MR Microinsurance_2012_03_29.indd - International Labour ...

500 Delivery channels and intermediaries
The question of trust relative to value is also highlighted by experience in
South Africa, where funeral insurance sold by different channels has different levels
of success. The rural vendor Take-it-Eezi has had considerably less take-up
than the well-trusted, low-cost clothing and small appliance store Pep. Whilst
Pep has managed to accumulate a high level of trust in the low-income market,
Take-it-Eezi is a less well-known brand used to network a number of informal
rural vendors around a third-party payment system. 5 This may also be a direct
consequence of the differing nature of the target markets of the two distribution
partners – Pep tends to serve a slightly higher-income market than Take-it-Eezi.
22.3.5 Partnership management
“Microinsurance belongs to the distribution channel” has proved true in many of
the cases where retailers and utility and telecommunications companies assert
their dominance and power in all aspects of the distribution process. The
increased bargaining power of distribution channels relative to the insurance
company enables channels to negotiate a higher proportion of the premium as
remuneration than traditional insurance distributors would be able to do.
A critical theme emerging in the distribution story is the necessity to align the
incentives of the distribution channel with those of the insurance company. Aon
Affinity in Brazil was able to do this by creating products that cover the liability
(e.g. electricity or telephone bill or finance repayment) of the distribution partner
should its client be affected by an insured event (e.g. unemployment, personal
accident or disability). Furthermore, it remunerated the distribution channel for
providing client information and collecting premiums.
The remuneration relationship between the insurer and distribution partner
can take different forms. In some cases, as with Hollard’s relationship with Pep,
the remuneration comes in the form of profit-sharing through a joint venture, in
addition to the commission received by Pep. In other cases, the distribution partner
receives only a fixed commission. The remuneration model is affected by the
level of equity attached to the distribution partners’ brand – the higher the level
of trust and recognition attached to the brand, the greater the bargaining power
of the distribution channel.
Well-trusted distribution channels face the greatest reputational risk and
therefore also choose to be involved in the product development and revision
process because they know their clients and want to ensure that they provide
them with value. Furthermore, distribution partners who have greater levels of
5 It should, however, be noted that the funeral insurance policies underwritten by Hollard and distributed
through Take-it-Eezi and Pep do not suffer from the same low claims ratios as noted in Brazil
and Colombia.