This is a guest post written by Richard Leftley and Peter Gross from MicroEnsure, a company that serves 15 million people in 17 countries around the world with insurance. This post is part of a guest series looking at lessons learnt from mobile insurance. Read the first and the third guest posts.
Mobile insurance has established itself as one of the fastest-growing business models in mobile financial services in emerging markets. Although MicroEnsure did not invent mobile insurance, many of the fastest-growing models are now based on the “freemium” product we built for Tigo Ghana in 2010, which has since launched in 13 other markets across Africa and Asia.
As mobile insurance has grown, a debate has emerged regarding high-touch vs. low-touch distribution models. In high-touch models, agents are used to sell and educate customers, whereas in low-touch models, the majority of sales and education occur through a mix of above-the-line channels, such as radio, TV, billboards; and below-the-line channels, such as SMS, USSD, balance notification, and IVR.
The initial logic for utilising agents in MicroEnsure’s original model in Ghana was that because 90% of mobile insurance customers were previously uninsured, these customers would need a great deal of explanation about the product. However, during its initial roll-out, MicroEnsure discovered that customers were more than willing to take up a free mobile insurance product based on its perceived value and connection with a mobile operator brand, whether or not an agent was present to explain the product.
As a result, MicroEnsure primarily utilises a low-touch distribution model in its mobile insurance business, with the rationale being:
1. Low-touch distribution models lead to high growth
As documented in multiple studies, “freemium” insurance – where subscribers receive free insurance in return for meeting minimum spending requirements for the partner operator – has established itself as the fastest-growing model in mobile insurance. MicroEnsure is aware of at least 22 freemium insurance models launched since 2010, and yet the most recent product launched with an agent distribution model was in June 2013. This example, where free insurance was distributed by agents, is striking because although the mobile operator has more than 55 million customers, industry information indicates that fewer than 3% of the subscriber base were signed up for insurance within the first two years, and the product providers have communicated that the service would be cancelled in July 2015. By contrast, when MicroEnsure launched its freemium product on an agent-less basis with Airtel Nigeria, the product reached 3% penetration of the subscriber base in less than 6 months. Agent-less mobile insurance has truly demonstrated that, when the value proposition is sufficiently high, insurance can be “bought” and not “sold.”
The lesson for MicroEnsure is that agents neutralise the large user base availed by a mobile operator, as the product can only grow as fast as agents can sell it. As a result of the smaller risk pool, underwriting is more expensive, and the resulting price of the insurance product must increase. More importantly, agents increase the end price to the operator; MicroEnsure was told by one of its operator partners that an agent-led model offered by a competitor was more than 300% more expensive than an agent-less model. Without a mobile operator’s willingness to pay, the high-touch freemium model is dead on arrival, as the last two years of mobile insurance market history have demonstrated.
2. Benefits are the Best Customer Education and Retention Tool
MicroEnsure has found in its 12-year history that low-income customers are very well-educated about risk because they face it on a pervasive and various basis. Whereas higher-income customers must be sold on insurance, due to the relatively low level of risk they face, low-income customers are well aware of risk and merely need to find solutions to help them manage their risk.
This awareness of risk in the consumer base has led MicroEnsure to continually increase the benefits available in its free insurance products. Whereas our mobile insurance model started by offering life insurance only, in 2014 we added accident and hospital cash insurance to our core mobile insurance offering in Africa, calling it “3 for Free.” The increase in benefits has led to an increase in claims, which is also correlated with an increase in subscribers. As a case study, we launched the same “3 for Free” product (without agents) in a market where we had previously offered free life insurance only (with agents), and we saw a drastic increase in claims (1,000%) and policyholders (450%) during the first year.
In essence, when you remove the high cost of agents, you can provide meaningful benefits that consumers appreciate and can reasonably expect to receive, whilst achieving excellent penetration and loyalty benefits for operator partners.
3. Agents Turn Mobile Insurance into a Jobs Programme
When agents are involved in mobile insurance, consumer benefit by definition must decrease. Insurance is simple math, and mobile distribution makes insurer margins increasingly thin. Therefore, operators must choose where they want to create value. When agents are involved, the agents themselves clearly benefit from having a job; however, because customers receive little tangible benefit, such a programme can hardly be said to be designed for them. Agent-led mobile insurance models benefit thousands of agents (as well as the companies that own them), but not the millions of customers.
In the perspective of MicroEnsure, if agent fees – instead of customer benefits – continue chewing up the lion’s share of small mobile insurance premiums, such models are unlikely to see high renewal rates, and are equally unlikely to create durable financial inclusion. Consumers at the bottom of the pyramid, who must be the most value-sensitive consumers of all, are sure to prefer models which provide value for money over those which merely micro-ize the traditional insurance gimmick of collecting premiums with no expectation of claims.