On the distribution channel

Emerging Project Lessons

Factors such as the insurability of the channel’s participants, the channel’s operational processes, and the dynamics of contact with end-customers, need to be analysed in depth before making assumptions about critical mass or impact of a distribution channel. An analysis of the register of users provided by the rural boards found that the number of users reported by the JNUDP was not accurate. Not all users were insurable because: 1. some users had several pieces of land and thus were listed several times in the same register; 2. some users were over 80 years old; 3. some users listed were legal entities (businesses, associations, cooperatives, etc.); and 4. the holders of the water account were not the farmers that work the land. Consequently, the affiliation targets were over-dimensioned because the total number of users was estimated according to the register, without taking these factors into consideration. Moreover, in Ica, farmers did not always pay for irrigation water because at times they had access to groundwater.

A channel’s capacity to integrate insurance operations varies. Not all channels can be easily adapted to the sale and distribution of microinsurance. The rural users boards do not, at present, view the sale of microinsurance as an opportunity; they are not-for-profit associations focused on the distribution and sale of irrigation water to users. This is the first time they assumed different activities, so it was necessary to seek the political, social or economic interest of getting involved in microinsurance.

The frequency and mode of contact (economic transactions) with the channel is an important factor to consider when designing the product. Great diversity in the frequency and modes of payment for water in the boards was noted. For example, in some irrigation commissions in the Boards of Moche and of Chao, water is paid annually, meaning the premium accumulates and the user is unable to pay an annual insurance bill. It is necessary to be able to integrate flexibility in the frequency of premium payments to meet the necessities of the distribution channel and the customer. The diversity of payment frequency, which is a challenge for the design of the product, can be seen in the table below:

It is important to design an appropriate commission scheme for the channel and the main players involved in the process. According to the commission scheme, the JNUDRP receives 5% for the sale of the microinsurance product. However, the support received from the JNUDRP for marketing actions is limited and ranges from offering space in some of its national assemblies to publishing information about microinsurance on its website. In general, there is little motivation on the part of directors to support the project. In addition, directors cannot make far-reaching decisions without consulting the majority, and this delays decision-making.

The sales agents designated by the directors of water boards are generally persons in charge of collecting the irrigation water tariff. An agreement has been made with board directors so that sales agents receive a commission of between 2% and 6% depending on the board. La Positiva considers this incentive very low and could be raised an additional 5%, provided that an agreement can be reached with the JNUDRP to abandon its 5% commission, since its role is related more to promotion than marketing.  An incentive plan is also deemed necessary to encourage sales agents to sell microinsurance.

It is necessary to strengthen the channel when marketing of services is not part of the selected channel’s nature. It is necessary to understand the channel’s role as the customer contact and intermediary. Organizationally, the users boards differ from traditional marketing channels (microfinance bodies, banks, NGOs). The boards are structured to collect payments for irrigation water and do not normally offer services unrelated to that activity, nor do they have well-developed marketing capabilities, especially in relation to the sale of intangibles. Hence it is necessary to incorporate activities in the project plan to strengthen their role as marketing channels and to develop campaigns to incite them to join and participate in microinsurance marketing activities.

The different roles of the National Board and the users boards should be considered while designing the project to avoid future confusion. In the microinsurance model, the role of the National Board of Users of Irrigation Districts differs from that of the users boards.  Whereas the latter effectively occupy a role as marketing channels, the national board’s role is to promote and facilitate the implementation of the model. These differences have to be clearly defined in the description of the activities, especially in the draft contract that will be signed with each of them. The incentive scheme will need to be reformulated to explain the different roles played by the national board and the irrigation users boards, as well as the dedication of the staff assigned to the marketing operation.  An incentive plan should be developed based on thresholds of sales achieved, which will help the channel to visualize the return on its efforts with regard to promotion and dissemination (in the case of the national board) and marketing and sales (in the case of the users boards).