Improving Client Value

Introduction

As microinsurance providers, governments and donors try to provide better value to clients, they are faced with the same questions: are clients getting value from microinsurance? How do we measure the value for clients and how do we improve it?

Client value is about improving risk-management practices to reduce vulnerability and improve well-being. To improve the value proposition of products, we need to understand whether products are able to meet client needs in relation to alternatives, and how the products and related processes can be improved to better meet client needs. These activities relate to the first step of client value creation: products and process design.

It is important to look at business processes as much as at product design, because if processes are poorly designed (especially claims administration), they can undermine the value of the products.

Emerging lessons

I. From Microinsurance Papers

Improving value from microinsurance presents results from the analysis of 15 microinsurance schemes in Kenya, India and the Philippines using the ILO’s client value assessment tool called PACE (Product, Access, Cost and Experience). The PACE tool looks at the added value for clients from insurance products by comparing them to each other and to alternative means of offering protection from similar risks. The paper also presents a menu of interventions that can improve client value.

Client value seems to be correlated with maturity of microinsurance markets. In the Philippines, where for more than a decade microinsurers have been continuously improving life products, there seems to be no question about the value of all the reviewed products. In Kenya, where innovations in composite products, such as health and life, have just started, the client value of most offerings is under question as they are not much better than informal mechanisms nor do they complement the social security scheme.
Client value improvements need to be strategic. There are intrinsic trade-offs between client value and business considerations. A balanced value approach across all four dimensions of PACE makes sense for a client, but it might not be the best choice for a microinsurer that wants to differentiate its offering in a competitive environment. There is often no simple answer to which business strategy is optimal, but what is obvious is that incorporating clients’ feedback in strategic decisions is vital, especially with growing competition
Benefits of health microinsurance expand to improve value proposition but even simple products can be valuable. Designing health microinsurance is inherently more complex than in the case of life products. Many schemes either cover some out-patient risks or incorporate non-insurance benefits such as preventive health services or discounts for outpatient services in their in-patient health offerings. Another relatively easy way to enhance benefits in health microinsurance is a hospital-cash feature, or a benefit for loss of income due to hospitalization. This can be useful when clients need to pay (informally) for drugs or for services due to under-financed public health systems. In addition, it can provide protection for informal workers who are not compensated for loss of income by social security systems.
Simple adjustments can significantly improve AD&D policies. Often the client value of accidental death and disability (AD&D) policies is questionable due to high premiums for a very low frequency risk, exclusions and long waiting periods, which, in principle, are not necessary to control adverse selection for accidental coverage.
Composite products hold promise, but difficult to deliver. In Kenya, the PACE analysis compared three composite products by CIC, Pioneer Assurance and Britak, and two in-patient health insurance offerings by Jamii Bora Trust and National Health Insurance Fund (NHIF), an extension of government initiative to provide universal health coverage. The low scores received by almost all products can be attributed to the complex nature of composite products and the limited maturity of the reviewed schemes. In theory, there are strong arguments in favour of composite products given high acquisition costs in microinsurance. However, the inherent complexity of a composite product makes it difficult to explain to clients, expensive to administer, and difficult to maintain high quality service, resulting in barely affordable products. These factors have resulted in low take-up of the products reviewed.
Mandatory products overcome demand challenges and can be delivered in a way to provide client value. Mandatory products allow reaching scale quickly and control well adverse selection, hence it is much easier to make them viable for providers. For clients, the value for money proposition of mandatory products should be interesting as they are often cheaper than voluntary products. But mandatory products often fail on access and servicing as clients are rarely aware that they are insured and do not claim their benefits, and insurers rarely invest in customer care and claims administration. Also, mandatory products do not offer choice. Intuitively, offering a choice between products or specific features within products should be beneficial to clients. Too much choice, however, can complicate decisions, and discourage clients from buying an otherwise valuable product. More experimentation needs to be done to further improve value from mandatory insurance products.

Facility papers on Improving credit life and Funeral insurance show that there is plenty of opportunity to innovate even with “basic” products like funeral and credit life insurance.

Beyond the funeral: Since the funeral expense is not the only financial need when a family member dies, insurers are starting to enhance funeral insurance products to include other cash payouts and tangible benefits. Hollard Insurance in South Africa offers a funeral insurance product that provides a rental car and cell phone airtime for making funeral arrangements, and payments toward groceries for six or twelve months after the funeral – all in addition to the lump sum cash payout for the funeral.
Beyond basic credit life: One way to improve value of credit life products is to expand coverage to include additional risks (like permanent disability), increase coverage amount, insure additional persons (preferably the spouse) or insure assets (such as the home or inventory). Opportunity Uganda, for instance, expanded its credit life cover to include fire protection for inventory since a number of its borrowers were vendors located in fire-prone market areas. If a fire destroyed a vendor’s shop, Opportunity paid off the outstanding loan. Opportunity is exploring the possibility of extending fire cover to protect the entire stock of the borrower, not just the value of the outstanding loan.

A paper on Formalizing the Informal Insurance Inherent in Migration by Powers, Magnoni and Zimmerman shows that migration-linked insurance is still in a nascent stage but there are many opportunities to develop products specifically tailored to the risks of transnational families.

There is a need to develop products specifically tailored to the risks of transnational families. Specific migration-linked insurance products include: i) products aimed at mitigating the unique risks faced by migrants in their host countries, such as accident or repatriation insurance; ii) those aimed at mitigating the unique risks of migrant’s families in their home countries, in protecting the flow of remittances if a negative shock should affect the migrants’ ability to send money home; iii) those seeking to tap into remittance flows or the distribution channels and networks created by migration; and iv) those that tap into the migrants’ desire to protect their families in their absence by formalizing the informal insurance provided by migration, such as health insurance. While organizations in Latin America and Asia have launched such programs, few have reached significant scale.

II. Research Papers

Why people do not buy microinsurance and what can we do about it aims to help practitioners understand what factors determine demand for their microinsurance products. Based on a review of more than 30 studies, it blends academic findings with practical examples and presents solutions to improve demand. Incorporating these into a marketing strategy does not need to be a costly exercise. These findings debunk some of the most common myths about the demand for microinsurance such as "People don´t buy insurance because they don´t understand it".