«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
3 Training Since organizations are unlikely to be able to recruit people with microinsurance experience, they need to compensate by making significant investments in staff training. However, this is not borne out by experience in the field thus far. The case studies show that staff training remains one of the greatest areas for improvement.
One of the main causes of the problem is the prevalence of mandatory products. Where insurance is compulsory, training is largely overlooked or limited to basic product issues. This experience was most clearly seen when FINCA and AIG Uganda switched from voluntary to mandatory insurance, and soon after neither staff nor clients had a particularly good idea of the costs, benefits or claims procedures (McCord et al., 2000).
Even when the product is voluntary, many microinsurance providers admit that the training of frontline staff is one of their most significant challenges. At Delta Life, for example, microinsurance salespersons learn on the job, without any formal training. TUW SKOK, Columna (Guatemala) and La Equidad all try to train the credit union staff, but high turnover undermines their efforts. To overcome this problem, TUW SKOK has set up regional offices that are primarily responsible for providing training, usually in the evenings or weekends when credit union staff are not busy with their primary responsibilities.
VimoSEWA is taking the training challenge seriously. With the assistance of an outside expert, it has developed training plans for each staff member.
The process was to document existing skills and those which were lacking, and then prioritize the needs of each individual. The Vimo Aagewans had particular emphasis placed on product knowledge, claims processing and sales skills.
In general, training for frontline personnel should include:
– details of the pilot test results (for new products);
– familiarity with the operations manual;
– strategies for adult education, including how to use educational tools;
– demonstrations on how to use marketing materials, such as pamphlets and posters;
– role-play exercises enabling staff to make mistakes in the classroom rather than in front of clients;
– customer-service training and – an examination to ensure that a level of understanding has been achieved and to identify those that require re-training.
It is important that insurance training is not limited to frontline personnel. For example, before launching a pilot test, Opportunity International provides loan officers, supervisors, branch accountants, branch managers, MIS operators and heads of department with a one-day course covering the basics of insurance, answers to frequently asked questions (FAQs) and specifics of how the new product will perform. Since microinsurance is a new field, international exposure for managers and directors is also advantageous as it enables them to share experiences with others involved in similar schemes.
Lastly, training is not a one-off phenomenon. Microinsurers should regularly upgrade staff skills with the intention of creating a career path that will enhance staff retention.
4 Compensation The staff turnover problem identified above is largely associated with compensation. For microinsurance to be affordable for the low-income market, costs have to be low. Yet labour-intensive delivery systems that manage large volumes of small transactions can easily become expensive. Consequently, microinsurers try to keep staff costs as low as possible (see Table 29), which may result in high turnover and low productivity.
Organization development in microinsurance 281 Average monthly earnings for frontline staff (US$)* Table 29
*Note: These agents often only work with insurance on a part-time basis.
Indeed, one of the more interesting questions about microinsurance revolves around appropriate compensation mechanisms for field staff and agents. For voluntary insurance, how does an insurer reward sales to achieve greater outreach and impact without pushing insurance onto poor people?
Delta Life recognized this problem and initially created a stepped salary structure based on monthly premiums (average for the previous quarter). Its incremental rather than linear incentive system was intended to reward good performers without creating a strong pressure to sell. Yet today, after a period of poor sales, Delta’s management is experimenting with a commission-only approach used by the conventional insurance scheme to boost penetration.
As discussed in Chapter 3.2, there will always be a danger that remunerating people to sell voluntary insurance will cause them to sell products that people do not really need. However, the danger of not compensating field staff adequately is that they will either not sell the product, or they will minimize their efforts, leading to ill-informed or misled clients. The remuneration should motivate sales and provide customer service. To ensure that policies are not mis-sold, management should regularly interview clients as part of its market research or needs analysis programme to assess their understanding.
A related issue is who should receive the incentive – the delivery channel or field staff (or some combination)? Where insurance is mandatory, it does not make sense to reward individual agents, but the situation is different with voluntary products. For example, since TUW SKOK is not in a position to force credit unions or their staff to do anything, its primary means of influencing performance is through incentives. With different products, the insurer has tried different means of structuring commissions to reward credit unions and agents. Although there is not yet sufficient evidence to assess which combination of incentives is most effective, TUW SKOK is tilting the incentives more towards credit unions than individual agents to garner 282 Microinsurance operations
third month is higher than in the second month to create an incentive for agents to encourage clients to budget accordingly. After the third month, there are no further commission payments to the sales agent. This is possible because of the separation of responsibilities between sales and premium collection. Seventy per cent of the premiums are collected door-to-door, not by the sales agent, but by a premium collector.
In general, since the sums insured are very small, it is difficult for commission amounts to be large enough to influence agent behaviour. The commission of 10 to 20 per cent, which is the typical range, amounts to relatively little for microinsurance agents. Other techniques are therefore also required to motivate sales. For example, Tata-AIG organizes an annual conference and invites its most successful micro-agents. The insurer also has contests from time to time to enhance persistency and stimulate new business, such as the one depicted in Figure 19. To stimulate competition among its agents, TUW SKOK rewards the top 20 salespersons with a trip to Rome or Paris for two (thus also rewarding spouses or partners for their support and sacrifice).
In designing microinsurance compensation, it is useful to consider a differentiated approach. The salary structure at Grameen Kalyan is based on the distance of the work place from the capital city – the more remote the area, the higher the salary – encouraging people to work in rural areas. In contrast, VimoSEWA recruits its Vimo Aagewans to work near their residence and pays more to urban than rural promoters because of the higher
cost of living. At ServiPerú, agents are classified into four categories depending on how long they have been with the organization and their sales record:
New Executives, Junior Executives, Master Executives and Premium Executives. The basic monthly salary varies according to category; Premium Executives earn more than Master Executives, etc. Each category has a different minimum number of plans to sell each month: the higher the category the greater the target.
From ServiPerú’s experience, setting customized targets for each salesperson is an appropriate way to control exaggerated enthusiasm for sales, achieving a manageable growth pattern. VimoSEWA plans to experiment with incentive compensation based on the renewal ratio, sales targets and the number of family packages sold. Indeed, incentives that reward client retention and persistence are likely to be more appropriate for microinsurance than incentives strongly linked to sales.
284 Microinsurance operations Kharif Hungama sales prizes Figure 19 Organization development in microinsurance 285 5 Institutional culture Although microinsurance has to abide by the same basic principles as traditional insurance, it needs to do so with a keen appreciation for the unique characteristics of its target market, in particular the reluctance of low-income households to spend their very limited resources on something that lacks a tangible benefit. The culture of a microinsurer has to marry a social concern with an appreciation for the bottom line.
Any organization that strives to serve both the poor and mainstream markets will need to take positive action to ensure that its field staff are actively serving the poorer segments. Incentives based on sales volume will always reward those that sell larger-value policies, so staff will be tempted to sell fewer, larger policies rather than many small policies. One way to overcome this is to separate the sales forces, with different standards and reward systems for different market segments. The means of distribution will also differ, with poorer clients requiring more frequent field visits, and wealthier segments requiring fewer but longer contacts, typically in an office setting.
Combining service for the poor with serving the not-so-poor will be difficult unless the board and management are fully committed to serving the lowincome market.
This hybrid of insurance and social development was clearly recognized at Delta Life, which sought to create a distinct culture for its microinsurance activities. It completely separated the microinsurance and Ordinary Life staff, both in the field and in the head office, to create distinct working environments. A key reflection of the different cultures is evident in the responsibilities of field staff. Microinsurance field workers, known as “organizers”, manage the entire relationship with the policyholder, including premium collection, loans and loan repayments and claims, whereas Ordinary Life agents, working on a commission basis, fulfil primarily a sales function.
Other manifestations of a microinsurance culture include:
– Relationship building: Microinsurance requires field staff to focus more on building a relationship than making a sale. Delta and VimoSEWA have structured their activities so that agents are responsible for sales as well as service.
This emphasis can be reinforced through retention-based incentives.
– After-sales service: VimoSEWA emphasizes after-sales service, ensuring that members know what is covered and receive any assistance they require in preparing claims documents. The higher costs of these activities are expected to be offset by enhanced customer retention.
286 Microinsurance operations – Claims processing: Many conventional insurers find ways to discourage policyholders from submitting smaller, so-called nuisance claims, by specifying exclusions, including deductibles, making claims documentation difficult, charging a claims service fee or imposing a graduated increase in premiums for the number of claims made. In microinsurance, providers have to enhance the market’s trust of insurance by minimizing exclusions, making it easy to submit valid claims and even seeking out beneficiaries who may not have realized that they can claim.
– Claims rejections: Microinsurers need to minimize the likelihood of claims rejection. If VimoSEWA’s insurance partners reject a claim that it feels should be paid, it assumes the liability for these extra-contractual claims. If claims have to be rejected, microinsurers need to find a way of communicating that result in a way that makes the decision acceptable to the claimant. For example, to lessen the impact of a rejected claim, VimoSEWA may send out head office staff members to explain the reasons for rejection to the members and to the community, while trying to strengthen trust and confidence in the scheme.