COVER, in collaboration with CaseJohnson, an alternative distribution consulting firm, held a highly successful 1st African Bancassurance and Alternative Distribution Conference on 28, 29 and 30 May 2011. Delegates from 14 different countries (11 African countries), met at the Westin Cape Town Hotel to debate the future of insurance distribution in Africa.
Africa, with nearly 1 billion people, 50% of them under the age of 15, is the next frontier for economic growth. The diversity of the African continent calls for alternative methods of reaching consumers with financial services products. There is an opportunity for innovative players to leapfrog traditional products and technology to grow markets. Banks, insurers, retail merchants, brokers, and information technology providers, amongst others, have discovered the opportunities in convergence of business models.
The following astonishing facts highlight the need for innovative distribution strategies to reach the undiscovered opportunities on the African continent:
· 40% of Africa’s one billion people already live in cities, a proportion larger than India’s.
· 50% of the population is under the age of 14 and on the verge of becoming economically active. They are also the early adapters of modern technology.
· Africa already has more middle-class households, defined as having incomes of $20,000 or more, than India.
· Banking penetration in Africa has reached 20% with 225 million bank accounts in 2008.
· Kenya has 55 % access to mobile phone, whilst only 19% have access to formal bank services.
· Africa has 320 million mobile phone users, and is expected to reach 560 million by 2012.
· Eight of the top 20 fastest-expanding economies in 2010 are African countries.
The conference programme focused on:
· How companies are deploying successful expansion strategies in the developing insurance markets of Africa
· How technological innovations are allowing companies to profitably reach and service lower income people in large numbers
· How banks are increasingly leveraging their branch networks and databases to distribute insurance products to customers
· How mobile phone companies are able to extend simple insurance cover to large numbers of prepaid customers
· How retailers are writing growing volumes of credit insurance at point of sale and boosting profitability using alternative risk transfer models
· How insurers are innovating with non-traditional distribution strategies tailored to the realities of developing markets
· How reinsurers are supporting alternative distribution strategies and growth into new African markets
· How partnership models are opening markets and facilitating convergence between unexpected industries and countries
A variety of speakers from various countries presented case studies and opinions on the challenges and opportunities facing those who are operating in Africa. In this feature, we bring you a synopsis of their presentations.
Krisen Govender, Independent Distribution Consultant and MC for the two days, opened the conference with an interesting perspective:
Albert Einstein defined insanity as “doing the same thing over and over again and expecting different results”.
Well, the contours of the industry are being reshaped by ongoing changes in legislation and market forces. With these changes in mind, new paradigms need to be considered when reaching markets in Africa and new segments of the South African market.
Furthermore, even when considering the changes in language, culture and routes to market in reaching the un-served, under-served or bottom-of-the-pyramid customers, our paradigms must change to ensure any chance of our success.
Therefore, I strongly suggest that it would be insanity to do “business-usual” in these unusual times and expect different results than what we have experienced in the past.
I encourage you to unshackle your paradigms, to listen intently, to question probingly and to engage passionately with a few thoughts in mind. Let’s use this time here to learn a handful of new thought starters; let’s use this time here to understand different paradigms and success criteria; let’s use the time here to get insight from case studies from other industries who seem to be making progress in their markets and to understand how we can apply their learnings to our own markets
And, finally … it will be up to each of you to commit to executing at least some of this back in your own businesses and markets.
I recently spent time in several African countries exploring and implementing distribution pipelines into the under-served markets in east/central and West Africa. I was relating some of my experiences to an executive director of a major food producer in South Africa. He asked me what my biggest learning was, based on my travels. My sense is that it is not the stamp on your passport that will guarantee success, but the openness of your disposition to understand the people and the markets that will ensure your success. Needless to say, he felt that their way was the only way and the right way to get things done, and that any locals that they engaged with would have to “fall in line”. My only retort to him was that even SAB takes its programmes of excellence to a certain level and then seeks to create new level of excellence within local conditions.
The learning here is to acknowledge your own non negotiables, your own centres of excellence and your own strategy, then to embrace local market conditions and drive passionately with locals for market success.
Global trends in Bancassurance
Sean Gilday, Vice President, Business Development Global Markets, RGA
The 2011 African Bancassurance Conference provided a unique opportunity to address varying levels of bancassurance experience. In some of the markets represented at the conference, advanced bancassurance models are being used quite successfully, while in other markets Bancassurance is a relatively new concept.
My presentation covered global trends in Bancassurance by focusing on some of the core concepts in Bancassurance such as distribution, target market segments, core products, and underwriting issues. The presentation concluded with a series of case studies that highlighted some of the more interesting Bancassurance products and sales models being employed around the world.
One of the most challenging parts of Bancassurance is selling standalone life insurance products to customers of the bank. Standalone products are not connected to an underlying bank product and therefore differ from creditor-type products such as mortgage life cover or credit card insurance. This area of life insurance product sales still offers Bancassurers a tremendous opportunity to generate additional life insurance premium and revenues for the bank.
The two main sales channels for standalone Bancassurance products are the platform banker and the financial consultant. The platform banker is typically responsible for selling most of the bank’s core products and focuses on the mass market and “walk-in’ customers to the bank. The financial consultant has a client base that is more affluent and typically builds a stronger relationship with their clients and prospect. In some banks the use of insurance specialists provides a method to pass strong insurance leads from either the platform banker or the financial consultant to the insurance specialist to take the customer through the insurance sales process. This can be effective because the infrequent life insurance sellers are often not comfortable with selling life insurance including the related underwriting aspects of the product.
Most now offer a high net worth or private bank channel within the bank. This small but wealthy segment of the bank’s customer base also offers a unique opportunity to offer high-end insurance product solutions. These sales tend to be very sophisticated and often require the involvement of the private banker, insurance specialist or broker and a tax planner.
Some of the key trends that Bancassurers are focusing on include the use of electronic underwriting to speed up and simplify the medical underwriting process, and the introduction and use of simplified products that are easier to sell to the mass market. When looking at the some of the major obstacles to successful Bancassurance sales, underwriting processes typically stand out. Most bank salespeople are not comfortable asking medical related questions. Furthermore, it has been noted that medical disclosure rates of insurance applications taken in the bank branch may not be as high as those taken via tele-underwriters on the phone. By streamlining the product definition or descriptions and incorporating a tele-underwriting process for those applicants that answer “yes” on a short application, it has been shown by some Bancassurers that more applications are completed, not-takens are reduced and the customer has better insurance experience.
Globally, most banks are looking for ways to increase revenues from their retail operations and many are finding that Bancassurance is still a viable method to do so. This important channel has many strong practices that can be used as examples of how to properly execute a Bancassurance strategy. The key to improving is always to look for ideas both inside your market and in other markets.
Why Alternative Distribution Works in Developing Markets
KeyNote Address, Bruce Sahd, Managing Director, CaseJohnson Group
Why has so little insurance been sold in Africa?
Africa is rapidly emerging as the new growth frontier of the global economy, but insurance penetration on the continent remains the lowest in the world.
The four main obstacles hindering insurance penetration in Africa are:
1. Ineffective Distribution Strategies
The traditional distribution strategies best suited to developed markets are often emulated in developing markets, typically because of an inability to access specialised distribution skills, and lack of the right IT expertise and reinsurance support.
2. Weak B2B Partnerships
Whilst relationships often appear to be in place between insurers and banks and other industry partners, they often lack a shared vision, jointly committed targets and the co-operative spirit required to overcome obstacles and to make cross-industry distribution strategies work.
3. Out-of-Tune Regulation
Regulation is frequently out of tune with the realities of developing markets and the need to lower barriers to financial access and inclusion. Regulators are too often led by developed markets, for example, latest UK regulation is almost a certainty to be adopted by Anglophone African countries, instead of looking to other developing markets such as Malaysia for best practice.
4. Unaware Consumers
The insurance concept itself is not well understood by consumers in developing markets. The health insurance industry in India benefitted enormously from a state sponsored awareness programme, but such programmes at state or industry level are too often lacking. Insurance is also mostly sold as investment and thus the protection concept often goes unexplained.
The Growth in the middle of the pyramid
Traditional Distribution typically focuses on the top of the pyramid, usually middle class consumers with monthly premiums above $15. Micro-insurance strategies have traditionally targeted the bottom the pyramid with monthly premiums below $5.
Yet the simple protection needs of the fastest-growing middle segment, the urbanised classes, remain largely unmet. Non-traditional distribution strategies that can viably offer products at monthly premiums of between $5 to $15 have a major opportunity to deliver new sources of growth and improved penetration rates in developing markets.
Strategies that work
Case studies were presented from across Africa and India of strategies that were successfully executed to deliver large volumes of low premium insurance sales, and how this was done quickly and profitably. Alternative distribution strategies that have proven to work in developing markets include:
1. Embedded Credit Life: Embedded cover in process or product to protect the lender
2. Embedded Mobile Life: Free cover from MNO to qualifying buyers of airtime
3. Database Marketing: Mail/phone/sms marketing to pre-selected bank customers
4. Multi-Level Marketing: Buyer/ seller agent network to generate leads for direct sales
5. Web Search Marketing: Paid search marketing to generate leads for direct sales
6. ATL Direct Response Marketing: TV/ press/ radio to generate leads for direct sales
Follow a process, but make a start!
The rewards are significant, but a proper risk management process should be followed.
- Analysis: Perform a frank analysis of the internal and external business environment
- Planning: Plan the right strategy, financial targets and implementation milestones
- Testing: Prove the concept in a pilot phase before investing in scale-up operations
- Managing: Appoint the right managers, assign authority & hold them accountable
Leapfrogging First World IT in developing markets
Rhys Collins, Head of Operations at SSP, Africa
With the attention of investors both large and small increasingly being drawn to the potential of the African insurance market, there is a distinct opportunity for innovative players to leapfrog existing providers through the use of technology to create competitive advantage.
The entities which will succeed and leapfrog others, are those that can overcome challenges, learn from others, and drive new business models enabled by emerging but tested capabilities.
The term “leapfrogging” describes the rapid change to a higher level of development without going through the intermediate stages.
Innovation in technology today has the potential completely to change Africa and the way that regions’ people operate.
So what exactly drives leapfrogging opportunities? It is clear that many will be driven by consumers and the companies that want to take a piece of this growing consumer market will have to embrace new ways of doing business fast. These organisations will need to think of ways to overcome their environmental constraints and reinvent their business by utilising technology to drive sources of uniqueness, differentiation, competitive advantage and, therefore, growth.
50% of the African population is under the age of 14 and on the verge of becoming economically active. They are also the early adopters of modern technology and that will drive new patterns of consumer behaviour and new demands.
Those companies that identify the opportunities that these changes present and start to change now could become the leading companies of tomorrow.
A 20th century industrial base isn’t needed to build a 21st century information economy.
In fact, a developing society can often adopt the new systems more rapidly and completely than can other, ostensibly more “advanced” societies, gaining the social and economic benefits earlier.
Leapfrogging is essentially about redefining new exciting opportunities.
To achieve competitive advantage, businesses cannot go through the same evolutionary process as others did years ago if they wanted to grow and grab upcoming opportunities in the market. Leapfrogging is about surpassing other players to move into the leading or dominant position. It’s about jumping technology generations.
We have seen situations in Africa, where companies are deploying successful expansion strategies to reach existing and new customer segments by extending existing channels and adopting emerging channels of distribution; for example, the roll-out of banking and life insurance using mobile technology.
Whilst examples of technological leapfrogging exist, to date, the challenge still remains that many attempts to leapfrog in developing countries have failed or are done only on a small scale. Current efforts and methods are often too ambiguous, make simplistic assumptions about the technological possibilities and are characterized by incomplete understanding of the complex processes involved. In addition, we are hampered by problems with skills, infrastructure and education.
The opportunity however is still undeniable, particularly when you consider the statistics:
· Africa is the third fastest expanding economic region today and this growth is expected to continue.
· The banking and insurance sectors show great potential and growth.
· Consumerism and the rise of the middle class both create an engine for long term growth.
· By 2020, more than half of Africa’s 244 million households will have an annual income of more than $5 000.
· By 2030, it is predicted that 18 countries in Africa will have$3 trillion of combined spending power; 50% of all African people will live in cities and there will be a +1 billion labour force.
If recent trends continue, Africa will play an increasingly important role in the global economy. By 2040, Africa will be home to one in five of the planet’s young people and will have the world’s largest working-age population.
It’s time to leapfrog and redefine IT the way it should be and redefine growth opportunities. A significant number of the African initiatives will be new, unhindered by legacy problems. These new IT initiatives can take advantage of new software developments that are not held back by a legacy systems landscape.
Africa can learn from mistakes made elsewhere and benefit from experience gained in developed countries and developing countries like India that have already made great strides in alternative distribution channels. Can you really afford not to be there?
Using Customer Data to Drive Sales and Manage Risk
Julian Ardagh, CEO, Effective Intelligence (Pty) Ltd
Most organisations struggle with data issues and therefore often believe that their data is not useful to assist with profiling their customers effectively. There may very well be significant data issues, but you can get great value from your customer data. However, you will need to use experienced specialist data experts along with a key component – a project champion from the executive management team. The reason for the champion is that insights into the data often necessitate changes in business processes within other departments to resolve identified problems.
The key to extracting value is to use whatever historical customer transaction data you have to try and identify useful trends and not to wait for perfect data. This will normally lead to the identification of a few key variables, that when used appropriately, could yield additional short-term profit within current business processes.
So, how do you start? You first need to build a Customer Segmentation framework which essentially classifies customers into appropriate and logical business market segments. These segments should initially help separate the most profitable customers from high risk /low profit groups. Essentially, you want to group customers together that are similar in transactional behaviour (at this stage) and sufficiently different to other customer groups in terms of value and that may require different communications or offers or products.
Below is a simple example which separates active buying customers (purchased insurance in last 24 months) from “sleeper” customers (who purchased more than 24 months ago) and which separates them into three value categories.
The types of variables used to identify them are: product purchase dates, product purchase value, number of products purchased ever, promotional cost related to purchase, and product margin.
Once you have defined customer segments then one can begin to measure and manage the key aspects per segment within a full Customer life Cycle.
A typical theoretical life cycle is represented in the following diagram:
By building processes that enable separating and measuring each of the key aspects within each market segment one can now focus on optimising your business processes (service and product offerings) and communication aspects within each segment. This is where one can use some of your historic customer data to build predictive statistical models in order to increase sales or reduce the risk of non-payment or customer attrition.
A critical aspect that is not considered sufficiently is that, if the profile of your marketing prospects is not correct (and Cost of Acquisition and Profitability are not the only metrics to consider), then you cannot expect to maximise sales or minimise “not taken up” (NTU) or attrition.
There are significant costs to building predictive statistical models that are fully justifiable and profitable, but they should be within a measurable market segmentation framework. Once the framework is developed and the historic data utilised then a methodology of ongoing refinement and implementation should become standard processes. All statistical models require regular updating as the business implements new prospecting or customer servicing processes.
However, the additional profitability and market sustainability far outweigh the additional work required.
Bank or Insurer?
Marletha Hardy, Absa Life
It’s easy to dismiss Bancassurance as a straight-forward contractual relationship between a bank and an insurance company (or investment house). The truth is far more complicated.
Bancassurance income continues to be reported as “Off-Balance Sheet” earnings, a secondary source of income. The industry still talks about a bank’s “core” focus and few investors buy bank shares with knowledge of the Bancassurance value. As a result, Bancassurance remains a low(er) influencer of policy and strategy.
On the operational level, Bancassurance is a specialist, self-defined field, requiring industry and product expertise working within the context of a banking business model.
A Bancassurer has to navigate the complexities of a hybrid regulatory framework. In Section 106 of the South African National Credit Act, insurance products are defined within the context of banking activities. The Act is not directly related to the governance of insurance products, nor does the Act dictate the products or activities of an insurance company; it governs only those types of insurance products that may be sold by the bank. At the present moment, although the Consumer Protection Act makes concessions to registered Life Companies, these concessions aren’t applicable to the Bancassurer which needs to ensure that the bank is compliant.
Banks exist in a regulatory environment which is, by nature of its own existence, imposed upon the Bancassurer. The Bancassurer needs to adopt this environment as its own, while ensuring that the regulatory requirements of the insurance industry are also met. Where there is potential or real conflict between these environments (for example, the protection and storage of personal details related to financial and medical underwriting), the matter needs to be addressed with a remarkable specialist knowledge of both banking and insurance law.
In a traditional insurer, these could present daunting challenges. In the Bancassurer, these so-called challenges define the business model.
Not quite a bank, yet not quite an insurer – a little of both, a little schizophrenic.
These challenges are “Business As Usual” for a Bancassurer. These complexities are taken on as a matter of course.
Once the framework and expertise have been developed and effectively adopted, the model becomes increasingly attractive.The Bancassurer is able to intelligently segment its offerings to be relevant to very specific needs that the end-client may have, leading to more appropriate product placement, and contributing to vastly improved customer loyalty.
Shared-resources lead to cost-efficiencies, benefitting both the bank and the Bancassurer; for example, Bancassurers have access to a retail network for their products that no traditional insurers or investment houses could match – for them, the cost outweighs any benefit. Bancassurers have access to technologies such as ATMS, as part of their normal business – they are able to interact with the specialists employed by the bank.
Bancassurance allows the bank to offer an enhanced “beyond banking” customer value proposition – full financial servicing. While banking provides for core transactional and credit facilities in the banking business model, Bancassurance extends this offering to include wealth protection and wealth generation.
In all, through effective provision of the solutions offered through a well-positioned Bancassurer, the bank itself benefits and becomes a trusted financial partner, rather than a trader of banking products.
“Not quite a bank, yet not quite an insurer – a little of both, a little schizophrenic.”
Alternative Risk Transfer and self-insurance strategies
Herman Schoeman, Managing Director, Guardrisk
With cell owners sharing underwriting profits and investment income, there are significant economic benefits to be realised from owning a third party cell captive; and, at the same time, provide significant additional value for the cell owner’s customer base.
The third party cell captive structure offers retailers the opportunity to strengthen their brand, while boosting their bottom line. The typical third party cell owner is a retailer with a strong brand; a large cash or credit customer base and a product or service that can easily be linked to insurable risk (for instance, furniture, cell phones or motor vehicles).
By providing cell owners access to its licence, the cell captive insurer (Guardrisk, in this instance) effectively gives cell owners the benefits of their own insurance company, without the inherent, and onerous, capital and legislative requirements. The cell captive insurer is accountable to the FSB for all the regulatory compliance aspects and the cell owner would not need to invest time, money and resources on in-house facilities and expertise for this, apart from the basic policyholder protection requirements.
The benefits of cell captives are underscored by the following actual quotations from Guardrisk’s clients, explaining what the cell captive means to their business:
- “…has enabled us to create a separate profit centre that allows us to offer value for money insurance products to our customers…”
- “…allows us to focus on the sales and marketing aspects of our product, while leaving the regulatory aspects of running an insurance company to the experts…”
- “… provides a steady annuity-type income which helps offset the volatile nature of our industry…”
- “… has provided a significant competitive edge in our core market; allowed us to strengthen our brand within a fiercely contest industry; and provide additional value add to our clients…”
- “… allows us to provide our customer with brand-specific, attractive, flexible and innovative insurance offers…”
And, in an increasingly consumer-orientated market, it’s not just cell owners that benefit from third party cell captives. Cell owners’ customers enjoy the security of a product that is issued and underwritten by a regulated financial services provider; support from a brand that they already know well; access to various ombuds offices; and point of sale convenience.
The cell captive structure has also been widely acknowledged as having an important role to play in the development of the microinsurance sector in South Africa. Providing cost-effective and relatively easy access to the insurance industry, cell captives undoubtedly remove barriers of entry, providing a “low cost mechanism for black economic empowerment entrepreneurs to enter the insurance market”[1].
In 2010, cell captive insurers accounted for 11,4% of the South African short-term insurance industry’s total gross written premium. Not an insignificant achievement for a concept that was only launched (by Guardrisk) in 1993.
For this sector, future growth is expected to come, not only from retailers seeking to harness the benefits of third party cell captives (and corporates self-insuring via first party cells); the cell captive structure is also poised to play a pivotal role in delivering insurance products into the previously disadvantaged sector of the population.
[1] Panel of Enquiry on Consumer Credit Insurance in South Africa – a report commissioned and sponsored by the LOA and SAIA in April 2008.
Consumer Credit and Insurance in Africa
Johan Bosini, Strategy Director, CaseJohnson Group
Why are we interested in Credit?
In Africa, banking penetration, although low, is far higher than insurance penetration. It is evident that, across the world, banking and credit sales precede insurance sales. Low insurance awareness means that Credit Life is often the first insurance product many people in Africa purchase, and this can become the gateway product that creates awareness and an opportunity to upsell other insurance products at a later point in time.
What has held Africa back with regards to Credit Penetration?
Once clients have access to banking facilities and credit, they then begin to need simple protection. Low access to credit thus limits access to insurance. The inability to access credit to begin with can be attributed to:
1. No customer credit history at national Level
• no national ID system
• lack of effective credit bureaus
2. No customer credit history at corporate Level
• poor internal MIS
• low credit risk expertise
3. Poor credit insurance practice
• poor unsecured risk management
• low product and distribution expertise
4. Poor /unenforceable contract law
• toothless legislation
5. Low branch infrastructure / low access
• focus on urban areas only
Credit penetration in Africa is the lowest in the world
Credit penetration in Africa currently averages 18% (measured as credit extended as a function of GDP) where the penetration in the developed world averages 107%. This illustrates the dire situation in Africa.
South Africa remains an outlier (+-105% penetration) with similar penetration to countries such as Singapore, Sweden and Germany. This is attributed to well established credit bureaus and high employment rates. Nigeria, Uganda and Angola, in contrast, all have a penetration rate of less than 20%.
Not a unique problem
In Eastern Europe, no credit bureaus existed 15 years ago. To combat the problem, Russia and Kazakhstan mandated information sharing by banks to a private bureau with visible positive results within 3 years.
This result was an increase in credit penetration and a decrease in interest rates due to banks having the ability to manage credit risk more effectively. The increase in credit resulted in a parallel increase in credit life premiums which provides opportunity to up and cross sell other relevant insurance offerings.
It was discussed how, in Africa, we have seen a similar trend with legislation having been passed to implement and regulate credit bureaus in Ghana, Kenya and Uganda.
Case study
A case study was shared with delegates on how a lender was able to lend to clients with no credit bureau history:
• One of the leading lenders in the South African market, however, offers low credit limits to “thin file” clients and then increases it significantly once an internal behaviour score indicates credit risk is low.
• Bad debt is limited to low loan values.
• Compulsory credit life insurance is placed on credit.
Possible key developments in the future with needed Critical Success Factors
- Growth in credit bureau activity is predicted – bank industry buy-in is needed, however.
- Emergence of pioneers in corporate credit scoring in select African Markets – credit risk expertise may be sought from South Africa and Europe.
- Adoption of best practice credit insurance across Africa – insurance distribution expertise will need to be adopted.
Low-income market no backwater
Jeremy Leach, Hollard’s Divisional Director & Head: Micro-insurance
Hollard Insurance, already intensively involved in the micro-insurance market, now has its eye firmly on m-insurance to reach Africa’s low-income market.
The low-income market is no longer a donor-driven backwater, but has become a key political, business and social priority.
At the recently held African Bancassurance & Alternative Distribution Conference in Cape Town, I stated that Hollard’s preliminary market research has shown there is a definite need for insurance in the low-income market, but that there exists a mistrust of the insurance industry.
This mistrust needs to be overcome for us to be successful in marketing our products to the lower income market segment. We believe working with trusted brands will make the difference.
Research has shown that in South Africa 45% of the population has some form of insurance. Funeral cover has, for instance, grown at more than 10% per annum since 2003 – whilst formal cover growth has exceeded 20% annually. However, less than one in ten of small business owners are insured against the specific risks they face. Outside South Africa, only 5% of Ghanaians have insurance, 6% of Kenyans and Zambians and only 2% of the Nigerian and Pakistan population have insurance.
Despite these low percentages, short-term insurance has not managed to penetrate the South African low-income market beyond 1,5% of LSM 1-5 adults, according to data released by Cenfri last year.
At the same time, the growth of the mobile/cell phone market in Africa has been well-documented. It is one of the more remarkable – and impactful – phenomena in recent times and the numbers are startling. Now, with reportedly an estimated 60% of the unbanked in Southern Africa having mobile phones, the possibilities of bringing insurance products to low-income markets are virtually unlimited.
M-insurance will be one of the most effective ways to reach the low income market in years to come. While Hollard has had considerable success in the low income market, generating over R1,3 billion in premiums in this segment alone, m-insurance will open the door to making insurance accessible to the majority of people previously ignored by insurers because of a dependence on conventional banking.
Earlier this year, Hollard and MTN launched the Mi-Life insurance service in Ghana, a world first focusing on a voluntary mobile money insurance programme accessible through the cell phone with collections through mobile money. Typically, insurance has been predicated around bank accounts, and, in Ghana, only 34% of people have a bank account. However, via m-insurance, Mi-Life is currently marketed to the 9 million subscribers of MTN in Ghana. We believe our partnership with MTN Mobile Money to develop m-insurance in emerging markets will take the market to the next level. Other interesting models include that of TIGO Mobile with MicroEnsure which is a form of loyalty programme.
However, the key driver for micro-insurance purchases is the trade-off between price and trust. Hollard has experienced this in several of its successful current models like Jet Home Protect Distribution, the PEP retail model, and a group affinity scheme with Kaizer Chiefs.
We believe alternative distribution offers the greatest potential for scale. This means scale through concentration, a strong infrastructure footprint (physical or technological), a transaction platform to enable collections, standalone voluntary products and a trusted brand.
Alternative distribution is no panacea. Pockets and consumers may be hurt, and therefore rules will be needed to ensure insurers act in the interest of the consumer, whilst allowing Insurers to find creative solutions.
Legal and regulatory issues in micro insurance
Jonathan Teacher, Senior Associate, Norton Rose, United Kingdom
The presentation focused on four key current legal and regulatory issues and the underlying tension which can arise between innovation and policyholder protection. The issues under consideration were:
· regulation in the context of micro insurance;
· achieving simplicity;
· structuring distribution arrangements; and
· legal issues concerning dry/e-signatures.
Regulation
A one-size-fits-all approach may restrict providers from entering the market, so tailored regulation can assist in making the financial system more inclusive. The “right” regulation supports stable and sustainable growth by protecting policyholders and building confidence whilst also delineating the between the regulated and informal sectors with a view to promoting consumer protection and financial stability.
There are principally two routes to achieving appropriate and flexible regulation which can accommodate rapidly developing market dynamics whilst protecting policyholders and creating an efficient and level playing field for providers:
(1) Principles-based regulation incorporating the principle of proportionality in its application. This enables the regulatory regime to be applied appropriately to the nature and scale of an insurance business, but requires the regulator to apply the principles in a fair and consistent way which provides clarity and certainty to participants.
(2) Tiered regulation where micro-insurance products satisfying criteria as to premium, cover, class of business, terms and, potentially, distribution are subject to lower capital and ongoing compliance and reporting requirements. The regulatory requirements can be designed to step-up commensurately with the risk level to consumers or to a greater number of consumers, thereby aligning regulatory control with the scale of the business to which it applies.
The tiered approach has advantages over principles-based regulation in creating greater certainty for participants from the outset, although the corollary is that it may not be as flexible.
Simplicity
Simplicity is a key success factor which necessitates designing a product offering that delivers client value through clarity of outcomes meeting expectations and limiting or removing frictional elements which reduce efficiency. Simple and reliable administration and claims procedures facilitate simpler policy terms. Similarly, policy wordings should use clear, unambiguous words and simple language to provide easily understandable cover with few (or no) exclusions – requiring the underwriter to price the whole risk – and instead using waiting periods or compulsory take up to mitigate adverse selection.
Distribution
The key consideration for distribution from a legal and regulatory perspective is to determine how a product is to be distributed. This means identifying each function, which party is to perform it, for whom it is acting and the scope of responsibility of each participant in the distribution channel (for example, the limits of authority to issue policies or agree and pay claims). Equally important is to determine how each function is to be remunerated and by whom. Then analyse whether each function is regulated, by whom and how the arrangement can be structured to maximise regulatory efficiency.
Dry signatures
The limitation on the use of dry signatures significantly limits financial services distribution in areas with less developed commercial infrastructure or geographies which are not conducive to the application of established distribution channels used in more mature markets. Critically, from a legal perspective, the use of dry signatures is limited to where local law of the jurisdiction and the regulator allow or accept their use (or, at least, do not expressly prohibit it). Technologically, electronic signatures satisfying relevant requirements can be provided in a number of ways, some of which involve third party authentication or the parties swapping verification keys. Where a signature is not strictly required, recorded telephone calls in conjunction with the provision of policyholder documentation and policyholder payment may suffice, but this is dependent on local law and regulation.
Conclusion
Flexible regulation is necessary to embrace distribution models appropriate to local market dynamics which support greater financial inclusion in a controlled environment which protects policyholder interests. Regulations need to be flexible enough to embrace forms of distribution model that are appropriate to the local market dynamics to support greater financial inclusion in a controlled environment which adequately protects policyholder interests. Greater co-ordination between regulators would be welcome. They would enable the regulators to share limited resources in considering new developments and, it is hoped, would lead to a more uniform approach across jurisdictions which can encourage financial inclusion by creating opportunities for providers to develop distribution channels that are scalable on a multi-national level.
It is recommended that participants engage with relevant regulators early in the development of any proposed distribution channel or transaction. But it is important to recognise the regulator’s concerns (even though you disagree with them) and adapt to work with regulator sensitivities and constraints. Building trust and confidence with the regulator over time should facilitate the scope for greater future innovation.
Distribution innovation and consumer protection
Herman Smit, Senior Researcher, Cenfri
The need for innovation in insurance distribution has become evident in developing markets. Low penetration rates across Africa (less than 1% of GDP when excluding South Africa) indicates the difficulty insurers face in broadening their traditionally high-income focus.
The majority of insurance business is still largely corporate policies, with only limited retail insurance penetration. The failure of insurers to enter this market has been attributed to low-levels of affordability and limited reach into a largely rural population with low-levels of access to financial services. In addition, high operational costs, sometimes up to 50% of the face value of the premium have priced risk products out of the low-income market.
Insurance companies have started experimenting with non-traditional channels, significantly changing the distribution landscape. Traditional intermediary channels, that is, agents and brokers, linked the insurance companies with its clients. In contrast, innovative distribution channels can include any number of intermediaries, each falling into one of three categories: aggregator, administrator or transaction platform. Aggregators are used to overcome rural isolation and limited access to the formal financial service sector.
Clients no longer need access to insurance branches, brokers or banking services to buy insurance, but can purchase it from local aggregators, such as Spaza shops in informal settlements (that is, Take-It-Eezi, South Africa). Further attempts to increase accessibility have insurers looking towards innovation in the transaction platform and establishing a close link with technology, in order to improve distribution despite limited payments infrastructure. Finally, to answer the question of affordability, insurers are increasingly using third-party administrators, who play a critical role in enabling insurers to cut administrative costs and deliver affordable policies in the low-income space.
This evolution of the distribution channel raises regulatory concerns such as how to best incorporate non-traditional (non-financial) entities into market conduct regulation. Other questions such as how to align the insurance regulatory body with that of potential aggregators’ such as banks, MNOs, MFIs, SACCOs; and how to ensure clients are provided with product information and appropriate advice, also need to be answered. Careful consideration needs to be given to the need for simplified products, the level of cover provided, the nature of the sales and claims processes and ensuring the consumers have access to recourse channels. Above all, the nature of the client needs to be considered.
This said, access to insurance products will go a long way towards ensuring sustainable development and financial inclusion across Africa, and regulators needs to ensure that in asking these questions, they are not inadvertently ‘protecting consumers out of the market.’
Pricing Challenges in Africa
Johan Potgieter, Senior Actuary at AON Hewitt Actuarial
Insurance companies intending to launch a product need to take cognizance of the product structure and the underlying assumptions used to price the product. We take a close look at each of these aspects below.
Products sold have not met the needs of the market. Companies need to participate in market research to understand what policyholders want. Overcomplicated products are costly to sell and administer. Simple and flexible products ensure greater persistency and an increased level of contributions to cover costs and make a profit.
The investment policy should be considered in conjunction with the products to be sold. Assets should match liabilities by nature, term and currency. The difficulty faced here is the limited size of the investment market and its lack of liquidity. Matching of long-term liabilities is difficult as assets of a sufficiently long term are not readily available. Therefore, companies should consider what products they can sell based on the investment market in which they operate.
Insurers should consider taking out reinsurance as they can benefit in the following ways:
· reduced claim payout fluctuations
· financing new business strain
· obtaining technical assistance
The downside is that there is a limited choice of reinsurers available in Africa and the cost of obtaining reinsurance may not be feasible. Many insurers suffer severe losses as a result of fraud, be it internal or external. Internal fraud generally arises from the failure to split key duties among several employees. External fraud results from policyholders providing the insurer with false information that could possibly alter the insurance companies’ decision to provide cover at standard rates. Rigorous processes and procedures must be put in place to eliminate fraudulent behaviour.
Assumptions are set based on the data that the company has managed to obtain and on the economic environment.
The following assumptions are needed for all products:
· Investment return
· Expense inflation
· Initial and renewal expenses
· Withdrawal experience
· Commission
· Mortality experience
The collection of accurate data is extremely important in the pricing process as this will be the single largest contributor to the setting of assumptions used to calculate premium rates for the product to be launched. The more uncertainty that exists in an assumption, the higher the risk loading (or margins) will be. The more data there is, the smaller the risk margin will be. Uncertainty has a direct impact on the premium rates calculated. Administration is another key area of concern in Africa. The administration systems used are not sophisticated enough to deal with the benefits that the companies offer. The systems that are capable of dealing with complicated product designs are quite expensive and companies are not willing to take on this added expense which could lead to serious data errors down the line. Business decisions will then be based on inaccurate data!
Conclusion
Some important questions that a company should ask prior to launching a product are:
· What products does the market need?
· What products will we offer?
· How will the products be administered?
· Do we have the resources needed to run this effectively?
· How will our investments be handled?
· What measures are available to us to alleviate the risk faced?
Value-Ad with leads management
Glynn Griffiths, Managing Director, Value-Ad
Did you know?
According to an independent study by the Aberdeen Group, between 40% and 80% of leads generated from marketing campaigns are lost without the use of a leads management system. In addition, a survey by RainToday.com found that for most companies, only 10% to 30% of marketing-generated leads were sales ready. Respondents also reported an average of 25% of leads should be disqualified, but that the remaining 50% require further nurturing. This is where a leads management system steps in.
What is Value-Ad?
Value-Ad is a lead management solution which, in partnership with our clients and through our unique technology and management feedback systems, helps to drive up sales in the business.
What is lead management?
Lead management is the link between marketing and sales, enabling the measurement of your marketing spend against your actual sales performance from marketing campaigns. This is the space where lead management systems fill the gap. Through the use of a lead management system, you are accurately able to determine the conversion rates of prospects into sales and ultimately measure your return on investment in your marketing campaign.
How does lead management achieve this?
Leads management is ultimately the tool that enables you to get the right lead to the right sales person at the right time. This is achieved through a matching engine which uses demographic, product and sales performance data to route the lead. Matching is further enhanced through the use of neural networks that identifies critical lead variables and matches to relevant sales staff accordingly. In other words, the right lead is sent to the right sales person every time. All these rules are determined by the company and can be adjusted “on the fly” as the sales force changes or moves.
What are some of the benefits of lead management
With a lead management system in place, the organisation now has access to a full share of wallet through the ability to upsell and cross-sell across the companies’ various divisions. Lead management software works across divisions and breaks down the silos that are built up in the various businesses.
Lead management creates an honest relationship between lead providers and the fulfilment areas. No longer can the sales person say that he or she is getting bad leads, their feedback will determine the quality of the lead as well as their ability to close the deal.
There will be a drop in reputational damage, this is achieved by receiving quality service through all divisions with acceptable turn around and follow up times.
The company will be protected against lost opportunities as no prospect can “fall through the cracks”, so to speak.
The company can achieve lower attrition rates by rewarding those sales persons who give timely and informative feedback and manage those sales persons who do not.
Management reporting can be generated from the feedback received from the sales person. This can be on a very high level right down to a sales person level. This allows management to implement the necessary training or structural changes depending on the results. This management information can then be fed back into the matching engine to further improve the future results from the lessons learnt in the past.
Problems faced when building a new business
Eugene Beck, CEO and Founder of RoadCover Holdings, CEO of Holeman Properties, Founder of the Real Juice Company, Founder of Octane Hedge Fund
The Birth of RoadCover Holdings
When I was a young man, I had the burning desire to achieve the extraordinary at all costs, but I soon discovered that social capitalism was a better option.
It’s not all about the money; it’s about doing something and having fun while doing it.
The idea of RoadCover sprang from a blend of experiences and took me four years to get it right. When you spot a timely opportunity to launch something extraordinary, you do whatever you need to do in order to survive and make it work.
Sure, you find yourself wondering when all the effort you have been pouring into the project will pay off. I recall a friend sitting me down, as an entrepreneur, that’s when it starts to get really tricky, and saying:
“You do 14 hours a day, you work weekends, you go to sleep and wake up thinking about the business. When’s it going to end? “
Finding your second wind to carry on and make it work is the toughest part.
I have a theory that human capital in business is treated as if it is an automated pencil sharpener. In other words, the power of human capability is far underrated by corporations: tell the hired people what to do and expect nothing more. My belief is that there is much more in everyone than we can ever imagine.
I don’t believe that just doing business with people will make a difference. If you communicate properly, educate and measure performance, people will respond in a positive way. When you reward and recognize people when they do well, you can get the best out of them. That’s what I’ve been passionate about for the last 25 years.
RoadCover’s success is living proof of this philosophy. Every person who joins the company still gets an induction from me. That requires a huge amount of energy and commitment, but hey, as they say, if you find something you love, you won’t work a day in your life.
One of the dangers I saw when starting out was just going off and getting loads of clients without putting the back office in place first. As a go-getter kind of a guy, it’s easy to go “balls to the walls” and acquire new clients, but if you don’t have your back office with all your processes in place, they are just going to fall off at the other end.
I’m a great believer in starting with the end in mind. The values you create within an organization need to be so sound that when you do decide to sell it off, the value structure will not weaken and will be carried through for years to come.
There’s no temptation to take the money and go and sit in the Caribbean. I’ll probably die with my boots on.
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