This post is adapted from the recently-released publication “Inclusive Insurance: Closing the Protection Gap for Emerging Customers,” a joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.
With digital channels and effective aggregators, it becomes possible to offer insurance to lower-income segments. But the products themselves must also be designed with both cost control and the needs of the client segment in mind. After all, the financial margins for inclusive insurance are smaller, and the value proposition of insurance is typically tough to sell to customers.
Drawing on insights from our recently-released report Inclusive Insurance: Closing the Protection Gap for Emerging Customers, here are a few of the key approaches for building inclusive insurance products that work for the insurer and the customer.
Simple products are a requirement for this market segment, and many successful products we are seeing described are extremely simple. Simplifying user interfaces is, of course, in keeping with trends in product design across companies like Alibaba, Amazon, and Walmart that allow consumers to transact with just one click. Simple insurance products are easy to understand, easy to enroll in, and easy to claim against. Simplicity is perceived as transparent and “friendly,” helping to create trust.
Simplicity is essential not only because customers love it, but also because streamlined products are easy to manage, cutting administrative costs. Assessing claims can eat up premium revenue, particularly when a customer does not have a fixed address, is illiterate, or lacks standard documentation, and we are seeing some products, such as index insurance, that pay out without a claims process. Radical insurance designers also make products that do away with exclusions. In mainstream insurance, exclusions allow insurance companies to avoid customers with disproportionate risk, bringing down premiums for the majority. However, oversight of exclusions requires expensive verification. With very small-ticket insurance policies, exclusions may simply not be worth the money it takes to manage them.
Microterms and Micropayments
The same radical thinking can also be applied to the term length of coverage. In pay-as-you-go (PAYG) models, inclusive insurers calibrate timeframes to the size of the payments consumers have available. Customers who miss a payment can re-up without penalty. BIMA offers simple PAYG products with life, personal accident, or hospital insurance coverage that can be bought in monthly blocks, much as mobile credit top-up cards are sold.
Pioneer Life President and CEO Lorenzo Chan Jr. talked with us about “insurance in a sachet.” Throughout the Philippines, as in many parts of the developing world, neighborhood stores sell tiny packets, or sachets, of detergent, shampoo, spices, and other goods. Insurance “in a sachet” allows low-income customers to purchase small levels of cover, for short terms, at low premiums.
Building Customer Acceptance – Touch and Tech
Insurers are aware that their product is “sold, not bought”— especially by customers who are new to the very concept of insurance. A standard approach to building customer interest is to bring elements of high touch alongside high tech enrollment and payment interfaces.
Particularly in rural areas, customers may have strong preferences for interacting with people, especially people they already trust, and may need continuing interactions to create a feeling of connection. High tech can be used to create a sense of high touch: Allianz Indonesia’s fictional character, Mrs. Ali, provides a comfortable, homey interface with clients as “she” sends text messages to customers about their products and their lives.
Trust and Understanding
Particularly for low-income people, it is hard to consider putting the little money they have into something that may never yield a tangible benefit. As Matthew Myers of LeapFrog Investments puts it, customers view the insurer’s pitch as: “Give me money and I’ll give you a promise, rather than anything tangible right now.”
As hard as enrolling a new customer is, many providers find that renewals are equally challenging. Customers may purchase insurance, but if they don’t see a benefit or receive a claim payout, they often do not renew. Michael McCord of the Microinsurance Centre notes that a very low rate of claims (such as five percent) is a sign that customers do not understand the product or may not even realize they have coverage. One response is educating clients about the products and their benefits, both to get customers on board and to help them stay.
Bundling and Cross-Selling
Martin Hintz, former coordinator of microinsurance at Allianz, notes that one solution to increasing uptake is, “Sell something else, then attach insurance into the package.” Many new customers have begun with compulsory products, such as credit life or loyalty products. “Freemium” models introduce customers to a new product free of charge, in the hope that they will see its merits and later start paying premiums.
Insurance providers and their partners can jumpstart an insurance relationship by bundling insurance, either with other insurance products or with other financial or nonfinancial services. Insurance can also be tied to tangible products, such as school fees, food, or discounts on medicine.
Aligning Organizations to Serve Unserved Markets
The frontline staff of financial service providers often don’t understand insurance themselves, or have no incentive to sell it. At CARDPioneer Microinsurance Inc. (CPMI) everyone in the company, from top management to frontline staff, spends three to five days per year in immersion visits with clients. The investment of time has paid off. As one example, CPMI learned that, although it had been paying claims to its partners within five days, the partners were slow to pass the payments through to customers. It reviewed its claims process and was able to fix the bottlenecks.
With these examples of keen attention to unserved and underserved customer segments, Garance Wattez-Richard, Head of Emerging Customers at AXA notes that the innovations required to make insurance work at the base of the pyramid can be relevant for more mainstream insurance markets. “Reverse innovation is occurring as new products, business models, and technologies pour over into traditional insurance,” she says.
For more on inclusive insurance, read “Inclusive Insurance: Closing the Protection Gap for Emerging Customers.”
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