MR Microinsurance_2012_03_29.indd - International Labour ...

424 Insurers and microinsurance
Addressing partnership risks
Given their importance in accessing the market, establishing trust, and managing
key insurance processes, it is critical to identify and control the risks involved in
working with partners. They are not unique to microinsurance but worth noting:
– Over-promising and under-delivering: Working with alternative distribution
partners requires investment by the insurer and the partner. Insurers are typically
unfamiliar with selling through non-insurance entities and these entities do not
usually have much experience selling insurance. As partnerships can be time-consuming
to negotiate, there is a lot of time to build expectations, which can cause
a rush to launch once the partnership has finally bedded down. The importance
of testing processes and training frontline staff should not be underestimated.
– Duration and flexibility of agreements: The more ambitious the initiative, the
more critical it is to have sincere commitment to work together over the long term.
– Fraud can be an issue at the partner level, perhaps by failing to remit premiums
to the insurer or colluding with policyholders to submit false claims. While
insurers have established mechanisms to avoid or reduce fraud, these need to be
adapted to deal with fraud at the multiple levels of such a scheme.
– Non-compliance with regulation: It is important that the partner comply with
all insurance and other regulations relating to the services that it provides to and
on behalf of the insurer. This includes regulations relating to intermediaries and
sales of policies. While new microinsurance regulation in some jurisdictions (see
Chapter 25) allows flexible ways of working with partners, it normally creates
responsibilities for insurance companies to ensure, for example, proper training
of agents and processes to avoid mis-selling by the partner.
– Failure to deliver: Relying on partners for the distribution and servicing of
products can become a problem when these partners fail to perform functions as
agreed. Zurich Bolivia and Prodem terminated their partnership after two years
due to the failure of the MFI to give priority to sales, resulting in low policy volumes
(Churchill and de Grandchant, undated). CIC in Kenya faced similar difficulties
distributing its voluntary Bima ya Jamii product via MFIs and SACCOs
(see Chapter 18).
These risks could affect the reputation of the insurer among existing and
potential customers, investors, regulators and other stakeholders. Risks to the
reputation of the insurer are mitigated by the alignment of interests between the
partner and the insurer. The partner also needs to maintain a good reputation
with customers to retain their business. Risks can be addressed through better
training of the partner’s staff, structuring incentives around the sale and servicing
of policies, and careful monitoring of the quality of service provided by the partner.