Why and how cross-selling works for microinsurance

seeds

  • Cross-selling works because the customer already trusts the provider
  • In Africa, mobile phone companies have helped distribute microinsurance programmes
  • A programme in Zimbabwe allows for farm insurance claims to be paid in seeds and fertilizer

Cross-selling is a great way to distribute microinsurance, as illustrated in Africa, where some farming insurance programmes are also experimenting with new ways to pay out claims, write Tom Johansmeyer, assistant vice-president at Verisk Insurance Solutions, and Keith Lau, senior actuarial associate at PWC

There’s always talk about the power of regulation in driving insurance take-up. In both developed and emerging markets, compulsory insurance programmes have shown some ability to increase penetration, although ‘mandatory’ doesn’t necessarily mean ‘sure thing’.

Compulsory programmes worldwide have had uneven results, so is regulation really the answer? As much as regulatory requirement has contributed to increased penetration – and thus social protection – everyone in the insurance distribution game knows there’s absolutely no substitute for getting people to buy policies the old-fashioned way: selling.

Selling is at the other end of the distribution spectrum from regulation. Insurance distribution involves as much talent and skill as any other role in the global value chain, and arguably, it’s the most important. Without that initial purchase, nothing else happens. Data. Analytics. Improved pricing. Modelling. Claim-handling optimisation. None of it matters if nobody has a policy.

For any degree of adoption to be successful, the product itself needs to be effective. We’ve all heard about those distribution geniuses who could “sell sand in the desert”. But if the product doesn’t meet a need, problems will arise later, including longer and more expensive sales cycles, account churn and non-renewal, and long-term loss of faith in the insurance concept.

If the proposed insurance product provides protection that’s relevant, reliable and affordable, then the risks above are mitigated, and the challenge becomes one purely of distributing an appropriate product to people who could benefit from it. The next issue becomes how to do so. Even in a mature market like the US, insurance distribution isn’t easy.

The standard list of tools and approaches for selling insurance is relevant in just about any market. There’s cold calling, accessing affinity groups, working one’s personal network, and advertising – this last one could be as simple as leaving a sign at the point of sale at a local retailer relevant to the target market. And anyone who’s crawled through the trenches of retail insurance distribution can tell you the hardest dollar you’ll ever earn will be from a new customer who’s new to insurance.

Incredible difference

That’s where cross-selling can make an incredible difference. Cross-selling involves selling insurance to someone who’s already a customer in another way.

Why does it work so well? There’s just one reason, really: trust. There’s a relationship in place. You’ve already cleared that first major hurdle and gotten the customer to pay for something. After that, everything gets a lot easier! Through savvy partnering, a microinsurance programme could gain effective distribution capabilities, likely from outside the insurance world.

Africa provides some insight into the potential for cross-selling that non-insurance distribution partners can help realise. Several groups and institutions serve farmers in a number of ways, and adding microinsurance to the portfolio of support they provide should be relatively straightforward.

In fact, an effort of this type is currently under way in Zimbabwe. In partnership with consortium Blue Marble, Old Mutual offers insurance protection against drought in a fairly innovative way. Rather than pay a claim in cash, the programme provides reimbursement of seeds and fertilizer. The insured is made whole in kind rather than in cash.

What makes this programme particularly interesting is that the claim is paid in a way that’s also resistant to demand surge, or gouging, depending on how severe the market dynamics are. Post-event, the price of seed could be expected to increase. After all, a lot of people need the same thing. The insurer assumes some demand surge risk (which, presumably, can be hedged through weather derivatives or other means) to protect the customer.

In a new market where it’s crucial to provide value at the time the customer needs it most, this approach to claim payment can provide near-immediate credibility and help drive additional adoption in the community.

Distribution partners

Of course, mobile phone service providers have long been identified as a natural distribution partner for microinsurance. In Ghana, telecommunications company Tigo has figured out a unique way to distribute insurance with consequent benefits to the core business. Tigo offers ‘freemium’ life insurance through the phone platform, using various other partners for administration. It gives its customers a base level of life insurance coverage for free as long as they’ve met a monthly airtime requirement. Higher coverage is also available at an additional cost. The product reduced the phone company’s churn rate and provided a lot of Ghanaians life insurance coverage they would not normally have access to.

The telecommunications sector has been helpful in Kenya, as well. With mobile phones seeing widespread adoption, the opportunity has arisen for new avenues of insurance distribution. M-Pesa is Kenya’s largest mobile network operator, and it allows its customers to use their phones to transfer money. They can deposit to and withdraw from their accounts by visiting any Safaricom agent, with the amount reflected on the user’s mobile phone. They can even use the phone’s menu to transfer funds. Through this process, M-Pesa helps reduce the costs and risks associated with handling physical cash, and the technology has been readily adopted in the country. The story for microinsurance almost tells itself from this point.

You don’t need us to tell you that cross-selling works — in microinsurance or in any other market. The success stories are there. The hardest part is to find and educate a willing partner and provide enough incentive for that partner to invest its own existing (and lucrative) relationships and resources in a new idea. Understandably, this is never easy. However, if you can create a compelling case that quickly makes sense to your target partner, then the rest follows much more easily than it would with cold calls and knocks on doors. In the end, it’s always smarter to tap the infrastructure that already exists.

Scott Swanay, assistant vice-president, XL Catlin, and April Li, associate actuary, Travelers, also contributed to this article as part of a Casualty Actuarial Society working party.

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