FAnews asked the industry experts whether the low income market is a viable option and received some interesting insights about the products and strategies that can help brokers tap into this segment.
While the South African population as a whole is underinsured, the low income market in particular remains largely untapped. A number of Zimele insurance products have been launched in the industry, but the low uptake thereof suggests that more needs to be done if this market is to become a viable option for brokers.
Short-term industry
Khanda Mkhize, Head: Entry Level Market at Santam says that they believe the low income market is a viable option. “It is an important business imperative for growth. However, the industry should take a medium to long-term view in terms of realising the return on investment in this market, which traditionally has not been exposed to the concept of insurance.”
According to Mkhize, product uptake will depend on affordability and perceived value for money. “Products have to address the consumer’s immediate needs as this market is prone to be negative if no reward is realised in return for the hard-earned premium.
“The low income market is very challenging for the traditional broker market, which has not had access to this market. Low premiums are also problematic for the brokers’ cost structure. A new breed of short-term brokers needs to be developed, that will build business models around big volumes, by working with communities and affinity groups such as stokvels, and benevolent societies.”
Short-term challenges
Vusi Ndlovu, General Manager: New Markets at Mutual & Federal points out some of the biggest challenges. “Making a difference in the life of an individual by giving them access to financial products which they never thought they would have access to is fulfilling. The low income market is a viable option from a community social investment point of view but, from a business point of view, it's not always viable.
"The sales process in this market suggests that people prefer to buy from sales agents, invariably the products should be cheaper and simple to understand. This implies that you run an expensive distribution channel for a product which should be inexpensive in order to be affordable. Accordingly one needs volumes to break even in a market where premium collection is a big issue."
Ndlovu suggests that products for this market, in which uptake is low, should address a very specific need of a client, while offering simplicity and very competitively pricing.
“For brokers targeting the low income segment, innovation is key,” Says Ndlovu. “The distribution of products costs more, cancellations are high and premium collection is a serious challenge. Radical innovation is required to find sustainable solutions to these challenges.”
Life industry
From a life industry perspective, Nathi Kunene, PFA Executive General Manager at Metropolitan Retail says that the low income market is most certainly a viable and highly untapped market, if certain key factors for successful penetration of this market is adhered to.
“Firstly, the best approach to tap into the mass market is through moderate margins with high volumes, which ensures overheads are lower while a larger group of customers are serviced.
"Secondly, to be sustainable, products should be developed to respond to the needs of customers. Experience with products such as Zimele indicates that these needs are not well understood.
“Thirdly, financial education is critical. There must be continuous financial education programmes aimed at increasing awareness and to protect less savvy consumers from buying inappropriate products.”
Responding to needs
Kunene believes that while affordability is a consideration, any product designed to respond to the needs of customers will be sustainable. “It is about weaving the needs of the customer into product design and development. Products in the informal financial sector, like stokvels and burial societies, illustrate the demand in the market for these kinds of products. But the penetration figures in the formal market paints a different picture. This illustrates that it is not the lack of interest from customers in products but rather that the products do not meet their needs.”
For brokers, Kunene’s advice is to correctly identify the needs of customers and to connect those needs to appropriate products. “Another approach is tapping into groups, for example church groups, where you can introduce a product to a large number of people in one engagement. This does not negate the need to conduct one-on-one needs analysis with each individual, but it can be a cost-effective alternative to servicing this market.”
Simplicity
Momentum has traditionally served the entry level market through its Bancassurance relationship with FNB. The business has shown significant growth since inception, and continues to do so.
“The low income market is generally a viable option, if the products are simple and easy to understand, accessible, needs-based, and offered or distributed at a reasonable cost” remarks Sihle Zulu, Marketing Executive for New Markets at Momentum.
“Since product design and simplicity are critical to success, most players focus on electronic goods extended warranties, cell phone insurance, low sums assured personal accident, funeral insurance, and hospital cash. Even when the product by its very nature is offered by all insurers, adding ‘bells and whistles’” that are consumer sensitive swings preferences and choice of insurer quite easily,” says Zulu.
Whilst the Bancassurance channel has been very successful, Momentum recently diversified into other distribution channels to service the entry level market better. “The focus for brokers should be on tailoring their value propositions to meet the unique needs of the entry level market, which is characterised mainly by the need for uncomplicated financial solutions,” advises Zulu.
Community-based
Rob Ward, Chief Executive of Sanlam Sky Solutions, concurs, saying that the low income market holds huge market potential, but requires a certain level of understanding. “We believe that we have the insights at hand and we will continue to develop products and services that address the needs of this market.”
Sanlam’s strategy within the intermediary market is community-based. “We recruit brokers within the community because they understand the market dynamics in their communities, particularly with regard to new trends and lifestyles that exist within those communities,” says Ward.
“There is also a strong affinity between brokers and clients because the brokers are part of the community. For this reason, we nurture strong ties with our brokers and strive to understand what works and what kind of interventions they need that will help them perform better. This allows us to provide brokers with the tools that will ensure that they perform better and ultimately their clients benefit from this integrated and partnered approach.”
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