Western insurance firms have a problem. Their markets aren’t growing, product innovation has stagnated, and costs are rising while customer satisfaction is falling. In short, it’s a business that’s ripe for the kind of change that radically transformed industries like media, telecommunications, and high tech.
For inspiration, Western insurers should broaden their scope by scanning countries in the developing world, where insurers are thriving. That fact is not as strange as it may seem. With fewer available resources, and impediments ranging from physical to cultural, insurers in those regions have had no choice but to innovate—and innovation is a key to success that knows no geographic boundaries.
While insurers in developed markets have been fixated on risk management, neglecting consumer-facing sources of value, insurers in developing regions have turned a laser-like focus on the customer. By harnessing popular technology, embracing unique sales partnerships, and creating customized products, insurers in the developing world offer a glimpse of the kind of creative thinking that has the potential to jump start the industry in the West. That makes what’s happening in places like Kenya, India, and Colombia important for Western insurers to understand.
Key Emerging Market Innovations
Emerging markets present insurers with significant challenges and constraints. There may not be a developed infrastructure to reach a critical mass of consumers, and purchasing power can be low, with traditional payment options few or non-existent. Environmental factors from drought to flooding to population density may also present impediments.
In adverse situations like these, insurers in emerging markets have had to think differently about product development, sales, and claims processing. While insurers in developed countries don’t face the exact same set of issues, they can draw inspiration from emerging-market innovations.
Product Development Innovation: Most Western insurance products are designed to serve the needs of a majority of potential buyers, which is to say they may not match every individual customer’s precise needs. A “good enough” product will typically offer 80 percent of the performance of an insurer’s “best” product at 80 percent of the best product’s price, making it attractive to a large number of consumers
In contrast, the focus in developing countries is micro-insurance products. These hyper-targeted offerings are created to meet precise customer needs while reflecting the realities of poorer populations and their limited purchasing power. A micro-insurance product might offer 50 percent of the coverage of a “best” product at 15 percent of the price.
For example, instead of offering across-the-board crop insurance, a micro-insurance provider might only cover a specific loss caused by a specific event. In Kenya and Rwanda, Kilimo Salama offers a low-cost policy covering the cost of a farmer’s crop investment—seeds, fertilizer, and pesticides—in the event of a loss due to extreme drought or excessive rain.
By limiting the coverage to the customer’s up-front expenses, and by excluding hazards like pests, hail, and certain types of floods, the cost of insurance is kept ultra low. As of 2012, around 50,000 Kenyan farmers were covered, and payouts have been made to over 10,000 farmers, according to Swiss Re, one of the partners in the offering.
India’s Vimo provides a micro-insurance product for low-wage, self-employed women. Offered through SEWA, a workers’ trade union, the insurance costs the equivalent of $1 per month and provides $200 of protection against life, home, health, and accidents. In South Africa, micro-product provider Hollard insures funeral expenses up to $250 for individuals and families. It sells the product for $2 in packaging similar to cell phone starter packs.
Transaction Partnering Innovation: Poverty, the lack of infrastructure, and the geographical remoteness of many regions in emerging countries significantly inhibit insurers from reaching and managing customers using methods that are common in the West. But by applying creative thinking, insurers have found ways to connect.
In Africa, Kilimo Salama does all of its business through agrodealers and the mobility service provider Safaricom. When an agro-dealer sells the customer seeds, fertilizer, and chemicals, the cost of these “crop inputs” can be insured on the spot for a small incremental price. Scanning a barcode on the bill registers the policy with the insurer and generates a text message to the customer with the purchase receipt and policy number.
In Colombia, Liberty Mutual solved the challenge of collecting premiums for its low-cost health insurance by partnering with the local gas company, which adds the charges to the client’s natural gas bill. In Bolivia, Zurich Bolivia Group sells medical and life micro-insurance products at branches of BancoSol, a commercial bank targeting low-income customers. The cost is automatically deducted from the customer’s savings account.
Filipino insurer Beneficial Life Insurance, known as BenLife, partners with telecom giant Smart Communication to offer a mobile micro-insurance service called InsureTxt, which offers accidental death coverage of up to PHP 50,000 ($1,200) for as low as PHP 3 ($0.07) per month, with all transactions completed through text messaging. South African provider Hollard’s funeral insurance is sold through Pep, a clothing and small appliance retailer.
bank account. Given the lack of infrastructure in developing countries, insurers have to take a different approach, often by enabling customers to benefit from index-based claims that are automatically triggered by defined events. bank account. Given the lack of infrastructure in developing countries, insurers have to take a different approach, often by enabling customers to benefit from index-based claims that are automatically triggered by defined events.
For example, Africa’s Kilimo Salama uses automated weather stations to calculate whether it owes customers payments on their crop insurance. If so, it transfers the funds to the customer’s mobile phone number via M-PESA, a mobile payments service.
Look for coverage gaps in your market—gaps that can be filled with niche products to appeal to those who don’t have insurance or those who can be upsold with a valueadded extension to a current policy.
Providers in other countries use indexing to determine claims for weather-related events. In India, HDFC ERGO offers a Rainfall Index Policy to farm communities against the potential for drought. The claim settlement is based on a rainfall index collected weekly from an India Meteorological Department station. Claims are settled through an automated process.
In the Philippines, two micro-insurance providers also offer index-based weather coverage. Microensure provides crop insurance to rice farmers against droughts and typhoons. By limiting coverage to the cost of cultivation, premiums are kept to between five and 10 percent of the insured value, depending on the weather station and crop variety.
Swiss Re insures farmers against crop damage caused by typhoon-related high winds. Damage is assessed remotely based on the recorded typhoon speed and the distance between the farm and the typhoon track. The policy covers the 120-day period of the crop’s establishment, flower, and yield formation stages.
Also in the Philippines, Coop Life Insurance and Mutual Benefit Services, or CLIMBS, covers the loan portfolios held by cooperatives and microfinance institutions. Its weather index insurance pays out to client organizations when wind speeds or rainfall in their areas breach predefined levels for their respective regions. CLIMBS’ premium rate is 3.5 percent of the covered loan portfolio.