Insurance for Development — Lessons learned: Distribution
The course “Insurance for Development” is a unique learning opportunity for insurance professionals to study business models and strategies that help them provide insurance solutions to the underserved markets. Throughout September and October 2020, 70 participants from around the world join the ILO’s Impact Insurance Facility and the International Training Centre of the ILO (ITCILO) in a series of webinars and self-paced learning. This blog is the first in a series of lessons learned by participants during the course. In this first blog, Preeti Sancheti writes about the topic of insurance distribution.
Distribution is a critical piece of the puzzle when trying to figure out how to offer impact insurance solutions to underserved markets. For this reason, the online course “Insurance for Development”, offered by the Facility and the ITCILO, dedicated an entire webinar to this topic. The webinar, “Distribution — Challenges and lessons learnt”, included presentations by Craig Churchill, Chief of the ILO’s Social Finance Unit and Richard Leftley, Executive Vice President at Micro Insurance Company.
Craig presented the need for alternative distribution channels. Traditional methods of selling insurance have not been able to reach a large number of individuals and enterprises effectively. To serve excluded markets, there is a need to look for alternative distribution channels that have access to a large number of customers, have experience with financial transactions, which are trusted by the target market and which see insurance as a solution to their problems. If the distributor looks at the partnership as just a source of commission, the partnership may not be sustainable.
Financial institutions (such as microfinance institutions, savings and credit cooperatives, credit unions and banks) are the easiest channel for insurers to engage with, and this channel also sees insurance as reinforcing its core business. Besides financial institutions and direct sales, which are common distribution methods, other channels are community-based organizations, employers, agent networks, retailers, and mobile network operators (MNOs). Each channel has its own set of advantages and challenges when it comes to distribution.
For example, community-based organizations, such dairy cooperatives, have been able to successfully distribute impact insurance to their members. However, many coops lack the required rigor to promote insurance and enroll members. With religious-based groups, there appears to be a conflict of interest as the clergy may want the same premium contribution as a donation towards the place of worship.
Employers can offer employees additional benefits to buy insurance. This is an effective distribution channel when the number of employees is large. However, for an SME that employs about 10 to 15 employees, the cost of offering insurance makes it economically unviable.
Agent networks or banking correspondents are authorized representatives of a bank. They are appointed to provide basic financial services to the people in rural areas and insurance can be added as a product. This channel has worked well in India.
Retailers as a channel works well only when the retailer is also involved in other value-added services, such as grocery stores that have a counter where people can pay their utility bills. Otherwise, fitting insurance with a retail sale has proven to be difficult.
MNOs could be an effective aggregator for distributing impact insurance. The channel provides a brand that customers trust, offers scale and also has operational efficiencies. During the webinar, Richard Leftley shared his experience working in Africa where MNOs have tried to increase their average revenue per user by providing free insurance. The free insurance is provided upon reaching a usage threshold or sometimes as a promotional activity to sign up new customers. The impact of free insurance has been low as customers forget about the insurance cover and do not claim. Richard also shared his experience with Jazzcash Sehat Sahulat in Pakistan. This is a hospital cash product that is sold by MicroEnsure’s call center to users of Pakistan’s largest mobile money provider Jazzcash. On average, an agent sells between 5 and 25 new policies each day. The key to success is in making the enrollment as frictionless as possible.
In impact insurance, the distribution partner is often the insurer’s only contact with the customer. Therefore, distribution partners have a role to play in the entire customer experience — from promotion to education, from counselling to enrollment and premium collection, from claims notification to claims payment. For this reason, getting the right distribution partner is one of the most important aspects in making insurance available to underserved segments.
