further through the use of technology as well as the development of other channels such as mobile network operators (MNOs), supermarkets and pawnshops. However, the MNO route has been a hard nut to crack because consumers do not often associate them with insurance – resulting in hesitancy in uptake and the need for detailed education.

More recently, insurers and distribution partners have been increasingly exploring other customer aggregation channels, such as digital platforms and apps. Acting as a key mechanism for harnessing greater understanding, reducing costs and improving customer service, the uptake of technology and digitisation is proving vital in delivering microinsurance products. In particular, these new technologies offer solutions for a number of the barriers faced by insurers when navigating often hard-to-reach communities.

In addition, the evolution of big data, artificial intelligence, InsurTech and even blockchain technology is increasingly allowing insurance providers to develop products that more closely match the needs of consumers, with different types of protection combined in a single policy covering different lifetime events.

MicroNsure in India

With differentiation and innovation at the heart of progressive distribution models, it’s worth taking a moment to look at MicroNsure, in India. MicroNsure is a technology-led insurance consultancy and distribution company which was formed with the aim of bringing innovative inclusive insurance to those who need it most by building products and designing processes that are affordable and sustainable by using technology.

What differentiates MicroNsure is that it is one of only a very few companies which provide three major enablers of inclusive insurance at one place:

  • Technology to take insurance business to the mass market – working with existing institutions who are involved in the ‘micro’ segment either in financial services or in any other segment delivering value to customers in this segment;
  • Consulting to existing distribution networks on how to build an insurance portfolio and to insurance companies on how to build a microinsurance model; and
  • Distribution to get the regulatory approvals to build specific products and processes and make customers buy in these segments.

With around 600 million unserved or underserved in India, many of these customers have taken loans or other financial assistance from various institutions that service them. MicroNsure provides an opportunity for these institutions to enhance their customer experience by offering insurance products – across 12 different segments – and providing straight-through processing without any manual interventions. Here is an example of the impact MicroNsure is having in terms of driving forward the agenda to bring about greater financial inclusivity in rural areas of India.

For Microinsurance to be successful, it needs to be viewed very much as a partnership where everyone in the value chain benefits. Effective, easy-to-access distribution is a critical element if we are to achieve sustainable, resilient futures for those people who need it most and while progress is undoubtedly being made, much more still needs to be done – particularly in terms of innovation – to ensure this isn’t a false dawn.