MR Microinsurance_2012_03_29.indd - International Labour ...

Teaching elephants to dance
19.3.1 Industrializing: Achieving scale
For microinsurance to be viable, insurers need to reach large numbers of lowincome
clients cost-effectively, and this involves three components: 1) appropriate
products; 2) the sales process and trust building; and 3) the volumes of transactions.
Offering appropriate products
Microinsurance needs to offer a sound value proposition to the low-income market
for the business to be sustainable over the long term. Unlike other segments,
almost by definition, the microinsurance target market is at best very weakly represented
on the staff of insurance companies. Thus, to really understand how a
segment perceives risk and the adequacy of existing coping mechanisms, insurers
cannot rely on “gut feel”.
Some insurers have successfully worked with community-based partners to
understand the market. Feedback from microcredit clients obtained through
loan officers has helped Allianz to create better-value products. On the basis of
the insights gleaned through this process, Allianz is adding disability cover to its
life insurance product in Senegal to cover lost income if the policyholder is unable
to work (Gradl et al., 2010).
A key approach to reaching the market on a large scale is to understand existing
coping mechanisms and provide corresponding benefits that offer a more
enhanced value proposition. Funeral insurance in South Africa is an example of
insurers exploiting existing demand for cover when expanding into the lowincome
market. Informal mechanisms such as burial societies and funeral parlour
benefit schemes are common in South Africa. A number of life insurers have seen
the opportunity to provide insurance in this market, resulting in a relatively high
proportion of the low-income market having formal cover. Forty per cent of
adult South Africans have funeral insurance, and the majority are likely to be
from the low-income market (FinMark Trust, 2009).
In the case of funeral cover, the low-income market is particularly interested
in the actual funeral service and support during preparations for the funeral.
Some insurers thus work in partnership with funeral parlours to provide service
packages rather than cash benefits to policyholders. Hollard in South Africa is
also providing support to the family of the deceased that is traditionally the
responsibility of informal burial societies (“helping hands”) at the funeral. 3
Benefit design needs to be in line with market expectations. Insurers should
not provide cover that is so different from expectations that customers do not
trust it. For example, if a policy has benefits that appear “too good to be true”,
the cautious buyer will avoid it. Insurers also need to bear in mind the market’s
3 Interviews with insurance managers involved in microinsurance.
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