MR Microinsurance_2012_03_29.indd - International Labour ...

Is microinsurance a profitable business for insurance companies?
Low acquisition costs
To manage their acquisition and administration costs, insuresrs have undertaken
various strategies. For example, CIC, ICICI Lombard, ASR and Malayan use
partnerships to lower the costs of distributing their microinsurance business:
– CIC and ASR work with partners that are effectively the owners of the insurance
company. This affords them special concessions in terms of access to the infrastructure
of the partners without having to pay fees for these resources, which
represents a considerable advantage in keeping acquisition costs low.
– The partners of CIC and ICICI Lombard have also been willing to forgo or
reduce fees because there are other benefits to providing insurance to the customer
base of the partner. In the case of credit life, the MFIs and SACCOs benefit
from having their loan portfolio protected against default due to the death of
the borrower. Similarly, the weather insurance protects the lender against default
on the loan if the crop fails due to extreme rainfall patterns. The health insurance
product offers the healthcare provider a tied client-base where the cost of treatment
is covered by the insurer.
– The payment of fees to the partner for distributing and servicing products is
common in microinsurance. Even where partners are paid a fee for distributing
the product, as is the case for the CIC’s Bima ya Jamii product and ICICI Lombard’s
products, using partners to distribute is still less costly than using an
employed agency force solely responsible for selling and servicing microinsurance
policies, as evidenced by the higher acquisition cost ratios for Old Mutual.
– Most of the insurers offer individual incentives to the staff of the partner or the
agency force for selling and retaining business. CIC recently engaged an agency
force to distribute the Bima ya Jamii product. These incentives increase the
acquisition costs of the microinsurance business, but are necessary to encourage
staff to sell voluntary products.
The acquisition costs for the microinsurers in the case studies also reflect
marketing and promotional activities:
– Marketing and promotion accounted for 25 per cent of the acquisition costs for
ASR in 2009. ASR and CIC are planning to increase their spending on promotional
activities for their microinsurance products.
– ICICI Lombard has increased the involvement of its staff in the marketing of the
health product and enrolment of policyholders, but since costs are not monitored
on an individual product basis, this cost is not evident in the available
financial information. ICICI Lombard has benefited from the promotion of
index-based insurance by the Government and the promotion of the MAS health
insurance product by the healthcare provider.
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