Re-organizing the value chain to reach first-time insurance buyers
Create Impact By Reimagining Financial Inclusion, is what the core message is of the DIA Impact Series is. The DIA Impact Series are editorials focused on the social and economic impact of insurtech, and will be presented to the DIA audience over the course of the next few months. We introduced the series by interviewing Erlijn Sie about financial inclusion and discussing the flaws in the financial system that work against financial inclusion. Related to this problem is the problem with insurances in developing and emerging countries. Therefore in the next editorials of this series, we take a look at game changers who developed inclusive insurance models.
As Erlijn Sie told us in her interview, many people around the world still don’t have access to insurance and the global insurance gaps are hardly closing. We find most underinsured live, eat, pray and work in countries ‘at the base of the pyramid’ of our global value chain, like Bangladesh, Indonesia, Philippines, Nigeria, Vietnam, Egypt, India, Turkey, China.
These areas are typically prone to natural catastrophe and in which is manufactured and sourced a lot. But they are also the areas in which we can improve healthy, i.e. by providing access to healthcare. There is a lot to gain: from the environmental perspective, from the human (&animal) perspective – and subsequently also from the insurer’s perspective. That is, for insurers who want to stay relevant for society. If there’s water on the floor of your building, would you repair the leaking tap, or put a roof over the building?
We need insurers to join in a global effort to grow financial inclusion, to make our world more resilient. With their capital, knowledge and global presence, they can make a difference for ‘the other half of the world population’ that is currently un-insured. This is not by selling more of the same insurances to the same people, but by discovering new markets. We need to acknowledge that insurance-as-usual does not work over there – ‘new’ insurances for first-time-buyers are by default different. But there are game changers out there, who’ve done it, reaching millions of low-income people buying insurances for the 1st time.
Game Changer: ACRE Africa
ACRE Africa offers agricultural guarantees and micro-insurances to millions of farmers. They demonstrate how farmers can protect their crop or livestock against agricultural risks. ACRE Africa has re-organized the value chain; firstly and foremost speaking to the daily needs of the low-income families farmers. We asked George Kuria, former CEO of ACRE Africa, how they did this.
George, how do you deliver insurances to low-income farmers?
George: “There has always been an implicit assumption that low-income farmers could not afford agricultural insurances. We show that this is false.
The key thing has been: commoditization of the product, so that it needs less explaining to the small-holder farmers. If you set a complicated product then it becomes difficult to sell and you spend too much time explaining. Next to that, bundling is important. I think selling an insurance product together with, let’s say seeds and other inputs, is what makes the case of delivery to the farmers quick.”
How did you realize an insurance product that taps into the farmers’ needs?
George: “It is pilots, testing and going to the ground. Sitting down with the farmers, talking to them, finding what is important for them.
The key learning for them is: insurance is important. It helps to build resilience of the farmers: they can recover from shocks. Yet, it is not a primary purchase in the farming process. The farmer will not naturally think about insurance when he is beginning to prepare for the season: he’ll be thinking about seeds, fertilizer and labor costs. For this to work, it is best bundled with a product that is already primary to his activity.”
How can insurers unleash this part of the unserved market?
George: “By differently organizing the value chain, also including the last-mile/base of the pyramid, and teaming up with strategic partners.
On the value chain, everybody needs to work together. At ACRE Africa we’re specifically pulling on a strategy called ‘Integrated Risk Management’ where we try to bring partners offering different solutions on the value chain to work together.”
What is the magic trick to offer it affordable and sustainable?
George: “There is no magic, it has been hard work by the team for many years. Testing different ideas, some of them failing badly. We slowly come to the point where we are starting to find the route to market. The thing is that it has to be available to the farmer where they are – it has to be affordable to them.
And it has to have some believability, which is now where we are getting to. Most of the time, people are used to seeing thing that they buy. So now we are building believability by getting the farmers to be part of the delivery on the service. So, for example, one pilot used mobile phones in which photos were taken across the season for the crops that farmers are growing to enable insurance to work. These photos are being taken by champion farmers on the ground. That way, they feel that they are part of the entire process.”
This editorial is part of The DIA Impact Series. Interested in learning more about this subject? Click here to read the book Reimagining Financial Inclusion or check out the panel discussion Financial Inclusion For All presented by Erlijn Sie on DIA TV.