MR Microinsurance_2012_03_29.indd - International Labour ...

192 Life insurance
2. A surrender takes with it assets that are under the care of the insurer, reducing
both the fees and the margins that the insurer may have been able to generate for
policies on books.
And, most importantly for savings policies,
3. A policy that is surrendered may result in financial loss because the insurer may
not have covered all of its costs of issuing and maintaining the policy, or setting
aside assets to meet guarantees.
All long-term insurance policies are dependent for their financial success on
persistency, but this is much more important for savings policies than for pure
insurance policies because the incidence of profitability is heavily skewed towards
the later years of the policy. Moreover, what is good for the insurer is frequently
also good for the customer, who needs the product range to be financially sound
and for this success to be shared with the customer. 13
Price for scale
Insurers should make an effort to: 1) price as keenly as possible, making every
effort to provide value for money to their customers, 2) test the willingness of the
market to accept this price through a combination, if possible, of pre-design
research and testing of market responses to the actual prices of products, and 3)
compare to the corresponding prices charged by competitors where possible. A
significant number of policies sold is usually more indicative of profitability than
the margin available on each product. In this environment of small units, costs
simply cannot be covered without the numbers. This does not mean that there is
no margin in pricing for products. First, customers may not be particularly pricesensitive
if the primary needs are being met. Second, profit gained through unexpectedly
successful selling can be shared with policyholders if the mechanisms to
do so are in the product design. Third, these are long-term arrangements and
margins are needed to protect against unexpected terminations.
8.3.2 Distribution is key
Effective distribution is especially important in microinsurance products that
include savings components because achieving scale is so crucial to the success of
the product. In addition, participation in a long-term arrangement depends on
13 How this success is shared varies from product to product. While financial sustainability is important
to the policyholder as the insurer is more likely to honour its promises, the policyholder also has an
interest in the profit margins of the insurer, which should be low enough to share success with the
policyholder, but not so low as to undermine the soundness of the portfolio.