This post is adapted from the recently-released publication “Inclusive Insurance: Closing the Protection Gap for Emerging Customers,” a joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.
Inclusive insurers cannot afford to go to market alone. They must attract and connect with new customers through distribution partners that already interact with those customers. Such partners can offer scale and cost efficiency, creating a solution that works for the insurer, distributor, and customer, even when premiums are very small. In some eyes, this is the most critical piece of the inclusive insurance puzzle.
“Good distribution partners are by far the most important issue,” says Martin Hintz, former coordinator of microinsurance at Allianz.
As the inclusive insurance industry has bloomed over the last ten years, we’ve seen providers link with obvious distribution partners, like microfinance institutions, as well as with some surprising ones, like retailers and pawn shops.
As part of our latest report Inclusive Insurance: Closing the Protection Gap for Emerging Customers, we asked providers about their preferred distribution channels. Here’s what we found.
Financial institutions have been—and still are—the most frequent partners, especially institutions already reaching low-income segments, such as rural banks and microfinance institutions. They have the needed systems and expertise in managing financial operations, customer base and outreach networks, and the trust of their customers regarding money matters.
In 2007, Pioneer, a large commercial insurer in the Philippines, entered a strategic partnership with microfinance institution CARD MRI to expand its reach in lower-income markets. Years later, in 2013, Pioneer and CARD MRI entered a joint venture, creating CARD-Pioneer Microinsurance Inc. Today, Pioneer Microinsurance works with more than 70 institutional partners, including rural banks, cooperatives, microfinance institutions, pawn shops, mortuaries, and associations. Banking-agent networks have also partnered with insurance companies in some specific markets, such as SBI Life in India and Met99, MetLife’s affordable insurance program in Mexico.
Inclusive insurers would like to build their partnerships with mainstream financial institutions. Matthew Myers of LeapFrog Investments notes that banks offer an attractive platform for insurers, given the frequency of transactions that are “orders of magnitude greater in comparison with the lower flow of insurance premiums and withdrawals.”
For Fidelity Bank Ghana insurance was a natural outgrowth of its outreach to low-income customers, and its partnership with Prudential Life Insurance Ghana made it possible. After launching successful Hospital Cash and Farewell Plans in 2015, Fidelity Bank Ghana launched two additional plans in 2017: an Education Plan, which combines an education savings account with assurance in the event of the parent’s death or disability; and a Life Plan, offering income protection with unlimited coverage.
After financial service providers, the most frequently cited cluster of partners included mobile network operators (MNOs), mobile money providers, and, more rarely, technical service providers. MNO partnerships provide ready payment systems for premiums, claims, and brand presence. In emerging markets, this form of partnership has so far mainly been used for small life-insurance policies through compulsory auto-enrollment, though a few insurers are beginning voluntary sales.
Retailers such as convenience stores and supermarkets were mentioned as aggregators, particularly in Latin America. According to a FinMark Trust report, their “extensive physical footprint, trusted brands, administrative infrastructure and customer-facing staff are key assets that can be leveraged at low marginal cost to provide financial products and services.”
Governments can also play a catalytic role. A contract that covers a large number of new and unserved markets can help establish the infrastructure that provides a foundation for further market growth. Met99 was catalyzed by a contract with the government to provide insurance for public employees such as teachers and health workers. Leveraging that infrastructure, Met99 could now reach other low-income people throughout the country.
Workplaces are a very desirable aggregator, but only for the minority of the target segment who work for formal employers. Utilities can also be helpful in certain markets, such as Colombia. Pharmacies, remittance companies, and municipalities are each of interest, but are hard to bring to the table.
Of course, partnerships are not without risk—including reputational, legal, and financial—as we found in our previous report with IIF, How Financial Institutions and Fintechs are Partnering for Inclusion: Lessons from the Frontlines.
Challenges arise around data sharing, cost-sharing, and alignment of objectives. Distributor staff or agents may also lack capacity or incentives to sell insurance. Even though working with a distribution channel that has broad geographic reach brings benefits of scale, geographic dispersion can also hamper quality control. Insurers address these questions by selecting their partners carefully, and providing extensive training to partner staff.
For more on distribution partnerships and inclusive insurance, read “Inclusive Insurance: Closing the Protection Gap for Emerging Customers.”
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