MR Microinsurance_2012_03_29.indd - International Labour ...

24 Emerging issues
1.3.2 Delivery channels
The way in which insurance is delivered to low-income households has evolved
considerably since the publication of the first volume. Experience thus far
suggests that any organization that already has financial transactions with the
poor, and has their trust, could be a prospective delivery channel. The rationale
for insurers to use delivery channels is three-fold. First, insurers can gain
credibility in the market by exploiting the relationship that the channel has
with low-income households. Second, because of the small premium, it is
difficult for a full-time agent to generate sufficient commission to sustain a livelihood.
Consequently, many microinsurance channels do other things as their
main business, such as providing loans, selling groceries or distributing agriculture
inputs, with insurance commission providing a supplementary income.
Third, the microinsurance business model has a greater chance of success if risk
carriers can quickly achieve scale, which they can do by working in partnership
with a delivery channel that already aggregates large numbers of low-income
persons.
In the first volume, microfinance institutions were the most common
delivery channel, so common in fact that they are no longer considered alternative.
However, since MFIs reach only a small percentage of the potential
micro insurance market, in recent years insurers have been testing other
approaches. As illustrated in Figure 1.3, insurers now use an incredibly broad
range of channels, although financial institutions remain the most prevalent.
Distribution issues are addressed throughout this volume, notably in Chapter 22,
which describes alternative channels primarily in Brazil, Colombia and South
Africa; section 20.3, which recounts the Indian experiences; and section 24.2,
which considers the role of technology to create an interface between the insurer
and policyholder.
Besides the automatic cover described above, many alternative distributors
are introducing voluntary cover, using their infrastructure to facilitate the
payment of insurance premiums. Utilities, telecommunications companies,
post offices, payment administrators and retailers have added insurance to their
menu of services, and customers who are interested can easily enrol and pay
premiums. For insurance to be sold through these channels, however, there is a
need for an active sales process to encourage customers to buy the product,
perhaps from a call centre or a visit from an agent. Another important
limitation, identified in Chapter 22, is that these channels usually deal only
with sales and premium collection, but do not have the infrastructure or
expertise to manage claims. Consequently, the claims processes can be
inconvenient and arduous, which undermines the important demonstration
effect that is so critical to fostering the low-income market’s trust and
confidence in insurance.