Purpose built insurance brings cover to Africa

Affinity products key to continent

In Africa, with its large distances and limited infrastructure, the success with which insurers respond to client’s physical and logistical needs will ultimately determine market share. In short, successfully delivering financial services to clients dispersed across distant and remote parts is key to success on the continent. Since insurers traditionally lack the physical infrastructure of banks and retailers, affinity products, or purpose built insurance products that at minimal cost fill a relevant and specific need, are key in unlocking the potential of Africa’s still fairly dormant affinity insurance market.

Certainly, people with little to no regular income are unlikely to purchase comprehensive insurance products, covering things they barely understand - and costing hundreds, if not thousands, of rands a month.

Instead, “if insurers take the time to look at what people here in Africa need, what they are buying, how they are buying, and what they are concerned about - in short, imagining themselves into their lives - they will discover a large market of people buying targeted financial services products, in large numbers right under their noses” says Brigitte Archer, Marsh Advanced Risk Solutions, Marsh Africa.

Africans are not, however, buying these products in the traditional way.

Instead of comprehensive policies with all sorts of complex exclusions and provisions, most African’s choose very specific financial products, like funeral policies, and consumer credit insurance. These products are usually designed for a specific purpose, don’t cost a lot and offer little room for repudiation. They are usually also linked to other retail products, like cover for furniture etc., and are sold through pre-existing retail networks, like supermarket or furniture chains that have already penetrated remote areas and have large and established customer bases already locked in to various Hire Purchase agreements.

Because these products are specific to the consumer, can be linked to other products and piggy back on sales networks other than their own, they are known as affinity products. From a customer service perspective they have the advantage of being accessible even in very remote areas and afford clients the ability to do all their purchases, both material and financial, all in one place – a great boon in areas of poor infrastructure and high transport costs.

While a great way to get financial services to the previously un-serviced, “affinity products represent a potential danger to unsophisticated consumers” warns Archer. Horror stories abound of consumers paying, over several years, seriously inflated amounts for relatively inexpensive items as they are not in a position to hand over cash for these transactions and are forced to resort to credit agreements.

To this end South Africa now has more appropriate legislation in place that prevents abusive practices like coupon selling or “inducement” purchases” says Archer.

While the industry needs to remain vigilant of these and other abuses, affinity products, from a retailers’ perspective, represent additional revenue streams along with an opportunity to promote brand loyalty. For example, furniture chains or other retailers “often approach us for relevant products, like tombstone or unveiling policies, to offer through their stores to maintain monthly footfall and drive other purchases” says Archer.

In short, many retailers already have databases of customers and are looking for new ways to expand their sales. Given that these data bases record things like age, LSM and other consumer details they are invaluable to financial services providers in helping them develop niche products for specific needs. For example, knowing there is a high proportion of single mothers with children of school going age, may present an opportunity to sell relevant products like Personal Accident or a Sports Injury evacuation service through local supermarkets.

In the corporate space, affinity products can be tailored for specific employee populations, offering, for example, vehicle tracking services, funeral policies, and car insurance to staff at special rates. While “white-labelled to reflect the company’s brand identity, it could all be arranged by a company like Marsh” adds Archer. Not only does this serve to differentiate companies from their competitors but in many emerging African markets with little existing financial service infrastructure these kinds of employee value propositions outweigh competitive remuneration in attracting and retaining key talent.

As such, “identifying and developing affinity products “is not so much about selling as it is about identifying gaps and needs - and then filling these with appropriate products that can be bought and delivered cheaply en mass” says Archer.

This customer-need centricity very much explains why the three requirements of success for an affinity product are all client-facing propositions, namely; a meaningful initial offer, ease of distribution, and prompt and efficient servicing.

Given that the need is correctly identified and niche, targeted and relevant products are developed, then affinity products have the potential to allow normal retailers, especially in Africa’s remote and inaccessible parts, to expand their product range to include financial services – bringing financial services and the security they provide to new markets across the continent in a relevant and affordable way.