The Case of Johnson and alternate distribution strategies
The case for alternative distribution strategies in developing markets
Synopsis: Developing Markets are enjoying faster economic growth than their developed counterparts, and personal income levels are rising, especially among urban breadwinners. Yet insurance penetration in most developing insurance markets remains pitifully low, largely because the lower cost insurance needs of the emerging lower-middle classes cannot be met by traditional distribution channels such as intermediaries who have little incentive to sell policies with lower premiums. The problem of insurance in developing markets seems undeniably a distribution problem. Yet these very same developing markets are characterized by growing banking penetration rates, mobile phone take-up and retail store growth, along with the increasing use of databases and technology. Against this backdrop, a compelling solution has begun to emerge. Non-traditional distribution channels such as phone, mail, mobile, TV and Internet can and are being cost-effectively deployed to profitably sell high volumes of insurance to customers in the growing urban classes.
The topic is best introduced by considering the parable “the Case of Johnson”.
Johnson Onyango is an urban breadwinner living in Nairobi. His wife, four children and twelve family members in the rural areas depend on him for financial support. He has started to worry about what will happen to them if he were to die or become disabled or if expensive healthcare were needed. He is aware of insurance but can only afford $5 to $10 a month. No reputable insurance salesman is interested to spend time selling him such a low premium policy.
Who will meet Johnson’s need?
Johnson is certainly not alone. Ahmed in Cairo has a similar predicament, so does Ragesh in Mumbai. There are millions like Johnson across the developing world.
A report by McKinsey released in June 2010 estimates that 40% of Africa’s one billion people already live in cities, a proportion larger than India’s, and expects this to continue growing rapidly.
However, access to financial services among the growing urban classes in most developing markets remains pitifully low and continues to pose a major barrier to social stability and economic growth.
Whilst low insurance penetration is undeniably “the problem”, the good news is that banking penetration is relatively healthy, especially among the urban classes in developing markets. Not to mention retail penetration and mobile phone penetration.
Added to this is the phenomenon of new enabling technologies and alternative distribution via alternative channels such as phone, mail, mobile, TV and Internet which has globally revolutionized how customers can access services and the volume of business that insurers can expect to write in a relatively short period of time.
Customer owners such as banks, lenders, retailers and mobile networks with trusted brands and substantial customer bases have a significant opportunity to meet a broader range of the financial needs of their customers. Banks are also uniquely able to segment their customer bases and pre-approve customers for insurance offers with no acceptance underwriting.
If micro-insurance is traditionally aimed at rural communities, “meso-insurance” or distribution aimed at urban breadwinners via bank and other retail databases, using direct sales channels and supported by the right processes and technology, can be an ideal distribution strategy for developing insurance markets.
Johnson has a bank account, a mobile phone and a clothing retail account, but nobody has offered him the simple affordable financial protection that he needs. Insurers that can successfully deploy non-traditional distribution strategies will not only meet Johnsons need but will also deliver a significant new source of growth to their shareholders.
This is but one example of the issues that will be reviewed in depth at the 1st African Bancassurance and Alternative Distribution Conference to be held from 29 to 31 May 2011, at the Westin Cape Town Hotel. The conference is being arranged by COVER, South Africa's most trusted financial services trade publication, in collaboration with Case Johnson, an alternative distribution consulting firm.
Visit www.bancassurance.co.za for more information and registration details, for the 1st African Bancassurance and Alternative Distribution Conference.
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