Microinsurance: Scaling Through Peer Learning

In 2010, Old Mutual distributed its retail funeral insurance product, Pay When You Can, through ShopRite—one of the biggest food retailers in South Africa. At the time, the product seemed well designed and affordable to its target low-income client group. Old Mutual, as one of the largest insurers in South Africa, saw microinsurance is a viable business model and an important growth market, as the demand for funeral insurance is huge in South Africa—funeral costs can wipe out a family’s savings. The only problem was that despite intensive marketing, sales were dismal.
 
Around the same time and around 3,500 miles west from Johannesburg, La Positiva, one of Peru’s biggest insurers, with two million clients, faced similar challenges. La Positiva is one of the few insurance companies in Peru offering insurance to rural populations previously unserved (despite the fact that 23 percent of Peruvians work in agriculture). The challenge La Positiva faced was how to market insurance products to people utterly unfamiliar with the concept of insurance and its benefits.

While national and large international insurers are highly interested in the low-income market segment, these stories illustrate the difficulty in reaching clients that earn less than $2 a day, creating the right product, and finding the best distribution channels for the poor (which can be anything from mobile phone carriers to microfinance institutions).

But why should the social sector care about programs that help insurers reach low-income clients? We at the Microinsurance Innovation Facility believe that microinsurance helps bridge the gap between market-based and social interventions to provide much-needed protection. Without microinsurance, small entrepreneurs in Haiti can’t recover after a hurricane, farmers in Tanzania have to sell their livestock to survive after a drought, and families around the world fall into poverty because of unaffordable health care costs.

To this end, our organization (which is housed at the International Labour Organization in Geneva, Switzerland) began experimenting with new ways to build insurers’ capacity to reach low-income clients. In 2012, we started piloting a number of peer-learning programs for insurance practitioners within and across borders. Microinsurance experts working on the front line of expanding access to microinsurance are constantly forced to create new models and think out of the box; comparing notes on solutions in different geographies has been hugely beneficial and enriching for them.

Old Mutual in South Africa and La Positiva in Peru embarked on a peer-learning journey in 2013 to get to the bottom of the question of how to reach low-income clients. Our organization matched the two companies because they faced similar challenges reaching rural clients. La Positiva visited Old Mutual and vice versa. Both insurers also used an International Labour Organization tool to analyze client value through four dimensions of value: product, access, cost, and experience (PACE).

In the end, both insurers have managed to reach more low-income clients by using different distribution channels and simplifying products. Old Mutual was intrigued by La Positiva’s close collaboration with the Peruvian government; it saw how governments in many developing countries had helped scale microinsurance, for example, by subsidizing premiums for the poorest. Now Old Mutual is exploring ways to collaborate with government in South Africa. Meanwhile, La Positiva was inspired by how Old Mutual segmented its clients based on lifestyle, hobbies, and consumption habits; it is now adopting the method to better meet client needs and expectations.

Of course, peer learning wasn’t the only factor that helped drive business development at these two companies, but it was an important experience in their estimation. “In meetings, we often find ourselves drawing on insights [we] learned during the peer-learning experience, and share them with our colleagues to resolve business challenges and suggest alternatives,” said Julius Sikhuza, strategy analyst at the Foundation Market Division of Old Mutual.

Vulnerability and poverty go hand in hand; we believe microinsurance reduces that vulnerability and helps break the cycle of poverty by protecting low-income populations against health, life, and agriculture risks. However, billions of poor households still do not have access to insurance, with devastating effects. Peer learning is just one valuable tool for driving quality microinsurance at scale, but we are seeing success. As we move forward and develop other innovative tools for the insurance industry, we hope to serve those most in need of its protection.

Read more stories by Craig Churchill & Alice Merry.