Finding footholds in the low income market

Although there's no shortage of insurance products for consumers in the LSM 1 to 5 category, insurers are struggling to find distribution channels and payment models that work.

"The many pay for the misfortunes of the few," says Mutual & Federal managing director Keith Kennedy responding to our question on innovation in the short-term insurance space. "We've developed some products for the foundation market and the mid market," says Kennedy, adding that the battle in the short-term space will be won on product delivery and distribution rather than product innovation."

His sentiment is echoed by general manager, Mokaedi Dilotsotlhe who says that "the war in financial services is won in the distribution space". It remains to be seen whether the intermediary will play a significant role in this segment of the market.

Losing out to direct insurers

The problem, says Dilotsotlhe, is that "the existing broker model doesn't actually touch LSM 1 to 5." In addition, the direct insurers are taking an increasing slice of the traditional intermediary market. "If your existing model is not catering for that – and that's where the growth is coming from – you're going to lose a lot of business."

"If you analyse the FSB returns you'll see that the direct insurers are taking market share in the personal lines space," agrees Kennedy. This means both M&F, which is broker dependent, and the intermediary are losing a big slice of the short-term market. M&F is going to have to find a solution in the direct space going forward. "We're not cutting out brokers," says Kennedy, "but finding a different way of doing business that brokers can tap into as well!"

The micro-payment dilemma

Derek Pead, chief executive officer of Metropolitan Cover2Go is more brutal in his assessment of the intermediaries' role in the entry level market. "We all have a huge challenge in trying to distribute low cost insurance products widely," says Pead. And there's no room for commission in the R10 to R20 per month policy space. Cover2Go's mandate is to develop new products for the entry level market, find new ways of distributing these products and effective ways to collect cash premiums. But defining the goal is as easy as things get.

In a recent presentation titled "Selling Insurance: The Challenges in Harnessing Technology to Help the Poor" Pead shared some of Cover2Go's experiences. Pead's team designed and developed a once-off accidental death policy which offered R60 000 accidental death benefit for a period of six days (the Easter holidays). It could be purchased using a cell phone and cost only R10. The product is still available; but now offers a R15 000 accidental death benefit for one month.

The micro-payment dilemma

The product wasn't overly successful. Consumers were suspicious about the amount of cover offered and concerned that their beneficiaries would get wind of the potential ‘payout and speed their passing... The lack of a feasible micro-payment facility is also of great concern. Cover2Go used bulk SMS gateway Clickatell to facilitate payment and ended up ‘losing' approximately 50% of each R10 premium to the cellular networks.

Another innovative Cover2Go product is the CASHBACK Funeral Policy which provides "R10 000 death cover for [the insured] – and all [the insured's] premiums back after five years!" The product was available ‘on the shelf' at Shoprite (another Cover2Go innovation) and premiums started from R49.99 per month. Pead notes that although many potential consumers purchased the information packs, the in-store conversion was disappointing.