Using Mobile/Agent Channel for Insurance/Pension - MicroSave

Using Mobile/ Agent Channel for Insurance/Pension

Premasis Mukherjee Practice Group Leader, Microinsurance, MicroSave

CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of MicroSave is strictly prohibited

MicroSave MicroSave Market-led solutions for financial services Market-led solutions for financial services

Why Microinsurance Needs BC Channel Microinsurance covers only 9% of target population in India

Micro pension market size: 350-393million

Microinsurance (MI) and Social Microinsurance (SMI)coverage in India (2012) 278

300

6.5

Millions

250

MI

200

50

0

4.25

SMI

150 100

Outreach of Unorganised Sector Pension in India

18

48

16

2

22

1.11

58 5

NPS Lite

Life

Health

0.65

Agriculture

Property

Accident

Abhaya Hastham

Welfare Schemes

Private

Sub-optimal Distribution

Cost of Microinsurance delivery overwhelms revenue Cost

Average claim expense ratio (claim cost/premium) for private

30.47%

20%

Commission to aggregator

48%

- Client acquisition cost, - Underwriting and policy issuance processing cost - Paper and stationary cost, - Travel cost, - Product development cost, - Claim processing cost - Allocation of central office staff cost

Premiu m

30 20 10 0

Anticipated Aggregators Unable to Reach Scale 300,000 200,000 100,000 0

Number of Aggregators Number of Subscribers

Number of Subscribers

10%

Salary cost for relationship managers, with productivity of INR1.4mn premium/year

Number of Aggregators

Detail of Insurers' Costs in Microinsurance

Source: PFRDA and MicroSave

Source: MicroSave Analysis

MicroSave Market-led solutions for financial services

2

Apparent Value in the Eco-system Insurance/Pension Industry •

FI/BC Industry

Insurer are used to deliver product through agency relationship

•

Need of alternative channel to deliver micro products

•

Need conduit to collect premium at high frequency

•

Reduce technology cost of delivery

•

Lower client acquisition cost

•

Opportunity to get >230,000 customer touch points

•

Account opening ceases to impact BC income

•

Viability issues in BC in single product suite

•

Low transaction volume (approx.9) for CSP with 2 years vintage

•

32-47% CSP attrition, a majority of which is for low income

•

potential increase in CSP income (as high as 37%) if insurance is offered

But •

Insurance is not service intensive, but acquisition intensive

•

Insurance and BC activities have misaligned incentive

•

Exclusive agents operate at high incentive environment

•

Insurance is not high transaction business


3

Landscape of Mobile Insurance in the World

Insurance Companies

MNOs

Other Players


4

Distribution Models: The Value Chains in mInsurance Telecom Regulator Insurance Regulator Insurance Agents

Insurer owned channel

Insurance company

Technology Provider

Customer

Third party channels Customer Service Provider

Third party Agent Manager Possible Options (Regulations Dependent) Insurance Company

MNO Partner(s)

Insurance Company Insurance Company

Bank

Insurance Company

Agent Networks

Insurance Company Insurance Company

Insurer owned channel,;

Exclusive agents

Bank

Bank agents Agents Agent Network

Bank

MNOs direct insurance distributor

Agents MNOs

Insurance through bank agents Agent Network as insurance agent Agent networks as brokers Insurance by MNOs as Bank Agents


5

Insurer Owned Channel Example

Insurance Company

Insurance Agents

Technology cost -Cost in training of agents -

Technology Provider

Structured planning on sales and agent management possible -

Low premium products are not attractive for incentive -

-

Hassle free selling

-

Quick Turn around

Clients Poor solicitation -Trust /tangibility -


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Insurance Through Bank Agents PSU Banks, India

Example

Insurance Company

Insurance Company

Bank

BC of Banks Technology Provider

Insurance Company

-Access

to bank clients -No technology cost -Low cost on training and maintenance of agents -Fee

income from 3rd party product -Cross-selling opportunity -Option of own brand --Income

enhancement (3040%)

Clients

--One

stop solution for financial needs -Option of choice

-Non-exclusivity

of brand and product -Quality of sales -Supervision cost -Additional

training cost of staff/agents on insurance -Incentive misalignment -Effort

required in selling is higher than other products

-Confusion

on “product owner”


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Agent Network Manager as Insurance Agent/Broker Example

Insurance Company

Insurance Company

ANM

CSP of ANM

Insurance Company

Indian ANMs, IRDA Recommendation

-Access

to new clients -No technology cost -Low cost on training and maintenance of agents -Fee

income from 3rd party product -Cross-selling opportunity

-Non-exclusivity

of brand and product -Quality of sales -Supervision cost -Additional

training cost of staff/agents on insurance -Incentive misalignment

enhancement (3040%)

required in selling is higher than other products

--One

-Confusion

--Income

-Effort

Clients stop solution for financial needs

on “product owner”


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ANM selling insurance as Bank Channel Supervision across elongated value chain Quality & brand -

Insurance Company

Insurance Company

Insurance Company

--Multiple

touch points

-Non-exclusivity

Bank

Bank

ANM

-Fee

income -Less training cost

ANM

-Compliance

cost

-Incentive

distribution -Incentive

-Cross-selling

distributed -Coordination of services

CSP of ANM -Effort --Income

enhancement

required in selling is higher than other products -Low incentive

Clients --Ease

of access -Choice of products

-Poor

solicitation -Trust issue


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MNO as Insurance Distributor Example

Insurance Company

-Access

to MNO clients -No technology cost -Able to collect premium on high frequency -Group policy possible

-Need

to re-design information pathway

MNO -Reduced

Retailers

churn -Higher usage -Fee income

-Management

decision -Product design cost

--hassle

free sales/fee income -(if at all retailers are used)

-Efforts

in processing claim documents

--Ease

-Tangibility

Clients of frequent payment

not ensured

MicroSave 10 Market-led solutions for financial services

Value Across Business Models Differ Value chain in Mobile Insurance Stakeholders Regulator

Insurer

Agents

Banks/MNO

Clients

Stakeholders’ concern Client protection, AML/CFT Example


Business potential, portfolio quality, brand sanctity Value for insurer

Value for Bank

Earning potential, extra effort

Value for MNO

Value for agent network

Convenience, trust, needs fulfilment Value for agents

Value for clients

Max Vijay

-Group policy arrangement -Hassle free sales Tigo, Hollard --Product bundling -New customer -Training of agents for PSU banks of Bank owned selling India, Equity -High fee income agent/BC channel -Access to new clients Bank, Kenya -Less focussed -Training of agents Some pilots in -New client base ANM as insurance India with FINO, -Low brand sanctity -agent/broker Eko -Effort misaligned with other products -Training cost Agent network -Supervising cost for -Distributed incentive managers as bank elongated value chain -Low brand sanctity channel -Non-exclusivity MNO as direct distributor

M-PESA linked MNOs as payment sales of gateway insurance

-Cost of managing multiple small policies -New customers -Low ticket product

-Higher float balance

-Low customer churn -Higher usage -Fee income ..

…..

…..

-Loyal clients -Higher number transactions - Higher income

-Easy access -Low cost

- Easy access

--

-Effortincentive misaligned with other products

--

- Incentive distributed -Low incentive - Poor solicitation over long value -High effort sales chain

-Fee income -Higher float balance

......

-High effort sales -Choice of than other products product --Easy access

- Higher transaction

-Ease of frequent payment


Trend on MNO led mInsurance :Function of Value Value chain in Mobile Insurance Stakeholders Regulator

Insurer

Agents

Banks/MNO

Clients

Stakeholders’ concern Client protection, AML/CFT Example


Max Vijay

MNO as direct distributor

Tigo, Hollard

Business potential, portfolio quality, brand sanctity Value for insurer

Value for bank

Earning potential, extra effort

Value for MNO

Value for agent network

Convenience, trust, needs fulfilment Value for agents

Value for clients

PSU banks of Bank owned India, Equity agent/BC channel Bank, Kenya Some pilots in ANM as insurance India with FINO, agent/broker Eko Agent network managers as bank channel M-PESA linked MNOs as payment sales of gateway insurance


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Questions in the Model and Emerging Options Who Sells? Agent Enrolment : Agents sell insurance to clients Sales Third Party Enrolment: Retailer/agent of associated partner enrol Agent-less Enrolment: SMS /USSD based enrolment

Who pays? Loyalty Products : MNO pays premium Premium Payment

Claim Processing

How is Premium paid? Airtime deduction: paid from airtime, processed by TPA

Freemium products : Loyalty + Top-up option

Wallet based : client pays from mobile wallet balance

Voluntary Products : Clients Paying full Premium

Pre-paid instrument based: premium collected on high frequency and paid to insurer at monthly/semi-annual basis

How is Intimated?

How is claim settled?

SMS/Call centre intimation: Client intimate MNO who intimate insurer of claim

Wallet settlement: claim amount credited to mobile wallet

Agent intimation: Submission of document at MNO agent

Bank settlement: claim amount credited to bank, intimated through SMS/call


Loyalty Products: Performance and Design Considerations Design Logic

Performance

• Value for MNO: • High retention rate, • High Average Revenue Per User • Cost • Premium cost • Marketing cost • Design • Entry criteria • Additional coverage based on usage • Criteria: • Minimum airtime balance • Number of transaction in m-wallet • Minimum wallet balance

• Tigo Family Care, Ghana • 550,000 policies • >1mn lives • Break-even : 8-10 month • YuCover, Kenya • Break even period: 5 month • Outreach: 700,000 • 10-15% increase in ARPU • 20% decrease in churn • US$5 additional revenue/used/yr

20

2,000

15

Max. Airtime Bal 1,500 Max. SA 1,000

10 5

500

0

0

4 3 3 2 2 1 1 0

350 300 250 200 150 100 50 0

Min. Sum Assured (USD)

2,500

Max. Airtime Balance(USD)

25

Max. Sum Assured (USD) Min. Airtime Balance (USD)

Low Entry Point and High SA Multiplier Proved as Key Success Factor min. Airtime balance Min. SA


Freemium Products : The Next Option Why? • Value for MNO: • Loyalty benefit • Commission income • Value for insurer: • Enhanced pool • Entry of new clients into voluntary insurance • Value for clients • Additional coverage at minimum additional cost • Well tested products/provider

Who? • Faraja Insurance (Vodacom-M-Pesa, Tanzania) • Free funeral insurance of SA USD121 if #transaction >10/month • Additional funeral cover + accident cover for sale • E.g. USD3 gives • Funeral benefit: USD605.8 • Accident cover : USD1,817.41 • Tigo Xtra Life, Tanzania • Double the cover by paying USD0.68 p.m. from airtime/m-wallet • Daily deduction of small amounts • Tigo Hospital Cash Plan, Ghana • Hospital insurance (term 30 days) available for USD0.47 deducted on daily basis • Renewed if airtime usage continued

How? • Design • Entry criteria for loyalty insurance • Additional free coverage based on usage (like loyalty products) • Option to increase coverage by paying from mwallet • Frequency of payment matching to usage pattern • Marketing through client reminders

So What? • Faraja Insurance (Vodacom-M-Pesa, Tanzania) • >50% of free insurance providers opted for top-up options • Tigo Xtra Life, Tanzania • >55% of free insurance clients became paid-for clients • Challenges in • Criteria for new area • Simplicity of communication • Embedding new benefits • Paying process


Voluntary Insurance Products are Dissimilar in Nature

Efforts Required in Selling

Term Life Agriculture

Fire and Property

Funeral

Pension

Personal Accident Motor Insurance

Endowment Credit-linked products

Health

Complexity of the Product


Level of Solicitation the Channel is Used To

And So are The Channels that Promote Them

Insurance Agents

BC agents

MNO Agents

Linked Product

Specialisation and Training in Insurance


Level of Solicitation the Channel is Used To

Efforts Required in Selling

Channel-wise Product Mapping Might help

Insurance Agents

Term Life

Agriculture

BC agents

Fire and Property

Funeral

Pension

Personal Accident

MNO Agents

Motor Insurance

Endowment

Linked Credit-linked products Procuct

Health

Specialisation and Training in Insurance Complexity of the Product


Questions before an MNO for Insurance Implementation Design Level: Which profile of customers should be targeted and what level of benefit will comprise of a suitable product? •

Customer Level • Entry criteria • Entry levels

•

Benefit Level • Type of benefit • Quantum of benefit

Finance Level : Whether the investment in insurance is justified ? Cost: Premium Marketing

Implementation Level: How should the product/s be implemented in market?

Process Level: What kind of processes should create an efficient process of delivery? • •

• •

Coordination • Amongst agents and MNO • Amongst MNO and insurer Design of processes • Sales and enrolment • Premium payment • Claim settlement Incentive across value chain Marketing and promotion plan

Benefit: Reduced churn Additional balance/ transaction: ARPU

• • • • • • •

Design of product with insurer Third party involvement and rationalisation Design of pilot Assessment of pilots Launch of product Training of stakeholders Marketing of product


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