Distribution

Introduction

Achieving scale through cost-effective distribution is one of the biggest challenges facing insurers in low-premium environments. Insurers have typically formed partnerships with organisations to serve as distribution channels, as the direct sales model has not been cost-effective in the low-income market.

Microfinance institutions have been the most common partners of insurers, however, in the last decade, insurers have experimented with new distribution models, and partnerships with organisations not traditionally in the financial services space, to achieve scale and reach clients more cost-effectively. When selecting a distribution partner, insurers typically look for organisations that have a trusted brand, provide access to large client concentrations, have an existing infrastructure that insurers can use, and can be tapped for both sales and premium collection.

While innovation in distribution has thus far focused on sales and premium collection, it is important to remember that distribtion goes beyond sales. Distribution covers all interactions with the client including policy origination, premium collection and policy administration, as well as marketing, sales and claims payments. These processes can involve different entities including the insurer, third-party payment providers, client aggregator and distribution partner.

Emerging lessons

I. From Microinsurance Papers

A Facility webinar on Managing Partnerships in Microinsurance presented strategies and tools to build a successful partnership. Top five tips include:

A successful partnership requires a clear understanding of the business problem that a distribution partner has and how insurance is going to fix it. Financial incentives such as commissions may not be sufficient (see Emerging Insight 32).
An alignment of vision and interest is critical. An assessment questionnaire or a third-party facilitator can help partners have a genuine dialogue and identify potential issues upfront.
Trust and commitment are crucial and are required from both the executive and operational teams. Working through issues and challenges together is a necessary part of developing trust and commitment.
Clear expectations of what the partnership can achieve are needed. Developing a joint business plan helps. The business plan need not be comprehensive, but it should be realistic and created collaboratively.
Partnerships get harder to manage as initial excitement wears out. Setting learning objectives and measuring progress against them can help retain commitment.

Beyond Sales: new frontiers in microinsurance distribution a Facility briefing note by Smith, Smit and Chamberlain analyses the experience of fourteen microinsurance initiatives using alternative distribution channels. The review highlights the following themes:

Distribution partners play more active role: Distribution partners play a more active role in product development as they start to realise the benefits of adding microinsurance products to their existing product range, and to better represent the needs of its clients. The most successful models reviewed were ones where the distribution partner viewed the insurance offering as an explicit client retention strategy.
Use of layered sales approach: All the countries covered in the study provide examples of the use of more than one sales channel to distribute an insurance product. Experimentation with multiple sales channels allows insurance companies to identify the most effective distribution channel for different stages of marketing and to use low-cost channels to reach a wide audience and then apply more expensive channels as a targeted follow-up strategy
One-stop shops: In order to continue offering client value, insurers need to start using distribution partners as “one-stop shops” that not only sell policies and collect clients’ money, but also allow clients to make changes to their policies and become the point where claims are paid out.
Success requires significant investment. Building a successful distribution channel requires significant investment, by both the insurer and distribution partner, in human capital and insurance-specific information technology platforms.

Selling microinsurance is not easy. It’s even more difficult when sellers themselves have no previous insurance experience or have other responsibilities in addition to selling insurance that compete with their time. The sales force development thematic page presents strategies and tools that can be used to improve the performance of microinsurance sales force in each stage of the value chain: recruiting, training, incentivizing and monitoring.

Pathways towards greater impact: Better microinsurance models, products and processes for MFIs provides a comprehensive review of the challenges and successes of microfinance institutions and offers ten key recommendations. Based on the experiences of innovative microfinance institutions (MFIs), it is clear that they can provide risk-management services that are valuable for clients and MFIs alike.

III. From Innovation Partners

Hollard Insurance, South Africa: It is crucial to understanding your partners’ motivation in agreeing to distribute your product, especially in an instance where they have limited insurance experience or interests. LEARN MORE

Max Vijay, India: Ongoing training and marketing costs as well as commission structure and high density requirement put the viability of selling insurance through unorganized retail at risk. LEARN MORE

PGI, China: Sufficient effort should go into aligning the objectives of the partners, gaining buy-in from all levels of the partner organization, and formalizing the partnership. LEARN MORE

PWDS, India: Alignment of objectives between the insurance company and the delivery channel is an important criterion when selecting insurance company partners. LEARN MORE

Old Mutual: Sales commissions alone don’t ensure success. LEARN MORE

Publications

Facility's publications:

Beyond Sales: new frontiers in microinsurance distribution, Microinsurance Paper 8, April 2011

Pathways towards greater impact: Better microinsurance models, products and processes for MFIs, Microinsurance paper 18, November 2012

Other publications:

Case Study: Hollard Insurance and Pep; by Anja Smith and Herman Smit, 2010

Case Study: Hollard Insurance and Take it Eezi; by Anja Smith and Herman Smit, 2010