> Posted by Alexa Roscoe, Private Sector Advisor, CARE International UK

The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

CARE International promotes microinsurance as part of the range of services and products that the poor need to help overcome poverty and reduce their vulnerability to shocks. However, we also know that as with all products, to be sustainable, any microinsurance model also needs to be profitable. Fortunately for the insurance industry and its clients, it’s being demonstrated that increasing profit and promoting financial inclusion do not have to be mutually exclusive. New research from our work in India shows that microinsurance distribution strategies that prioritize building clients’ financial literacy lead to almost three times as many new enrollments as those that do not.

There are a number of substantial challenges in marketing and distributing microinsurance products. Frequently, it is less a matter of marketing a product than building a new market from scratch, often in remote, hard-to-reach areas, with a client group without access to formal financial services. These factors make the costs of marketing to, distributing to and servicing clients disproportionate to the resulting margins. A number of strategies are being piloted globally to circumvent these challenges. For example, building off of growing mobile penetration rates among developing country populations, one initiative bundles an insurance product with the purchase of a SIM card. While this requires a lower initial investment, the jury is still out on the long-term value of such products. Unless clients receive thorough product education, such “blended approaches” might hinder awareness of the insurance product, as well as re-enrollment and the building of any brand loyalty.

Our analysis of microinsurance distribution took place in Tamil Nadu, India and considered three different marketing strategies: mass enrollment campaigns (e.g. public plays), group education through smaller self-help groups (SHGs), and one-on-one individual marketing. For individual marketing, agents from local NGOs sat down with women and walked them through the basics of insurance and how different policies work. Those who received individual marketing were selected through a variety of means, but primarily through their enrollment in SHGs. Because of the target market (rural, semi-literature, without access to formal financial services) these interactions involved not just salesmanship but also a mini course on personal finance.

After comparing costs, first time enrollment rates, and re-enrollment rates, we came to a surprising finding: one-on-one marketing provided the best return on investment. While this individual approach required higher initial investment in personnel time, it was much more successful in selling and re-enrolling consumers in policies, leading to a lower cost per policy. Individual marketing, which prioritized financial literacy through individual client education, enrolled almost three times as many new policy holders as the next most successful strategy of mass campaigns.

Simply put, customers at the base of the pyramid (BoP) have limited funds and need to invest them wisely. The best practice seems to be engaging with potential clients on a one-on-one basis to ensure that they fully understand how the product works – rather than just making advertising promises. This is a particular challenge for financial products like microinsurance, which ask clients to take the risk of making an investment which, if they don’t claim against the policy, they might see as a loss. One-on-one education on the basics of insurance goes a huge way to introducing the concept of microinsurance to new market bases, and to building enough consumer trust that they are willing to make the investment.

Implications for microinsurance:

  1. Financial literacy isn’t charity, it’s a key part of any marketing strategy. The biggest implication of this research is that for microinsurance companies, financial literacy isn’t just corporate social responsibility, it’s core business. For BoP markets, financial literacy and marketing should be seen as synonymous. Given the generally negligible margins in microinsurance, any means of expanding the consumer base is no small feat.
  2. Link with informal financial providers. CARE’s research through the Banking on Change partnership found that linking informal savings groups like SHG’s with formal sector banking could inject $145 billion into the global economy. The microinsurance industry can benefit from this. Strategically linking with SHG’s is an opportunity for the insurance industry to connect with groups that have the savings to invest in insurance products and further expand the potential market.
  3. Draw on local partnerships. Incorporating financial literacy as core business benefits from local partners, like NGOs. CARE research identified local NGO staff members as the biggest influencers on whether or not clients signed onto a policy. These community-level interfaces distributed microinsurance to the “last mile” and were a crucial part of clients’ insurance experience.

For too long financial literacy has been viewed as charity, or the exclusive domain of the social bottom line. It is time to recognize financial literacy not just as a key element of financial inclusion, but as a key strategy in product creation, sales and distribution at the base of the pyramid.

Alexa Roscoe is a Private Sector Advisor at CARE International UK. This blog draws on research carried out on CARE India’s Insure Lives and Livelihoods project by Sigma Consulting, funded by the UK Department for International Development.

 Image credit: CARE International/ Helene Barnes

Have you read?

Microinsurance: Can the Cinderella of Financial Inclusion Join the Global Ball?

Microinsurance Innovations: What’s Next?

Developing Financial Products Fit for the Poor