MR Microinsurance_2012_03_29.indd - International Labour ...

412 Insurers and microinsurance
19.2.3 Structuring the business for scale
Microinsurance initiatives have vast scale opportunities due to the size of the target
population and the aggregation potential of distribution channels. With finetuning
in the pilot phase, the focus will naturally turn to industrialization. When
entering into microinsurance with new products, partners and processes, insurers
often make use of skills, infrastructure and financial resources from other lines of
business at the initial stage of the industrialization. However, this arrangement
may not create an ideal fit and can jeopardize the success of the scheme. Iterative
learning processes will continue into the industrialization phase as microinsurance
initiatives are adapted on the basis of experience and feedback from the
market (see Box 19.6).
Matching traditional resources to a new business model
Stable systems and processes are required to protect client data and to ensure
compliance with underwriting and regulatory standards, and therefore resources
are often sourced from the core business. For example, Old Mutual in South
Africa created the Foundation Market department to serve low-income households,
but until it can achieve scale and generate sufficient profits, this business
unit remains financially and technically supported by other departments (see
Chapter 18). 2 To achieve scale, a wider group of individuals comprising higherlevel
managers, technical experts and operational staff need to be involved in
developing microinsurance into an established business line. While product
pricing may happen on an ad hoc basis for experiments and pilots, technical
underwriting and actuarial resources are required when establishing a scalable
initiative.
As microinsurance grows, traditional insurance platforms will struggle to
operate with the required efficiency and agility (see Box 19.7). Low-cost policies
cannot support the same expense structures as traditional products. One multinational
company in India found that it cost over US$20 to issue a policy – and
that there would be no way to serve the microinsurance target group while carrying
such a cost. To profitably reach ever further into the low-income market,
products need to be highly cost-effective. To achieve this, some insurers invest a
significant amount of time and effort into negotiating cost savings and making
operational structures more efficient.
As a result, drawing on traditional business resources may require significant
“un-learning” and restructuring. Insurers need to prevent the growing initiative
from being strangled by legacy systems and processes, such as inflexible information
technology (IT) systems, and the staff responsible for them. Additionally,
2 Govindarajan and Trimble (2005) point out that this is the riskiest way to do things, but it is the
natural tendency among established firms.