Learning Journey Zurich Brazil Pick 4 a Dollar Contents Project Basics... Error! Bookmark not defined. About the project... Error! Bookmark not defined. Project Update... 2 Key Indicators... 2 What is happening?... 2 Project Lessons... 4 On the effectiveness of information and education... 4 On opperational arragements... 5 Next Actions... 7
Project Basics About the project Zurich Brazil, part of the Zurich Group, is one of the 20 largest insurance companies in Brazil. For ten years Zurich Brazil has distributed mass-market insurance products through alternative distribution channels. Zurich developed a product for the lower income middle class that combines different types of insurance and can be purchased individually or combined, once basic cover has been acquired. The basic cover has: 5,000 Brazilian Reais (BRL) for accidental death in public transport, BRL 2,500 for accidental death caused by other events, 3 x BRL 250 for unemployment, BRL 5,000 per month for lottery and home assistance. Possible additional covers are: home owners (home protection), personal accident and funeral (family protection) and hospital cash (health protection). To get closer to the low-income clients, Zurich adjusted both its traditional products and insurance processes. The policy was simplified, written in a straightforward and easy to understand language, and formatted in a colorful style, presenting information in a question and answer format. Moreover, both the insurance purchase and claim settling processes were simplified. The initial distribution channel for this product was Valecard. Valecard is a benefit card company based in the state of Minas Gerais in Brazil. Its clients are the human resources departments of companies that provide the Valecard credit card benefit to its employees. The employees are primarily from lowincome families with an average income of around BRL 500 ($313 USD) per month - and without bank accounts. As of today Valecard has 130,000 active cards (clients). The first step was to reach the clients with the basic product, which was offered as a voluntary product. The monthly cost for the basic cover was BRL 5.99 (about US$ 3.75) and each extra cover cost BRL 3.00 (about US$ 1.9). The product included a lottery prize that is higher for clients who have purchased more than one cover Both Valecard and the participating companies supported the sales of the product. The sales force was trained along with the promoters. The distribution of the product was planned using two channels: Promoters: sales kiosk at the ten biggest Valecard clients, for four days during the year, with the first month premium as sales incentive Direct Mail to current basic products clients twice a year Zurich also planned to partner with financial services providers, retailers, supermarkets, and utility companies (e.g. phone, gas, electric). They believed that these partners would be able to distribute the product more cost-effectively, as they would add insurance on top of their existing client relationships. Project Summary Project Name: Pick 4 a Dollar (Valecard) Project Start Date: May 2009 Duration: 3 years Country: Brazil Product: Composite Learning Journey: June 2014 1
Project Updates What is happening? As of August 2010 Zurich designed the product in its general insurance company based in São Paulo. Different areas were involved: products, commercial and underwriting. The product was designed following the results of other experiences within the company and the team. A local team from Brazil and a global team specializing in microinsurance were involved in the process. The initial product, called Pick 4, combined four types of insurance covers that could be purchased individually or combined: personal accident, unemployment, daily hospital cash and household property. The monthly cost of each cover was BRL 3.00 (US$ 1.90), and a cumulative discount would apply when more than one cover was purchased together. The product was presented to 16 companies as a fixed Pick 4 product with a set commercial plan and incentive scheme. No company was interested in participating as a distribution partner for the product. As of December 2010 The project reached a standstill due to the lack of a distribution partner. At this point Zurich was working with Valecard who specializes in the low-income market. Valecard s core business is providing a benefit card for low-income employees that provides monthly credit, based on employees salary, to use in supermarkets and drugstores. The project evolved into integrating the pick component to the product that would be implemented with Valecard. Valecard would sell the insurance in a voluntary manner to clients that have an existing benefit card. The insurance would be charged to the credit that the clients have with this card. As of June 2011 The Zurich team met Valecard with six options for a product. The process was interactive and Zurich and Valecard worked together. The final product became a three covers product and the commission level was raised to 35 per cent to make it more attractive (the initial commission was 25 per cent). Zurich included additional activities to strengthen the channel through training and specialized marketing materials. As a benefits card company, Valecard works with different companies that provide these extra benefits to its employees. It was agreed that Zurich would directly approach these companies to have the promoters of the product work with them in order to reach the employees. The two different strategies for the sales of the product included: (i) existing promoters of Valecard sent to companies to perform face-to-face sales of the insurance product and (ii) the central telemarketing service of Valecard selling insurance to clients of Valecard that show an interest by calling them. Learning Journey: June 2014 2
The IT system was adapted in order to exchange information between Valecard and Zurich, allowing Valecard to operate the insurance programme. Marketing materials were developed by Zurich in cooperation with Valecard and sent to clients. It was challenging to communicate clearly to clients a comprehensive product that has different extra covers. Post-sale materials were also developed. The basic product to be distributed through Valecard packaged together personal accident, unemployment, home assistance and access to a lottery, at a cost of BRL 5.99 (USD 3.75) per month charged directly to the Valecard Credit Card. Promoters started offering the basic product in January and visited all Valecard clients. Basic product BRL 5,000 (US$ 3,130) for Accidental Death in Public Transport BRL 2,500 (US$ 1,560) for Accidental Death Caused by Other Events 3x BRL 250 (USD 156) for Unemployment (BRL 500 (USD 313) is the minimum wage) BRL 5,000 per month for Lottery Home Assistance Up-grade products Homeowners Home Protection Up to BRL 30,000 (US$ 18,800) for Fire, Lightning, Explosion to Contents of Home Up to BRL 3,000 (US$ 1,880) for Rental Loss Price: BRL 3 (US$ 1.90) per month PA + Funeral Family Protection Double coverage BRL 5,000 (US$ 3,130) for accidental death Up to BRL 3,000 (US$ 1,880) for family funeral assistance Price: BRL 3 (US$ 1.90) per month Hospital Cash Health Protection Hospitalization for accident BRL 50 (US$ 31) per day cash benefit (up to a maximum of 15 days) Prescription discount Price: BRL 3 (US$ 1.90) per month 2 Packages Combined Price: basic product + BRL 6.00 + double lottery to BRL 10,000 3 Packages Combined Price: Basic product BRL 9.00 + BRL 20,000 for lottery As of June 2014 After important changes in the ValeCard management team, the new team did not value the relationship with Zurich as highly as the previous management team. These changes led to a weakening of the implementation and then the agreement was dismissed. Learning Journey: June 2014 3
Zurich continued to approach other distribution channels to try to offer products with the pick concept. In particular, regional retailers were contacted to work with a broader offer of microinsurance products. New regulations for mass market insurance in Brazil are changing both the way insurance companies relate to distribution channels as well as the products. These changes are prompting the industry to change their practices. It will take some months of adjustments to define how the industry will reestablish alternative distribution channels. At the same time Zurich is starting to work with different retailers and have significantly modified their products. Learning Journey: June 2014 4
Project Lessons On the most effective processes, materials and communication strategies to provide information about the product It is easier for the sales force to start with one product that is easy to understand and sell before integrating more complex products. Zurich was involved in the Estou Seguro project where several companies sold microinsurance products in the community of Morro Santa Marta in Rio de Janeiro. The Zurich team was therefore able to test the early design of the product and the interaction between the sales force and the target population. The most popular product was funeral insurance. The sales force staff felt that it was easier to explain the benefits of this product first as it was easy to understand. This experience indicates that it might be better for sales staff to learn how to sell an easy product first and then to add additional benefits to the mix. Additional benefits should be easy to understand and should provide tangible value to clients. In Brazil, low-income families are more open to buying products that include funeral cover and lotteries (sweepstakes). Market studies carried out in Brazil have shown that people plan only for the short-term. The concept of insurance: paying without knowing if the benefit will be used in the short-term, limits the product's appeal. As a result, funeral assistance and lottery benefits help improve the appeal of insurance products by making the benefits more tangible. It has been challenging to include covers like hospital cash that require waiting periods and deductibles, because they require a longer and more complex explanation and sales process. A product with a choice of different covers needs strong communication and marketing for clients to understand the product. Distribution channels also need to be ready to engage to achieve this. Zurich has found it challenging to train the sales force and design communication materials. A product that has three options needs to be clearly explained so that clients understand them and can make informed buying decisions. The product is not complicated but it has unfamiliar features that are designed to bring value to clients. Communication during the sales and post-sales process needs to be as clear so that there is no doubt about the coverage and services offered. Zurich reviewed its material and tried to adapt the language to a question and answer model while still keeping in line with its regulatory obligations. Zurich recognizes the need for a focused communication effort. Communicating to clients that covers like hospital cash or unemployment are important for the family's financial protection has become a priority, as low-income families still see funeral cover as the main benefit. Distribution channels like retailers, human resources benefit companies and others need to understand all the extra activities that a more complex product implies. This has so far been a challenge in being able to engage with new distribution partners. Learning Journey: June 2014 5
On how the distribution channels can help to define new microinsurance products It is important to integrate the distribution channel in the design of the product, the commercial plan and the incentive scheme. Zurich Brazil approached 16 different channels and none of them showed any interest in Pick 4. The reasons given were: the incentive scheme was too low, too many products to be launched at the same time, and the products had no additional benefits and were only insurance covers. The initial product proposed by Pick 4 consisted only of basic insurance covers. In the Brazilian market lotto (sweepstakes) and funeral assistance are common additional benefits for the low-income market. Normally, for affinity projects in Brazil, the distribution channels want to be part of the design of products together with the insurance company. The channels also want to be involved in designing the commercial plan and incentive system. Zurich Brazil saw that channels largely rejected a predefined product with a predefined commercial plan. On how to scale up microinsurance through distribution channels The existence of a division that is in charge of traditional insurance products allows for a better implementation for a microinsurance project where interaction between different divisions is needed. The internal mindset of traditional mass market insurance helps to have the right tools aligned for the implementation of microinsurance. Zurich Brazil has learnt how the team can better use the internal Affinity Department resources of the company to develop a program. There are capacities to create the right marketing materials, integrate systems to channels, and be flexible to design products that are targeted to groups with similar features, giving a good platform for the team to bring new microinsurance products. The mindset to reach scale helps. Learning Journey: June 2014 6
Next Actions After several attempts to engage with new distribution partners for the pick concept Zurich is facing changes to the mass insurance regulation. This new regulation for mass insurance in Brazil is slowing down the development of products such as this one. Better conditions for stronger engagement by distribution channels will be needed for this kind of product to deliver its potential. Learning Journey: June 2014 7