Old and new, big and small

Yesterday Lloyd's of London played host to an event on new opportunities in microinsurance distribution. It was a blended online and in-person event. One of the Lloyd's porters told me this was the first time Lloyd's had hosted this kind of event. 

Was great to see the range of attendees. Many people from insurance companies - R&D, CSR, underwriters - engaged with a topic not commonplace in the Lloyd's building. Also an interesting conversation with someone looking for inspiration for innovative distribution for a very different product - solar lamps! 

One of the speakers during the event mentioned that microinsurance was about insurance going back to its roots, and this seemed to resonate with the participants. Good to feel the energy in the Lloyd's library to recapture those old roots with some very new thinking.

The future of financial education

The world of client education in microfinance has been murmuring recently. Take a look at this MicroSave briefing note for one of the most interesting analyses I’ve read (and one of the shortest).

In fact doubts on financial education are far from new. Increasingly studies are showing that financial education increases people’s knowledge of financial tools, but... very often doesn’t actually make them use them more. A client might be able to explain the advantages of insurance, but not be any more likely to buy it. 

A lot of factors are at play here: you can get a good idea of how complex the impact of financial education is through the experience of Freedom from Hunger.

As the MicroSave briefing note argues, it seems that financial education works better (more impact on clients, more cost-effective for insurers) when it is more closely tied to marketing of specific products and to clients own experience of products and that of their peers.

Take this further and client education is often most effective when embedded in delivering products. The most effective financial education is experience of products that work. Offer microinsurance products designed to provide regular benefits, and clients will see potential of financial tools for themselves. Make mandatory products convincing, and clients might be persuaded to try more voluntary products.

Peter Gross was asked to defend one of MicroEnsure’s products, sold via mobile phones without a traditional financial education component. He argued that as a free product covering a large number of people and providing quick and very simple claims payments, the product was in itself education about what insurance can do for its clients.

From the MicroSave brief again: “Experience rules. People test financial products with low values and little risk to make sure the product performance conforms to their understanding before entrusting it with larger values.” 

The future of financial education lies in providing opportunities for clients to test financial tools for themselves.

Pawnbrokers and microinsurance

Interesting article on why people use pawnbrokers in the Philippines. They are convenient, very simple and quick, require no form filling and are highly tangible.

A thought:

The article mentions the possibility of selling microinsurance through pawnbrokers. It is an interesting marketing idea to present people with the possibility of protecting themselves in advance just at the point at which financial emergencies are most vivid in their mind - when they are dealing with one.

How can microinsurance be made to more closely resemble the advantages of the pawnbroker? Could the pawnbroker be the one to distribute the claims cash at the time of need, to encourage people to see that insurance provides cash for them in emergencies in a similar way to a pawnbroker? Could clients be offered reduced interest on loans taken with the pawnbroker in the event that an emergency is not covered by the insurance?

P.S. Does anyone know of any microinsurance currently being sold through pawnbrokers?

Reflections on Dar

After a week barely leaving the hotel in Dar es Salaam during daylight, I have witnessed one Miss Tanzania contest, one karaoke night at the beach and four days of microinsurance geekery - first the Microinsurance Innovation Facility's Innovation Forum and then the 8th International Microinsurance Conference.

Some brilliant presentations on micro-Takaful and health microinsurance come to mind, but of course the most inspiring parts came in the discussions between presentations. In particular, the drive for microinsurance from some very different perspectives - microinsurance as just one part of making insurance sustainable... microinsurance as a financing tool for health or agriculture purposes... microinsurance as an intriguing business venture... "I don't want to call it microinsurance" insurance for the mass market...

I was struck by the younger generation at the conference - lots of keen, clever and quite quirky minds from different fields. The next decade should be an interesting one in this industry.

P.S. I leave you with a photo from my one outing in Tanzania in daylight!

What can insurers learn from microinsurance?

Watching this video from Faisel Rahman, the founder of FairFinance, the first microcredit project in the UK, I was impressed by his vision to change personal finance for everyone by starting afresh with those who are currently excluded. 

In the same way microinsurance has offered insurers (and many new to the game) to start from the beginning, and from a whole new starting point, with social as well as business objectives - developing and monitoring products by asking "does what we are doing actually make our clients lives better?"

Microinsurance has brought new distribution channels, improved technology and the promise of new markets to conventional insurance. But its "client value" approach could also be a powerful perspective for conventional insurance.

Starting with what you've got

"But why would I want to see you again? I already know what you look like."

An eight year old's reply when I told her that it was the last session I would spend working on Maths with her.

An (almost) cute example of children's lack of sentimentality and tendency to take things literally, but, also, kind of true...

I'd visited her school in East London once a week for two terms as part of a CSR programme, and I had loved it. I'd made a connection with the area I worked in and I had left the office and done something different for a couple of hours a week.

Had the pupil I was working with improved in her Maths? I'm not convinced.
Had she enjoyed it? Yes, I think so.
Would it make much difference in her life? Probably not.

There is nothing wrong with these kind of CSR programmes. They do a bit of good and no harm. The problem is that they miss the point. Most companies have so much at their disposal; I was working with top finance, risk and management professionals, not teachers.

Companies should start by thinking about how they can make the most difference with what they already have: turning their existing skills to a social purpose...

Maybe start with what you've got and go micro?

Thinking about distrust

Clients' risk aversion is a double edged sword for microinsurers. On the one hand, we would expect the high levels of risk aversion often shown by poor people to push them towards seeking ways to manage risks, like insurance. On the other hand, for our clients microinsurance itself is a risk.

The truth is that for most poor people insurance is new and untested. Where they do have experience it is often negative. Insurance is difficult to understand and the protection is always limited to certain conditions.

How can a poor person be sure that insurance is the best way to deal with their risks? And even if they are convinced in principle, how can they be sure that the insurance company will still be around and will honour its promises?

It's easy to lament this lack of trust and try to change this 'wrong' mindset. But we need to start off by recognising that this attitude is legitimate, even sensible. Taking insurance is a risk and our clients do well to weigh the pros and cons carefully.