With changing dynamics around the world marked with the rise of FinTechs, payment and lending platforms and Covid-driven fast-tracked growth in awareness and usage of financial products and digital processes, the stage is set for insurance to be offered to the previously excluded segments of society. Taking Pakistan for example, although financial products have registered meaningful growth over the past few years, insurance, commonly regarded as the ugly duckling of financial products, still remains at the nascent stage with insurance premiums only 0.8 per cent of GDP. There is a solid case for players to invest in inclusive insurance and reach out to tens of millions of ‘financially included’ Pakistanis and not only provide them with a safety net but also create a viable insurance business worth billions of rupees of gross written premium.

How to enter the inclusive insurance market?

Two words explain this: partnerships and digitalisation. A proven way is to leverage existing consumer brands, their outreach and save cost on creating new brands and hence keep end-user prices within affordable limits.

Claims are the best and the cheapest way of marketing your insurance products — one claim event creates awareness in over a couple of dozen members of the community and if you can do a good social media marketing campaign, the rewards are fathomless

Delivery is perhaps the most critical part of the inclusive insurance puzzle and if you can present a viable business model to a prospective delivery partner having a strong brand and access to a large number of potential buyers, you have solved 90pc of the problem. Quite often you find large delivery partners thriving on digitalisation in their core business. That’s where the second part ie digitalisation comes in; there is a need to create simple products, frictionless processes and digital channels to offer through delivery partners mimicking the same process through which they offer their core services and it is likely to scale.

Incentives for investing

There are numerous incentives, depending on where you are coming from. If you are a delivery partner such as a large telecom operator, you will increase your average revenue per customer, attract new customers and increase their loyalty as by offering good insurance products, you have made it hard for your competitors to beat you on price only. Insurance creates that social welfare element and builds the delivery partner’s soft image in the market.

As an insurer or reinsurer, inclusive insurance is high-frequency, low-severity business which is the very nature of insurance that is built on the law of large numbers. You make premium income with fairly predictable and profitable claim ratios and with the lowest possible level of unpleasant surprises. You also get a chance of accumulating mortality and morbidity data of tens of millions of lives which helps you improve the pricing of your niche insurance business and outplay your competitors who are not doing inclusive insurance.

Finally, it helps you protect your conventional low-frequency, high-severity business by creating barriers to entry. If you are doing a bancassurance partnership with a bank focusing on the top 3 pc customers, you are keeping the door open for someone to enter, do inclusive insurance and eventually push you out even from conventional business. By offering inclusive insurance in addition to conventional products, you are plugging holes for a possible competitor’s entry.

Long-term vision

The very nature of (successful) inclusive insurance is that it keeps on evolving. I have been delivering inclusive insurance for the past over seven years and can say based on my practical experience of insuring tens of millions of individuals that every year there is something new I have been implementing. You cannot say that for conventional insurance — the

endowment policy sold today has been unchanged for the past 50 years or so. The very nature of inclusive insurance which runs alongside its cousins like FinTechs, platforms etc requires a long term vision and readiness to deploy new concepts.

Key success factors

Mindset: Inclusive insurance is not conventional insurance divided by 100. This is a different business on several accounts. If you consider this as a subset of conventional insurance or a charitable business then you will not be able to create a successful and scalable model. Using banking language, if branch banking is conventional insurance then digital wallets are inclusive insurance. Inclusive insurance is also not credit insurance wrapped around a microloan — it’s much more than that.

Products: These need to be developed ground-up as opposed to reusing conventional insurance products. Insure one risk at a time and build a portfolio of multiple products and offer multiple products to one customer over time. Customers must view those as relevant to them with high perceived value and solving a problem for them.

Processes: They should be frictionless and tech-based, leveraging learnings from industries like telecom, mobile money, ride-hailing and e-commerce. A golden principle is that if you have sold a product through a digital channel, everything that happens afterwards should take place through the same channel, giving customers a similar experience. So it has to be digital all the way from servicing to claims.

Technology: End-to-end tech platforms that aid in managing a large number of small value policies are required.

Patience: Lots of players in my understanding give up on inclusive insurance by looking at per policy premium or gross written premium from the first ten thousand customers and think it’s not worth their time. If you focus on those first set of customers and create an excellent proposition, it will grow geometrically and the gains will be worth your time and resources.

Keep changing, experimenting: Like said above, inclusive insurance by nature keeps on changing as it is built on and relies heavily on the changes taking place in the market. As more and more people in emerging countries are having access to smartphones, apps are becoming a new channel — this was not the case back in 2010.

Claims are good: Today’s insurance business is built on low-frequency, high-severity risks that despise claims to the extent that it refers to them as ‘losses’. That must change if you want to excel in an inclusive insurance business that is more of high-frequency, low-severity risks. As my hands-on experience tells, claims are the best and the cheapest way of marketing your insurance products. One claim event creates awareness in over a couple of dozen members of the community and if you are able to do a nice social media marketing campaign, the rewards are fathomless.

The writer is the CEO of MicroEnsure Pakistan (Private) Limited

Published in Dawn, The Business and Finance Weekly, September 5th, 2021