BUSINESS STRATEGY AND PLANNING Livingstone, Zambia 12 March 2015 Kelly Rendek kellyrendek@gmail.com Anne Kamau anne.kamau@abconsultants.co.ke
Agenda 1. Introduction 2. Some principles and concepts 3. Example/case study 4. Discussion
WHY IS IT IMPORTANT TO ESTABLISH BUSINESS STRATEGY FIRST?
Here is a scenario: You are the manager of new product development for a medium-sized life insurance company in Zambia After attending this conference, your senior management team has decided that they want to enter the microinsurance market for the first time They have given YOU the responsibility of coming up with a proposal for them to take to the board What do you do?
What do you do? 1. What type of information or analysis should be included in your proposal? What are some key components that should be included? 2. How are you going to go about creating the proposal? What should you do FIRST? What data will you need? What are the key decision points? 3. How will you come up with a final recommendation? Take a few minutes to think about this on your own, and maybe make a few notes Discuss with your neighbours at your table and come up with 3-5 key points that you agree on
Discussion Key points from your discussion: What should be included? What do you do first? What data do you need? How do you come up with a recommendation? How easy was this to do? What questions came up? What things did you agree about? What did you disagree about?
SOME PRINCIPLES AND CONCEPTS
Key components of a MI business plan 1. External factors Macro environment Market supply and demand Regulation 2. Internal factors Organisational philosophy, MI mission and vision Business model Organisation/program structure, including MI partners 3. Product development and pricing 4. Financial projections 5. Risks and mitigation
1. External Factors: macro environment Consider overall environment, including: Physical geography Population and demographics Socio-economic indicators Health indicators Economic and political environment
Market analysis - supply Examine the programs, outreach, trends, growth rates, competitiveness and gaps of relevant providers: Formal commercial insurance industry Microinsurance providers and programs Private and public health systems Public social protection schemes Informal social protection schemes (eg burial societies)
Market analysis existing microinsurance programs Analysis of other MI insurers and MI programs: Sheds light on what is possible, what is working, or at least what has been tried in the country and in the current context Helps to quantify the level of competition Should identify the gaps in products and services in the microinsurance marketplace
Conduct demand research to identify: Target market segments What types of products appeal to the target market Specific product features that are desired by the target market Evaluate willingness and capacity to pay of target clients Estimate potential marketing performance and size of potential market
Market analysis distribution and outreach options Investigate existing social and economic structures that have significant outreach in the target markets Microfinance institutions and cooperatives Community-based groups or associations (eg self-help groups, churches) Community-based service providers (eg funeral parlours, health services) Utility or product providers (eg mobile phone companies, electricity companies, supermarkets, agriculture input distributors) Identify potential distribution partners
Regulatory Environment Insurance and microinsurance regulations Types of products, and any product restrictions Licensing requirements Intermediaries, including non-traditional channels Risk management and capital requirements Co-operative regulations (if applicable) Service Providers Mobile money providers, or MNOs Government regulations for health clinics Taxation
2. Internal Factors: Organisational philosophy Type of organisation and its business philosophy will influence the development of microinsurance For example, focus on profitability vs focus on social protection goals vs focus on government goals Mutual-type organisations have a different organising principle that governs their operations and objectives MI venture may have its own mission, vision and objectives Need to determine strategic objectives and desired market position Local / regional / global program and/or partners Transferability Sustainability Impact on other business lines / functions
2. Internal Factors: Organisational philosophy Some types of organisations/structures: For-profit share company licensed as insurer Mutual or cooperative organisation May or may not be licensed as an insurer Not-for-profit organisation Public-private partnership Joint venture insurer is only one partner Others?
Possible business structures Multi-line insurance company with MI products included in other lines of business Multi-line insurance company with a separate and independent MI business segment Dedicated microinsurance organisation Non-insurance entity with microinsurance as an add-on to primary activities Depending on licensing rules, may act as distribution channel, not underwriter of risk Microinsurance benefits provided on a self-insured basis eg community groups, with no insurer involved
MI partnership models Partner-agent model: Insurer + distribution channel Agent partner compensated based on sales TPA model: Insurer + distribution + third party service providers Joint venture Insurer + distribution as joint risk bearers (share in profit); may also include 3rd parties, reinsurers, etc. Public-private partnership Public institution + insurer + distribution channel +? Multi-partner programs May include donors, research institutions, etc.
Distribution strategies Identify distribution strategies and partners early in the process Effective distribution is a KEY element of success! Traditional methods usually not effective May need a non-insurance partner or non-traditional means of delivering the insurance (or both) Include all the pieces of the process: how the product is marketed so that clients are aware of it who the distribution partner is and what their role is Client contact, enrolment, premium collection, claims receipt? how the product is actually delivered (paper? electronically?) is this another partner?
Organisational Structure
Organisational Structure Where does MI fit in the organisation? Who (which partner or department) is responsible for which functions? Marketing and sales Including consumer education Enrolment Policy issue, premium collection, renewals Claim management notification and submission, approval and payment Backroom operations Accounting, reserve calculations, reinsurance reporting, investments IT and systems development, data management and reporting (MIS)
3. Product development & pricing 1. Identify relevant risks, impact and current risk management practices from market research 2. Determine potential product types, based on which risks clients would be mostly likely to insure => Keep client value in mind 3. Need sufficient market size and cost-efficient distribution => build into product design 4. Determine the costs of benefits and product features, plus expenses, in combination with capacity and willingness to pay => may be an interative process!
4. Financial projections Should be realistic so there are no surprises. Can be on a monthly, quarterly, or annual basis, up to the end of the business plan term. Financial projections are sensitive to changes in any of the underlying assumptions Changing product features, premium rates, growth rates, expenses, or interest rates will have a ripple effect on the projected financial statements.
Financial projections and implementation strategy Link the financial projections to your implementation strategy, including pilots and plans for larger rollout Pilot phase: Identify scale and timeframe of pilot Determine criteria for success and define next steps based on success or failure of the pilot Rollout phase: Staggered rollout or big launch? Impacts sales projections, expenses and claims
Some considerations for financial projections How long after the launch date should a profit be realised? What rates of return should be aimed for over the long term? To what degree should products cross-subsidize other products? How much capital will be needed? What type and how much reinsurance is needed (and available)? If subsidies are available, how should these be incorporated into the pricing and financial projections?
5. Risks and mitigation Identify the main risks to the project Estimate the probability of each risk and possible mitigation mitigation strategies For example: What if regulatory support for the project should decrease or if regulations were to change? What if external financial assistance were to stop or decrease? What if the growth of MI product is much less than projections? What if the pilot phase indicates the product is a failure? What if claims are much higher than projected?
EXAMPLE Kenya Microinsurance Context
Kenya has been on the forefront of microinsurance development globally 80% of Kenyans have never had an insurance policy Potential informal sector market is about 11 million but only about 700,000 have been reached with microinsurance WHY MICROINSURANCE?
700,000 people have an MI policy (mostly credit life) USD 5 Million (MI premium in Kenya) New regulation encouraging new players Est. USD 40 Million by 2020 11 million (potential market) 3 major players: CIC, Britam, UAP
MI products in Kenya MI products in Kenya started with credit life in the 90 s and has evolved since Currently there are several MI products including: Funeral Health MI Personal Accident Business premises and goods insurance Savings products on an endowment platform Travel Agriculture, livestock and various combinations of these in bundled products
CASE STUDY Developing an organisational structure for microinsurance business in Kenya
CIC s microinsurance journey 2008 Late 90s 2003 MI was triggered by the needs of the co-op movement MI officer was hired to focus on the business MI officer became the company s microinsurance champion All MI operations ran on the existing systems and processes IT,finance, sales and marketing Systems worked ok with initial credit life policies Challenges started when more unconventional products responded to market demand
Experience All the accounting for premium and expenses were lumped together with other group life policies The marketing and distribution was done from the company marketing department which was independent of group life Different products were developed from different departments with no central ownership creating unhealthy competition and disharmony
Products development progression Credit life Various combinations of bundled products Funeral expenses Microinsurance Savings products (Endowment) Personal Accidents Business premises and goods insurance Health MI
Challenges The MI officer doubled as a back office administrator and MI training and marketing support resource Need became apparent for MI consumer & awareness New demand driven products stretched the conventional systems & processes Development of a customized MI system and IT platform became inevitable The need for a focused and dedicated MI sales & marketing team could no longer be ignored
Who then should run the MI business? A structure was proposed with the following functions Microinsurance team leader MI business development Underwriting & policy administration Actuarial and product development Sales & marketing Consumer education & awareness
Most important lessons learned Microinsurance will not automatically fit into conventional insurance business
Tipping point for change (2010) Slow growth resulting from Unclear reporting lines and poor sense of ownership Cannibalization of products from different business centres poor understanding of the microinsurance concept by the marketing department
What worked well? Institutional belief in MI as a viable business
DISCUSSION
Some questions to consider: 1. Thinking about the journey that CIC went through, what do you think they could have done differently? 2. Where do you think the microinsurance function/department/business should sit in an insurance company? 3. In Zambia, what do you think the key strategic issues are for developing a successful microinsurance program? 4. Think back to the starting exercise would you have any different answers or approaches to the problem now?
QUESTIONS?
References Garand & Wipf; Business Planning for Microinsurance; (2011); GIZ and MiN; http://www.microinsurancenetwork.org/networkpublica tion54.php