“Distribution, often described as the ‘toughest nut to crack’, is essential for the long-term viability of microinsurance.” So wrote Ola Oyekan, Ph.D. Microinsurance (Mass Market) Specialist for RGA in South Africa, and a long-standing member of the MiN. Her article “Back to Basics? Evolution of Distribution Models in Inclusive (Micro) Insurance” highlights the building momentum towards innovative inclusive insurance distribution approaches.
Broker deals with different insurers enable them to act as an aggregator of sorts and, for example, according to a 2020 study by Infomineo, 68% of African microinsurance companies distribute through brokerage and agency channels. Back in July 2020, we noted that with low margins, insurers need low-cost and efficient distribution channels to effectively reach clients at scale.
Yet the million-dollar question remains: why is cost-effective distribution still a challenge? Data sharing, negotiations for commission, can all act as key barriers to efficient distribution.
Within this context, a collection of insurance professionals ̶ who after working for several years in projects of mass distribution, social and financial inclusion ̶ have founded an organisation in Argentina called EstáCubierto. Defining microinsurance as “a protection tool that promotes the economic development of those who need it most, in order to guarantee access to insurance benefits and promote social inclusion”, they have particularly set about tackling the challenges that hinder cost-effective distribution.
In essence, they provide price-tailored insurance to protect emerging customers from accidents, illnesses, death in the family, and natural disasters, with premiums varying according to the needs, income and level of risk of each policyholder, and limited to below 2% of the country's “minimum living and mobile wage”. Moreover, the policies do not carry any deductible or coinsurance.
Too good to be true? Following a session at our annual June Members’ Meeting (JMM) highlighting innovative partnerships between MiN members, we caught up with Maximiliano Selva, Partner at Varese Brokers, organisation responsible for operating EstáCubierto and spoke to him about this huge underserved market in Latin America, and why their solution is experiencing such success.
Why is it innovative from an inclusive insurance perspective?
Maximiliano Selva: Because we not only develop the product based on the information we obtain from the segment, we also create a hybrid – digital and face-to-face – sales force (made up of residents of vulnerable or low-income communities). In addition, we are generating coverage that does not exist to date.
We develop customised products, with processes adapted to the customer journey of the segment, and they are marketed in partnerships through our platform, as well as directly by our human sales force.
How do you measure success?
MS: Success can be measured by the fact that month-by-month, we are increasing sales, climbing almost 300% from last year to this, and we hope to end 2022 with a growth of 2,000%.
We have a model that measures all the indicators, not only sales, but also the accident rate, renewal rate, delinquency, and the component of first-time customers, which for us is key and is a large number in our portfolio.
What is the role of partnerships in your model?
MS: Partnerships are key since, as we generate them, we scale up in pursuit of achieving the desired volume and we also get involved with new groups or sub-segments. In order to offer value to our partners, we adapt the products and processes to their own clients and value chain.
What are the biggest challenges you have encountered? How have you sought to address these?
MS: The main challenges have often been the lack of trust of low-income segments in the insurance industry, as well as the macroeconomic context that forces us to adapt to certain financial aspects of Argentina and South America. Another big challenge was generating the necessary information to better understand the behaviours and needs of our target market.
How digitised is EstáCubierto? Are there digital/web-based sales? How to reach your customers in another way?
MS: We are in an intermediate stage. EstáCubierto can be as digital as the insurance companies with which we have partnerships and products, so we are taking technological steps based on three real criteria: the client's need, adaptation to the company with which we establish the partnership, and the budget assigned to the technology we handle.
We aspire to digitally handle and process much more information and a large part of the client's processes, as well as the benefits obtained, referrals and so on in the medium-term.
Financial education: how does EstáCubierto guarantee that consumers understand insurance?
MS: A good question. We intend to guarantee client understanding of our coverage through three very specific ways:
Simple products and processes of real use, without too many complexities (despite some regulation); secondly, a communication which is super adapted to our customer base, in which the words we use are those of frequent use, avoiding technicalities or words that cause confusion or doubt, to generate empathy with our customers.
Finally, through our ambassadors, who are residents of the communities where our clients live, and who in the simplest and most effective language explain the advantages of having insurance and the coverage we create for our target segment.
It would seem that this hybrid approach to selling inclusive insurance products, not abandoning the traditional route via local agents who are part of the policyholder's community, as well as promoting digital fulfilment for those who are able to purchase the cover online, has reaped big rewards. Clearly, EstáCubierto has thought through the challenges of successful distribution and come up with a formula that works.
To ensure resilience and economic development, access to insurance must be inclusive and for far too many, this still isn’t the case. To move this forward, progressive distribution models are key to making this happen, particularly in the most difficult-to-access communities.
As Ola Oyekan concludes, “rapid digitisation becomes necessary for both insurers and consumers on the back of COVID-19, it is hoped that these new distribution models take the market a step closer to closing the insurance gap for low-income consumers.”