MR Microinsurance_2012_03_29.indd - International Labour ...

New frontiers in microinsurance distribution
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tion mechanism, so that clients must come to the store to renew. Consequently,
the retailer has to position its value offering and its brand to attract customers
afresh for each transaction. Any insurance product should add to the value proposition
the store uses to motivate clients to come back for repeat purchases.
Cash-based retailers therefore have to amend their business models or implement
innovative mechanisms to overcome these challenges.
Credit-based retailers often have a dedicated sales force in-store for the sale of
credit-linked merchandise. The sales force provides advice, structures credit
repayment agreements and offers the client insurance. Insurance is actively sold
and is usually linked to the credit agreement or the goods sold, including credit
life and extended warranties. In most cases, the term of the policy corresponds to
the credit repayment period. The sales force in credit-based retailers is also
responsible for follow-up advice and assisting clients with claims.
Distribution through credit-based retailers is a good business model, but it
offers questionable value to clients. These channels typically achieve significant
take-up due to incentivized sales, low policy lapse rates because of the contractual
obligation between the retailer and client, and the presence of an existing
premium collection system. Because of the retailer’s familiarity with financial
services, it often has the management information systems and the staff to
assume responsibility for policy administration and client servicing. However,
given the basic qualification criteria for credit, it means that the lower-income
clients are often excluded. Furthermore, low claims ratios on these creditlinked
products suggests poor value for the client. An exception are stand-alone
insurance policies that are not linked to the purchase and/or financing of
goods, such as the policies sold through the Brazilian credit retailer, Casas
Bahia, or stand-alone policies sold at the Mexican furniture and white goods
retailer, Elektra.
Utility and telecommunications companies generally have detailed information
on their extensive client base that can be used to design appropriately priced
policies and targeted marketing campaigns. Insurance sold through these companies
is often linked to the primary relationship between the client and the service
provider (e.g. electricity or phone service), and covers the client’s contractual
obligation to the provider in the case of death, illness, unemployment and/or disability.
These channels experience significant take-up of insurance, particularly if
products are actively sold by an agency sales force. However, they suffer from
high distribution costs attributable to the active sales effort, the required commission
payments to agents, and the participation in the value chain of many
entities that all have to be remunerated.
Third-party bill payment service providers have been set up in many countries
to allow organizations (e.g. utility companies, telephone companies and
municipalities) to outsource the collection of payments, often through a network