Microinsurance: A macro change in CSR strategy
by Derek Linsell on 18/07/2011
Harvard business professor and CSR thought leader Michael Porter exhorts businesses to “reconfigure the value chain” to create shared social and economic valuewhile reinforcing a company’s strategy.
The insurance industry isn’t known for Porter-inspired practices. But a handful of companies are changing this perception, pioneering the idea of microinsurance products that reach underserved consumers in countries like India, Senegal, Cameroon and Colombia.
The Microinsurance Opportunity
Microinsurance addresses the problem of poverty caused by unexpected life events like sudden deaths, crop failures or natural disasters. With no savings to cushion them against such risks, the poor are obliged to take loans with crippling interest rates or to sell their few tools and possessions, thereby losing their source of income. Worldwide, only 80 million poor people (3% of the poor) are insured.
Companies like Allianz in North America and Interpolis in the Netherlands are pioneering products like life, disability, and property insurance that depend on high volume (to compensate for low margins) and innovative distribution channels to reach rural communities.
While the microinsurance model still faces a number of challenges, it arguably offers a significant opportunity to increase the company’s shareholder value. In emerging economies microinsurance represents a market of great potential growth and profitability, especially as insurance markets in industrialized countries become saturated with limited prospects for further growth. India’s market alone is estimated to be worth $2 billion.
Micro-insurance presents daunting challenges. Distribution channels rely on unconventional delivery methods such as microfranchising through women’a groups, mobile technology, and sales and payment processing at rural kiosks. Without a fixed income, and a greater dependency on farming, the poor often require greater flexibility in their payment patterns. They also have been less exposed to insurance products and thus require literacy training before they can trust and understand the benefits of the products. While catastrophic disability and death insurance present the least risk (and highest return) for insurers, health, weather, property, agriculture and catastrophe insurance products have been more difficult to “localize” and implement because they require more extensive on-the-ground knowledge of a product’s design, administration and monitoring.
Partnerships with local NGOs and microfinance institutions (MFIs) has helped launch some microinsurance products. For instance, Allianz partnered with commercially driven MFI SKS in India – ranked first among 150 MFIs in India and has aspirations to reach a membership of 15 million people by 2012. This partnership gives Allianz the opportunity get to know and make headway in the market while pooling risk.
So far the micro-insurance efforts by Allianz and Interpolis have been largely charitable, with pilot programs running in partnership with local nonprofits and employees volunteering their time to set up local micro-insurance organizations.
A innovative joint venture between New Delhi-based Max India Ltd. and New York Life Insurance (called “Max Vijay”) aims to cover three million low-income Indian households by 2012. The venture kicked off with an ad campaign featuring Amitabh Bachchan, a popular actor known for playing a character called Vijay in several movies.
The initiative is marked by a simple process and a guaranteed return. A Max Vijay customer fills in a one-page form, provides a proof of identity, and pays a minimum enrollment premium ranging from Rs. 1,000 to Rs. 2,500 ($20 to $52). Subsequent premiums over the 10 years of the policy are optional and investments are guaranteed. In the case of natural death, the claimant receives the guaranteed sum assured and the account value. In the case of accidental death, the claimant receives the account value and double the amount of sum assured.
The product also boasts a flexible and innovative distribution channel, as Max Life has signed an agreement with a national retail chain, I-SERV, to let policyholders manage their policies at 12,500 of its stores. Eventually, the company plans to run the products out of local mom and pop shops or over mobile phones to make the products as accessible as possible.
Innovation and opportunity
While many of these initiatives are in the experiment phase, they present an incredible opportunity to offer greater certainty and stability to people in the developing world. Institutions like the Interpolis Knowledge and Service Centers, that function in cooperation with local academic institutions, promote an exchange of ideas about cooperative insurance, risk management, and growth in developing countries. Additionally, products like Max Vijay, with its localized distribution network, help companies understand the microinsurance market.
Porter wants companies to break with traditional thinking about profit and consumer products. By striving to understand the 2.5 billion consumers at the bottom of the pyramid, industries like insurance and finance can create new business models while improving the lives of millions of email@example.com