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Marketing Microinsurance
While microlending continues to grow in popularity, microinsurance hasn’t garnered the same popular support. Why??
The reason for this has nothing to do with the relative merits of either financial service as a tool of economic empowerment –surely,
if one is offered a loan from a bank, one should also be able to access other
financial services.
Many people don’t have loans from a bank at the moment – but we do have savings and we do have insurance and these are, for most of us, more
critical to our own well-being.
What about you? The point is that you have choices, right?
So if it isn’t true that access to credit is more important than savings and insurance, what’s the reason for our general lack of interest?
It’s pretty simple: Microinsurance as a ‘cause’ is in need of serious marketing overhaul.
The “story” of microcredit has been effectively relayed to us by its proponents.yes""> Thanks to Kiva and the follow-on crop of personal microlending
sites, we can see a picture of a women’s group proudly posing next to its newly-opened
(thanks to their loan!) restaurant business in Bolivia, or read about a Malawian
entrepreneur who plans to expand her small clothing business with her microloan. We feel connected to the people
benefiting from the microfinance loans they receive and we also are told how we
can help. So we do.
Sure, the reality of microcredit is far more complicated than these glossy pictures and hopeful anecdotes might lead us to believe. But as an awareness- and capital-raising
strategy, the approach has been an unequivocal success. The industry’s challenges related to transparency,
interest rates and collateral are contended with by microinsurance professionals,
leaving the rest of us to enthusiastically support its trajectory.
Meanwhile, on the margins of the microfinance world, microinsurance is quietly championed by members of the nonprofit and development communities. Much of this advocacy is lacking the
two key features of microcredit outreach:
we don’t feel connected to it
and we don’t know how we can
help.
Microinsurance professionals need to tell the story a little bit better if we’re going to get people to care.yes""> Let’s face it-- “insurance speak” is generally pretty
dull. Dinner party conversation
about breakthroughs in actuarial analysis and managing moral hazard doesn’t
tend to illicit a groundswell of support, does it?yes""> Just as those in the microcredit industry leave the complex
details to the professionals, so too can microinsurance professionals.
Here at Avana, one of our goals is to build a community of champions for microinsurance.
Through forthcoming stories, videos and testimonials on our site
(www.avanamicroinsurance.com), we hope to help you feel connected to this
important cause. For now, you can
help simply by learning and listening, by passing along these stories to others
who may not have thought about this issue in such a way. We also welcome your comments, your
stories or your suggestions about how we can all together build this
movement!
Views: 33
Replies to This Discussion
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Permalink Reply by Tom Murphy on -
Do you think there are barriers to buy in from the side of clients? Savings is a hard barrier to cross in every part of the world and I think that microinsurance falls into a much similar category than microlending. Could that also be a reason why investors are more hesitant? Certainly there is something sexier about giving money that can lead to the growth of a business and even have the loan paid back. I guess along with that, could part of the problem be that microinsurance is more complex?
Would love to know more of your thoughts.
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Permalink Reply by Sasidhar Thumuluri on -
Hi Nita,
Thanks for posting this important message. But I do agree with Tom that the product lack's the "sexiness" of credit. Forget about the poor, even middle class people in the developing world hesitate to buy insurance unless offered with some sweetener such as investment or savings products. Insurance is typically related to the perceived value of loss due to an eventuality and current costs associated with managing that loss. This is not easy for the poor to understand, especially where MFIs lack the ability and permission to offer full-fledged banking services including savings. Closest the MFIs could get in selling insurance is by making it mandatory and tying it with loans. This eventually ends up to be credit insurance for MFIs first and then life or health insurance for clients.
I did see cases where weather-indexed crop insurance, health insurance and livestock insurance is sold to clients but experienced mixed results in uptake and satisfaction. In India state government runs a massive subsidized health insurance scheme for SHG members. But when asked if the model can be scaled in private sector or any private insurance players showed interest, the answer is discouraging.
I'd like to know how to break this ice and if any examples of scale are available. Investors will flock if there is proven opportunity as the case with traditional insurance companies that are humongous corporations, some too big to fail i.e., AIG. How do we make that work for the poor, of course without too much greed creeping in.
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Permalink Reply by Tom Murphy on
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I too have heard only mixed successes in regards to the implementation of microinsurance. For example, Chris Udury recently did a study and uptake improved at an OK rate when subsidized. The suggestion of this might be heresy to most, but is it possible that fully private microinsurance might be a pipedream and there will need to be some sort of subsidy provided by the government?
Sasidhar, you seem to be well versed in this. Are you willing to make any predictions/suggestions?
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Permalink Reply by Nita Nehru on -
Tom and Sasidhar,
Thanks for your inputs on this discussion. I agree that microinsurance has had mixed success recently. But to answer Tom's question about buy-in from clients, I think a large portion of client hesitancy comes from a lack of knowledge about insurance products and their availability and minimal understanding about their usefulness. I think credit-based schemes have been largely successful because certain types of credit have been available to the poor in the past, though through inefficient and expensive vehicles such as loan-sharks and community money lenders. Thus microfinance was not a completely foreign concept. Insurance, however, is not readily available to this strata of society, and thus, the hesitancy.
But as I've said before, I believe the best way of providing insurance to the poor is by bundling it with other microfinancial services such as credit and savings. Which is why Avana's model requires partnering with established local MFIs and CDFIs. And imperative to the success of microinsurance will be education to go along with it - education for clients and for practitioners and for individuals like you and me, so that the population at large can understand its necessity.
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Permalink Reply by Asinde Kevin on -
Funny thing
About 2 years ago, a sister of mine who was earning less than 100 dollars a month at the time was asked to pay insurance and savings. She asked one question.....if i can not survive today, whats so big about tomorrow. And when we address that question....I think we can get the solution especially in the third world where people live a day at a time
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Permalink Reply by Tom Murphy on
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Do you mind expanding on the idea of bundling MFI services? I am not entirely familiar with how that looks and am interested as to how insurance can be introduced in such a way.
Thanks for your response and thoughtful post.
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Permalink Reply by Sasidhar Thumuluri on
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I think Asinde has hit right on the head. It is undeniable that insurance is the most valuable service for the most vulnerable but ironically it is the hardest to sell.
Tying with credit may not really the best thing because like I said earlier, most success stories we are familiar with are mostly credit-linked life insurance schemes. The perception among clients in most cases is that all the premium they pay is somehow a part of interest and they hardly recognize insurance as a separate and valuable service. Relating this to current crisis-in-making in India, even government is making it sound like MFIs are not serious about insuring the lives of the poor and only care about protecting their credit risk and making extra profits by offering this add-on. SKS, the largest MFI, eventually ended up dropping it. 2 million clients at once lost the most beneficial service because nobody understood its benefit. Other MFIs are going to follow suit potentially making 25 million households deprived of the only insurance available to most.
I know India may not the best example at this moment for all bad reasons but the point I am trying to make is tying up with credit does not necessarily meet intended objectives. If you make the service optional the uptake drops to rock bottom. I am more in favor of tying up with savings and investment products rather than credit. Unfortunately not many MFIs are allowed to mobilize savings due to regulatory reasons. But those who can must try.
Like Nita mentioned client education is critical to build awareness but the question is who pays for it? What is the revenue model? I agree with Tom that some kind of subsidy is needed at least in the beginning until people get used to the product and appreciate the benefits when they witness claim settlements first-hand. Seeing is believing. Microcredit was supported by heavy subsidies when the industry started. Smart subsidies are perhaps required and if it helps millions of families protect against uncertainties, may be it is worth it.
Another aspect is infrastructure for fast verification and claims settlement. Even if it is subsidized when it comes to enjoying the benefits it is extremely important that the service/check arrives hassle-fee.
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Permalink Reply by Nita Nehru on
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Great thoughts everyone! Thanks so much - very interesting.
Tom, what I meant by "bundling" services is providing low-income clients with credit and loans ONLY with savings and insurance schemes attached to them. I honestly do not understand how the microfinance industry has gotten to where it is today without realizing that credit is only one piece of the puzzle. In order to actually help people out of poverty (the so-called goal of microfinance), they clearly need additional financial services such as savings and insurance. If the development community continues extending credit without bundling these loans with savings/insurance, I believe we will see more of what is happening in India currently.. except it will be around the world.
I sometimes think that a responsible microfinance initiative would be to offer credit ONLY along with savings and insurance. I think if clients are educated on the importance of "bundling" these services, they would be willing to purchase these products. And hopefully, the view of Asinde's sister would change from fear about today to hope for tomorrow.
Thoughts?
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Permalink Reply by Tom Murphy on
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Thanks for the response. I understand what you mean but bundling, but I should have asked if you knew something in terms of a more specific plan. So, if I was a person who walked up to a MFI looking for a loan, what would I have to agree to in order to get the loan?
All in all, I am looking for something as specific as possible. I largely agree with your assertion that bundling needs to take place, but what that actually looks like can vary greatly.
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Permalink Reply by Tom Murphy on
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Nice catch on the infrastructure need. I think that the offering of insurance will have to be something that wins people over. So, if the claims are dealt with in a timely manner, I believe people will become more trusting in and confident of insurance.
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Permalink Reply by Tom Murphy on
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I would be interested in a discussion on the issue of profit. Liza, do you think that the low profit rate might make microinsurance less appealing to practitioners?
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Permalink Reply by Tom Murphy on
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I guess I am a little more pessimistic about the motives of some practitioners. Though I largely agree and hope that my pessimism is misplaced.
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