MR Microinsurance_2012_03_29.indd - International Labour ...

394 Insurers and microinsurance
– The salaried agency force employed by Old Mutual is a costly distribution
model. At present, business volumes do not support the costs of the agency force,
but the aim is for the group funeral product to support the costs relating to this
product through growth projected in the next two to three years. The salaried
agent model was chosen because agents need to be remunerated for servicing the
needs of group members, over and above sales. The experience of Old Mutual
illustrates the trade-off between managing the costs of the distribution force, and
relying on the agency force to build up a relationship with clients and take on
some of the tasks involved in servicing the policies.
Efficient administration procedures
CIC, ICICI Lombard and ASR make use of the partner’s infrastructure to collect
premiums, pay claims, make policy amendments and communicate with policyholders.
This has the advantage of reducing the cost of the initiative to the
insurer, but relies on the partner’s ability to provide quality service and sell or
renew polices.
Working with groups rather than individuals facilitates cost reduction and
enables Old Mutual to make use of scheme structures to perform some of the
policy administration. However, the average group size is relatively small (55 in
2009, 65 in 2008) and the larger groups organized by funeral parlours are necessary
to spread the costs of this business.
Simplicity of products, limited levels of on-going policy administration, limited
or no underwriting at the policy inception stage and efficient claims payment
processes contribute to managing the costs of administering the microinsurance
business. By contrast, Old Mutual allows changes to lives covered under
the insurance policies on a monthly basis. The flexibility in the product increases
the administrative burden for the scheme, the agent and Old Mutual, and adds
to the costs of writing this business. This illustrates the difficulty of providing the
flexibility that is demanded by policyholders while still keeping the administration
costs low.
18.3.5 Cross-cutting factors
Two aspects of initiatives cut across the drivers of profitability: monitoring experience
and the organizational structure.
Monitoring experience
All five insurers have devoted resources to this business and have incurred
marketing, development, training and systems costs relating to the microinsurance
business. However, for the most part, they have not formally monitored
these costs. As a result, it is difficult to assess the cost of writing the micro-