«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
Early on in its relationship with AIG, FINCA Uganda recognized that its staff had limited sales skills, so it organized marketing training by a professor from Makarere University. These new sales skills led to significant improvements in growth, from a 5 per cent participation rate to over 40 per cent the year after the training. Later, however, the insurance product became mandatory for borrowers, after which all selling ceased and even information dissemination was neglected (McCord et al., 2000).
Microinsurance requires a different sales culture from conventional insurance. Instead of telling people about the product and its benefits, agents need to guide prospective clients towards the conclusion that emergencies are expensive and that they are vulnerable to emergencies by asking about their experiences or the experiences of their neighbours. They act as advisors instead of salespersons, helping low-income households to recognize what risks it would be appropriate to manage through insurance. In general, because of the target market’s lower literacy levels and lack of confidence in formal insurance, microinsurance agents are required to be hands-on and personally involved.
To activate the customer, microinsurance marketing has to activate the seller, and this is where things get a little sensitive. Microinsurers want to reward and encourage sales without pushing insurance onto people who do not really want it. Finding this balance is difficult and can represent a slippery slope. Microinsurers who claim to operate in the best interests of the client must actually do so. For example, although the insurance provided by ASA (India) is nominally voluntary, in practice, the scheme has the same number of borrowers as policyholders. Members feel obliged to buy insurance, as they think they may otherwise not receive the loan (which is what
they really want). Some strategies to find this balance include:
– Setting moderate sales targets that can be achieved without aggressive measures. If microinsurers try to push agents to achieve large volumes, they might have to resort to sales techniques that are not in keeping with the spirit of microinsurance.
– Balancing sales commissions with re-enrolment incentives to ensure that service gets the same attention as sales.
– In commercial insurance companies, setting up a separate operational department for microinsurance so that it can develop a unique sales culture.
– Encouraging the sales people to buy insurance as well, so they can speak from experience.
Delta Life has learned a few things about which sales incentives are worth avoiding. Initially, it front-loaded commissions for new policies, which encouraged some agents to use part of their commission as an unofficial first year discount. Agents were paying a portion of the first year’s premiums out of their own pockets, and when policyholders had to pay the full premium themselves, many policies lapsed. Another misplaced incentive scheme provided a crockery set to agents who sold a certain number of new policies, only to find that agents teamed up and submitted contracts under one agent’s name, and then shared the dishes.
Of course, all of these marketing strategies come at a cost. Some microinsurers see marketing as an expense rather than an investment, and are therefore reluctant to commit enough money to promoting their schemes. There is also a problem at the other extreme, particularly with commercial insurers that pay overly generous commissions.4 However, how much is enough, and how much is too much? The amount varies by product line, the maturity of the scheme and the institutional model, from a low of 2 per cent to as much
as 40 per cent of premiums. Individual products require greater marketing investments, especially when taking into consideration the field agents’ commissions. For group business, marketing expenses should be much lower. As a general rule, marketing expenses for group microinsurance products (including commission) should be in the range of 5 to 15 per cent of premiums.
Overall, however, marketing is not one of the strengths of most microinsurers. Yet given the reluctance of the market to accept insurance, greater attention, creativity and resources are required.
3 After-sales service One way that microinsurance demonstrates its uniqueness in relation to conventional insurance is by de-emphasizing sales and emphasizing service. Service in insurance parlance is largely linked to claims: making sure clients know how to make claims, assisting them in meeting the documentation requirements, and ensuring that claims are paid quickly with a bare minimum of rejections. In addition, continuous reminders about the product may be necessary to ensure that an illiterate market does not lose sight of its insurance coverage.
This emphasis on after-sales service is necessary. It can be seen as an extension of an on-going process of building trust between the insurer and the policyholder. Furthermore, for schemes that have already invested so much in its customers, through awareness-raising, education and so on, it is extremely inefficient to then lose those customers due to poor service. Excellent service creates a demonstration effect whereby the non-insured begin to see that the insurer means business, that it is fulfilling its obligations, that it is trustworthy. Excellent service can be a marketing strategy as well, since it stimulates positive word-of-mouth advertising, which is often one of the most powerful marketing channels.
Given the importance of after-sales service, one of the shocking deficiencies of many microinsurance schemes is that the client often does not receive a policy document that explains the benefits, exclusions and claims procedures.5 Such information, and an accompanying explanation, is necessary to reduce rejected claims. When policyholders understand what is and is not covered, they are less likely to submit claims for losses that are not covered.
5 One explanation for the lack of written material is the fact that the target market is often illiterate.
However, in most markets, illiterate adults usually know someone who can read, often someone in their own household. Another explanation is that in some cultures, like parts of India, people do not trust written information. More realistically, however, the main reasons are: 1) not wanting to invest in printing costs and 2) not wanting to be tied down to specific terms and conditions, neither of which seems particularly justifiable.
Marketing microinsurance 193 VimoSEWA had the opposite problem. After several years of surprisingly low claims rates, it realized that many policyholders were eligible to make claims but did not submit them. Consequently, in 2003, VimoSEWA initiated a strong after-sales service campaign. Now Vimo Aagewans establish contact with members between enrolment periods to re-explain coverage, ask if they have been hospitalized and assist in claims submission. Policyholders receive a poster to hang on the wall as a reminder of their membership, which contains the name of their sales agent and the office’s address and phone number to make it easy for the member to ask for assistance. In addition, all members are given a pre-stamped and pre-addressed postcard, which they can mail to the office if they need an Aagewan to visit them. VimoSEWA expects that these measures will make it easier for members, particularly poorer ones, to submit claims. Because of these interventions, current renewal rates are now at an all time high.
Despite efforts to educate clients and ensure that they understand the benefits and the claims process, there will invariably be some claims that have to be rejected. The microinsurer (or its distribution agent) has another important after-sales responsibility to convey to the insured – and perhaps to other community members as well – why the claim was rejected in such a way as to lessen the negative impact of the rejection and to turn a potential public relations nightmare into an education opportunity. For example, to lessen the impact of a rejected claim, VimoSEWA has improved its communication to members and the community through visits from the Vimo Aagewan accompanied by head office staff members.
Furthermore, a claims appeal process is needed to ensure that policyholders receive appropriate treatment, although in practice few microinsurers have such an arrangement. TUW SKOK is an exception. In its clearly defined claims appeal process, a member who is dissatisfied with the adjudicator’s determination may appeal the claim in writing. All appeals are reported to TUW SKOK’s board for consideration. Reversals or modifications to benefits usually occur with disability claims, for example if the policyholder submits supplementary medical information leading to an increase in benefit.
The final aspect of after-sales service is measuring customer satisfaction and monitoring retention. Microinsurers generally make a better job of the latter than the former, although measuring retention is tricky with mandatory insurance since the organization does not know how insurance is (or is not) contributing to desertion. In general, there is a greater need to understand why policyholders are not renewing their cover.
194 Microinsurance operations 4 Marketing and mandatory insurance An interesting marketing challenge emerges in organizations where insurance is compulsory. As described in Chapter 3.1, there are many advantages to mandatory insurance for insurer and policyholder alike, but to fully appreciate those advantages, microinsurance schemes need to compensate for the equally glaring disadvantages, especially the marketing problem.
When insurance is mandatory, there are essentially no sales activities involved. Someone gets insurance cover automatically because she or he has obtained something else, perhaps a loan, or opened a savings account. Consequently, the distribution agents tend to overlook the clients’ need for information. From research among MFI clients with compulsory cover in Uganda (McCord et al., 2005a) and Zambia (Manje, 2005), a number of common
– Clients do not know they have insurance – If they do know, they may not be aware of all of the benefits – They may not know how to make a claim – They consider compulsory insurance as a cost of getting a loan – They do not know how much they pay for insurance because premiums may be deducted from the loan or combined with other fees – most think they pay more than they really do – Some feel that they deserve a premium refund if they do not make a claim To overcome these perception problems, the distribution agents have to treat insurance as a complementary service and persuade clients of its usefulness. Marketing for mandatory insurance essentially focuses on increasing the membership or consumption for whatever is the driver to which insurance is linked, such as a loan, credit union membership or employment. In this context, insurance needs to be presented as a valuable, additional benefit, not a cost.
Product information provided to clients should be standardized and simplified to avoid claim rejections resulting from misinformation. As a minimum, organizations should provide a simple brochure for each client showing the breakdown of fees and benefits, and describing the claim settlement
process. According to Manje (2005), even though the products are mandatory, there are several opportunities for insurance marketing, such as:
2. Highlighting the menu of financial services with prices to market mandatory insurance in a full package of services, not as a condition for getting a loan.
3. Showing clients how much they would have to pay for the same cover if they bought it on their own. Since individual insurance products are often several times more expensive than group policies, this is an important selling feature to persuade people that they are getting a great deal from the mandatory group policy.
4. Making the product real. Use testimonials from beneficiaries who have received settlements to communicate the importance of receiving that settlement when the family needs it most.
5. Promoting the solidarity nature of insurance so that people do not feel that they have wasted their money if they do not make claims.