MicroEnsure: Making mass-market (micro) insurance a reality. Peter Gross Regional Director Africa. Nairobi

Transcription

1 MicroEnsure: Making mass-market (micro) insurance a reality Peter Gross Regional Director Africa Nairobi

2 Supply and Demand for Mass-Market Insurance MicroEnsure s Approach Product and Process Design for the Mass Market MicroEnsure Products and Experience Tapping into the Opportunity

3 Supply and Demand for Mass-Market Insurance

4 South African Market Considerations Source Thomas Meyer, Accenture

5 First A Reality Check This is James. James & I see the world differently. Risk Trust Time Education Insurance We move our business to James, rather than asking him to move to us.

6 Protection from Risk is in Demand Risk is persistent and various in the African mass market: - Will our water be dirty again? - Will my son in the city be safe? - Will my father upcountry get ill? - Will the bus drive dangerously? - Will another drought hit us? - Will the market fix the wiring? - Will my daughter need to leave school to work in my shop? - Will alcohol kill my husband? For the poor, life is a game of chance, with much more serious stakes.

7 Do Low-Income People Want Insurance? Middle/Upper Income Clients: Use savings Raise money from community Work an extra (temporary) job Use insurance via employer Take on low-interest debt Low-Income Clients: Move from city back to village Remove children from school Change to lower-paid/degrading work Sell household goods or assets Take on high-interest debt The poor face more risk than any other population; they may not know about insurance, but they live with a variety of risks on a daily basis The poor have many insurance policies today: assets, informal loans, various savings spots, coping strategies The job of micro insurers is to offer more efficient risk mitigation tools, which are simple, accessible, valuable and reliable

8 Quantitative Data Financial Diaries The Reality of Risk

9 Assessing Demand for Insurance Barriers to insurance uptake in Africa: Our Value Proposition: Cost Typical insurance premiums can represent 8-10% of a typical income in mass market population Cost Offer superior value for money even free or low-cost Trust Insurers are not seen as trustworthy due to product complexity and poor claims payment Trust through trusted brands Access Insurance agents are not sufficient to cover a whole country, and they do not target the poor Access via mobile through Universal Access (USSD, IVR, Apps) Clients lack financial, legal, health education to understand coverage, terms and conditions Understanding Understanding and begin with simple products

10 Trust and the Target Market Middle/Upper Income Clients: Like clear policy wordings, even if they don t read them Take comfort from legal protections Know how to complain if necessary Trust institutions & statutes primarily Are practiced insurance fraudsters and look for arbitrage opportunities Low-Income Clients: Do not trust a lengthy legal document: they assume they are being fooled Do not value formal legal protections Are less likely to complain formally Trust their communities primarily Do not know how to commit complex fraud; they want reliable products The low-income market will rush toward a product that is simple, valuable, reliable, and accessible: they will pay for a product that gives value for money What we use today to build trust with our current client base lengthy documents, arbitration proceedings, etc erodes trust in the low income market!

11 Why do Insurers Often Struggle to Scale? Unable to get large distributors to support a highly-scaled product - Lack of belief that insurance will change behaviour to justify a freemium product - Want to use an existing product rather than create an innovative product together with the partner - Unsophisticated business cases are unconvincing to telecoms and banks, with processes that work for the upper-end market but are too complicated for the middle or lower-end market Unprepared for the after-work that makes a product succeed - Insurers often care only about the loss ratio - sales rates renewals but there are many more KPIs - Project plans have to be detailed with follow-through; 200+steps is common for a telecom product - The largest partnerships go through many, many technical changes to find the sweet spot Unreasonably high profit margins expected - Life insurers often have low, 25% loss ratios; high insurer OpEx creates challenges for shared value - Telecoms will allow you to make a margin, but not 50%, and they will want underwriting profit back - If claims do not come quickly, the price will get negotiated down very quickly Unwilling to be transparent in pricing - Large distributors have to see where every cent goes; they will not buy when they do not understand - Components of price matter: risk, operational costs, management expenses, reserves, sales costs, etc Unequipped to match the talent quality of large distributors - Insurers have to match the intellectual horsepower of bank and telecom management - Insurers need to be able to target top graduates and experienced marketers from FMCG industries - Insurers often view the low-income market as a risk to be avoided rather than a mine to be tapped

12 Supply-Side Barriers to Insurance Profit Brokerage OpEx Losses Typical Insurance Micro Insurance The cost of delivery and operations puts many micro insurance products outside mass market reach. Core Problem: How do you offer insurance to people that face more risk and can t afford to pay the same premium? Solution: Reduce Complexity Reduce Expenses Reach Scale Quickly

13 Supply-Side Barriers to Insurance Reducing OpEx: Profit Brokerage OpEx Losses Typical Insurance MicroEnsure - Pricing - Product Design - Training - Marketing - Policy Administration - Loss Adjustment - Underwriting - Reinsurance - Policy Reporting - Claims Processing - No Excess Costs A holistic delivery system overcomes obstacles and reduces cost, providing access to care.

14 Perspectives Must Change Common micro insurance myths: Insurance must be sold, not bought. The poor cannot understand or afford insurance. The poor are irrational and harder to serve. Insurance for the poor must have strict conditions.

15 MicroEnsure Introduction

16 MicroEnsure Overview: by the Numbers Founded in 2002 by Opportunity International 2007 Gates grant, 2012 conversion to for-profit social enterprise Investors: IFC, Omidyar Network, Opportunity, Telenor, Sanlam, AXA Design, implement and operate micro insurance products worldwide 15 million customers in Africa/Asia, growing by 1 million per month 85% of customers are new to insurance Cover various classes of risk: life, inpatient/outpatient health, crop, political violence, micro asset, accident/disability, decongestion 50,000 claims paid in past year 90 banking and microfinance partners 70 insurance partners 12 telecom partners 3-Time Winner of Financial Times/IFC Awards

17 MicroEnsure- Airtel Launches: Past 12 Months 4 more launches scheduled 8 million new enrolled policy holders

18 Driving Account Volumes with Insurance Barclays-MicroEnsure Free Retrenchment Cover: Ghana & Kenya Isaac Menlah Mineworker, Ghana Simple MicroEnsure claim process - $3,000 paid within days of retrenchment Quote at Ceremony: I love Barclays! I love Barclays! I can t explain it!

19 MicroEnsure Global Footprint Micro Health Insurance - Tanzania: KNCU Primary Care Cover - Philippines: Triple 10 - Ghana: Credit Health for MFIs - India: Rural, Cashless Inpatient Cover Mobile Insurance: Life, Accident, Hospital - Zambia: Airtel - Tanzania: Tigo - Nigeria: Airtel - Ghana: Airtel, Tigo, MTN - Kenya: yumobile, Airtel - Senegal: Tigo - Burkina Faso: Airtel - Malawi: TNM - Bangladesh: Grameenphone - Malaysia: Digi - Pakistan : Telenor Agricultural Insurance for Smallholders - Malawi, Rwanda, Zambia, Ghana, Uganda, Kenya, Tanzania: Rainfall Index Cover - Caribbean: Hurricane Index Cover - Philippines: Typhoon Index Cover Caribbean AFRICA Zambia Malawi Rwanda Nigeria Ghana Uganda Tanzania Kenya Mozambique Senegal Burkina Faso Niger ASIA Bangladesh Pakistan India Philippines Malaysia

20 The MicroEnsure Value Proposition Unprecedented Products High-Volume Systems Market Knowledge Robust Operations Speed, Efficiency, Agility Technical Strength Customer Value

21 The MicroEnsure Value Proposition Human-Centred Design: 12 years in Low-Income Markets Experience > Assumptions Market Knowledge Trust in product Insurance is bought High risk awareness Poor are hyper-rational Fraud Insurance is sold Insurance education Poor aren t rational

22 The MicroEnsure Value Proposition We create products that are the first of their kind Weather Index for Smallholders Rural Outpatient Health Credit Package: 8 Risks Decongestion Mobile 3 for Free Our product features defy the traditional rules. Exclusions Waiting Periods Unprecedented Products Claim Forms Medical Exams 20-Page Policies ID Numbers

23 The MicroEnsure Value Proposition 12 years of risk data on the low-income market 25 countries 10 million life years Qualified Actuary (FIA) on Staff Regulatory Memoranda Niche Pricing Technical Strength Global Credibility Microinsurance Apex Bodies Sanlam + AXA

24 The MicroEnsure Value Proposition Field Engagement: People + Technology Robust Operations Careful Customer Service Claims Payment in 100 Minutes Risk Management: Fraud+Brand

25 The MicroEnsure Value Proposition ARK: 1.2 million per hour Mobile Capabilities: USSD, SMS, IVR Claims: New Technologies High-Volume Systems

26 Value Proposition Interdependence Unprecedented Products High-Volume Systems Market Knowledge Robust Operations Speed, Efficiency, Agility Technical Strength Customer Value

27 2014 MicroEnsure Policy Growth From 3m > 15 m in 1 year Policies Covered Lives Enrolled Lives Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

28 MicroEnsure Services for Insurers MicroEnsure Services Product and Process Design Pricing and Actuarial Assessment In-Demand and Unique Product Features Eliminate Terms and Conditions without Losing Money Brand-Appropriate Marketing Content Robust Training Content Insurance Project Management Winning Bids with Large Distributors Microinsurance Market Research Value Chain Facilitation: Reinsurance Arrangements Legal, Commercial and Service Level Agreement Content Helping you to avoid the price war by using insurance as a marketing tool to create bottom line value for distribution partners You get to focus on your core business; we focus on micro Low-cost, white-label operations and administration at high scale Operational Execution Mobile Platforms (USSD, SMS, IVR) Mass-Market Customer Care Customer Field Engagement Microinsurance Claims Management High-Volume Policy Administration Monitoring and Evaluation Key Performance Indicator (KPI) Management Business Growth and Retention Analysis Customer Perception Management Financial Reporting and Premium Reconciliation Claims Status and Payment Performance Risk Management and Loss Forecasting Micro insurance requires a holistic product, process and operational integration You have a competitive advantage that is difficult for others to copy This is why Sanlam and AXA invested, and why 40% of our business comes from insurers

29 Building Trust through Claims Stories

30 Example Microinsurance Products: Mobile Banking: Asset-Linked Banking: Liabilities-Linked Health

31 The Mobile Insurance Revolution

32 Freemium Mobile Insurance History Freemium Insurance Leo Namibia Tigo Ghana 2010 Tigo Tanzania 2011 EcoNet Zimbabwe Tigo Senegal 2012 Robi Bangladesh yumobile Kenya 2012 Vodacom Tanzania Tigo Mauritius 2013 Dialog Sri Lanka Grameenphone BD 2013 TNM Malawi Telenor Pakistan 2013 XL Axiata Indonesia 2013 Tigo Honduras Airtel Ghana 2014 Airtel Zambia 2014 Airtel Burkina Faso 2014 Airtel Nigeria 2014 Airtel Niger 2014 Airtel Madagascar Legend - Operators TrustCo (2) MicroEnsure (12) Bima (6 - originally Tigo) Heritage (1)

33 Mobile Insurance Freemium Model Earn free life, accident and hospital cash cover up to $2,500 when you top up $2 The more you top up, the more you earn Pay $1 per month and double the free cover you earn Earn up to $5,000 in life/accident and hospital insurance Buy additional cover for a family member Buy additional types of cover: health, handset, travel, crop

34 Why are Telecoms Doing Insurance? Direct Revenue (US$ /sub/month) Competitive Difference (new product class) New Customer Additions Churn Reduction (10-25%) Brand and Social Impact (1,000s of claims paid) ARPU Uplift (6-15%) Telecom Value Lifetime Customer Value (Stickiness)

35 Product Example Ghana 3 for Free Phase 1 January 2014 Monthly Recharge Life Cover Accident Cover Hospital Cash GHS GHS 250 GHS 250 GHS 25 GHS GHS 500 GHS 500 GHS 50 GHS GHS 1,250 GHS 1,250 GHS 100 GHS 50 and up GHS 2,500 GHS 2,500 GHS 150 Phase 2 March 2015 Double Cover pay GHS 1 per month to double your 3 for Free Cover: enjoy up to GHS 5,000 in life, accident cover and GHS 300 hospital cash Family Cover pay GHS 3 per month to double your 3 for Free Cover and give them same coverage to a loved one

36 Why Freemium? : What we Learned The low-income market wants insurance - They will increase loyalty and spend, which makes the product attractive to brands wanting to reach them, especially MVNOs But they don t want to pay at first - The same product sees 20X uptake if it s free - No paid-for, stand-alone insurance product in Africa has reached >1% penetration of a telecom subscriber base in year one Free = scale + efficiency + client value - 20% telecom penetration reached in 12 months - Administrative costs per policy: ~$2/year - Claims payments are the best marketing tool, and customers want to see 1,000s of them - A successful free product sets the stage for a long-term customer value proposition

37 Embedded leads to paid uptake Embedding entry strategy educates the market

38 Hints of the Future Bancassurance Today Distraction from core business Risk management tool Commission and fee income Designed for high-income customers Tangential to brand, tacked on to products Deepens customer suspicion on fees Low loss ratios: 0.0 something Most customers do not know about it Does this Sound Familiar? - Banks take huge credit life commissions or threaten to self-insure - Insurers are caught in a price war - Less than 5% of bancassurance customers can tell you what they re covered for; most do not even know they are covered - Individual policy sales are low - Only the top 5-10% of income earners are aware of bancassurance, limiting the potential market size

39 Hints of the Future Bancassurance Today Distraction from core business Risk management tool Commission and fee income Designed for high-income customers Tangential to brand, tacked on to products Deepens customer suspicion on fees Bancassurance Tomorrow Essential to core business Marketing and risk management tool Core business growth income plus commission and fee income Designed for mass market and high-income customers alike Core to brand, promotes products Increases trust, loyalty, brand value Low loss ratios: 0.0 something Efficient loss ratios: 50-70% Most customers do not know about it Customers choose your bank to get it Bancassurance success depends on building the core banking business: assets and liabilities

40 A New World for Bancassurance Reduced Account Dormancy Reduced Portfolio at Risk Competitive Difference Asset Growth (8-15%) Brand and Social Impact (1,000s of claims paid) Liabilities Growth (15-40%) Value for Banks Lifetime Customer Value (Stickiness) CONFIDENTIAL FOR RECIPIENT ONLY 2014 MICROENSURE HOLDINGS LTD

41 Mobilizing Deposits: Proven Results Example from Ghana: Savings-Linked Life Insurance Product - Cost the bank N10,000,000, returned N45,000,000 in value: 450% ROI

42 Mobilizing Deposits: Proven Results Ghana: Savings-Linked Life Insurance Product June-November 2011 Increase in Deposit Balances Below 10,000 NGN Branch Balance As At June 2011 Ending Balance As At Nov 2011 Ending Savings Increase % Branch 1 7,314,012 22,003, % Branch 2 5,666,264 17,637, % Branch 3 7,822,223 25,308, % Branch 4 10,971,826 29,841, % Branch 5 9,899,560 27,702, % Branch 6 11,681,174 39,608, % Branch 7 6,782,638 22,321, % Total 60,137, ,423, % MicroEnsure insurance product was the only intervention during the period

43 Barclays: Free Retrenchment Cover Barclays-MicroEnsure Free Retrenchment Cover: Ghana & Kenya Isaac Menlah Mineworker, Ghana Simple MicroEnsure claim process - $3,000 paid within days of retrenchment Quote at Ceremony: I love Barclays! I love Barclays! I can t explain it!

44 Selling Loans through Microinsurance Must extend beyond credit life insurance to drive value ADD Permanent Disability/Critical Illness ADD Flood/Fire Catastrophe Cover Bank, borrower and trust groups benefit Bank / MFI Borrower ADD Spouse / Children Funeral Cover ADD Credit Health Cover Borrower and family benefits directly Borrowers Families

45 Selling Loans through Micro Insurance And Now Credit Health Insurance

46 Credit-Linked Insurance Product Example Coverage Event Hospitalization of Borrower Retrenchment of Borrower Death of Borrower Permanent Disability of Borrower Catastrophic business loss Death of Family Benefit (Total Premium ~1.3% of loan) 1-3 days: 1 weekly loan installment paid to bank 4-10 days: 2 loan installments paid to bank days: 3 loan installments paid to bank 31 days or more: full outstanding loan repayment 3 Months of Loan Installments paid to bank Cash equivalent of 3 Months installments paid to borrower Outstanding loan principal + 1 mo interest to bank Cash benefit to family equal to original loan principal (US $1,000 maximum) Outstanding loan principal + 1 mo interest to bank Cash benefit to borrower (US $250) Outstanding loan principal + 1 mo interest to bank Cash benefit to borrower (US $250) Cash benefit to borrower (US$250) Two family members covered, age Claims increase by 500% over credit life and grow loan sales by 8-12%...

47 Escaping the Premium Price War Offer a truly better product, not a commodity Bank wants a larger product to grow its business Pay out benefits publicly and frequently Capture the bank s sales that result from claims events Send happy customers to the bank branch manager

48 Health Microinsurance: Our Vision M-HEALTH INFORMATION TELEMEDICINE CHW + MOBILE PRIMARY CARE CLINIC INPATIENT CARE The Goal is Health, Not Health Insurance Right behaviour = lower cost, higher quality Universal Primary Care is possible at $1/month Airtime loans for medicines can facilitate health access, sustainably Prioritize primary care and capitate. The product is a one-size-fits-all cover for all services provided in clinic Pre-paid health insurance growth over time as people see quality of care

49 Health Product Roadmap Healthier Patient Population Experience and Trust Hospital Cash Simple Benefit FREE Family Hospital Cash + Health Ed + Telemedicine $1.50/month Expanded Inpatient Cover $4/month Family Inpatient Cover $8/month Family Outpatient + Inpatient Cover $10/month Most health cover starts here Willingness to Pay

50 Tapping into the Opportunity

51 Appeal to the Aggregator s Core Interests How is the Chief Marketing Officer s annual bonus determined? Revenue Acquire new customers Sell more widgets Achieve higher per ticket sales Up-sell products Footfall Increase transactions per customer Increase store visits per month Cross-sell new products and services Loyalty Reduce churn Consolidate spending Build brand Enhance trust Show social responsibility - This is not traditional affinity insurance - it s placing insurance at the front of a product as a marketing tool.

52 How do I Serve 10 Million Customers? Test operations for scale, or find scalable partners: Marketing Education Enrolment Premium Collection Customer Service Claims Payment Can we serve 10 million customers in each of these stages? If we can t, who can? Can simple technology help us to do any of these things faster and cheaper?

53 Technological Applications - Microinsurance Pricing and Product Design Marketing, Client Education, Enrolment Administration Premium Collection Claims Servicing Training Customer Feedback, Market Research - Big Data from telecoms / MFS co s / retailers / banks - USSD, SMS, IVR, Outbound calls - Outsource majority to application business rules engines - Mobile money and airtime auto-deduction - Airtime loans repaid via top-up - Mobile money payments - Camera phones for documents - Mobile applications are cheaper than expected - Videos can be used for field agents - Long-form SMS tests with two-way feedback 4 Steps to Maximizing the Value of Technology in Mass-Market Insurance : 1. Hire a young developer who is aware of technology news and networks. 2. Task your operations teams with streamlining existing processes. 3. Be open to using technological applications everywhere in your business. 4. Keep an eye out new applications are developed every day

54 Key Takeaways by Department Brand & Sales Use the aggregator s brand minimise yours & you will earn more Share marketing costs to ensure aggregator commitment Focus on marketing claims stories of low-income claimants Human Capital Find personnel who know the channel their vision, business model, ethos, etc Invest in training events that demonstrate mass-market success in any industry Under - writing Open the door wide at first; word of mouth must be an asset Short term products to protect yourself allow to modify over time Expect loss ratios of 45-65% - you are competing with the mattress Claims Be prepared to pay thousands of claims, fast eliminate bureaucracy Ensure document requirements are widely accessible Audit the second claim and build robust trend analysis system Executive Understand the key risk: not fraud but talk radio Share the value and demonstrate to the aggregator that they are getting it Prepare for medium-term results: incentivize staff on # policies as well as profits

55 Thank You Peter Gross Regional Director MicroEnsure Africa Nairobi, Kenya