Micro-insurance in SA: how to give low-income consumers a SEAT at the table
At the end of last year, the National Treasury briefed parliament on the new Insurance Bill. Essentially, the changes back a new regulatory framework for the provision of accessible and affordable insurance to low-income South Africans.
Given the inequality that still divides the rich from the poor, often physically, the bill is a welcome reform for a traditionally price-discriminating sector. In 2014, auditing firm KPMG estimated that formal insurance penetration in SA was just 14.28%, which highlighted the magnitude of the unprotected. South Africans, especially those who need financial protection, just can’t afford it.
In our view market leaders in this category will need to embrace these new regulations in order for the bill to succeed. Established insurance providers in the country have built up empires, effectively managing risk by being averse to it. To open up their books to “higher risk” individuals, these companies will have to re-evaluate their operating models.
In addition to the change, incumbents will also have to deal with increased competition, as the micro-insurance regulatory framework specifically aims to give smaller players a chance.
As innovative as the insurance industry is, leaders will need to rise to the challenge from a product innovation perspective. However, the difficulty of making a connection between low-income consumers, who have a completely different set of needs, drivers and nuance, and established marketers in this field may be an impediment.
Take a SEAT
According to a paper by research company Genesis titled “Overview of the Micro-insurance Market in Africa and the Potential for Growth”, one of the core elements that influence the demand for micro-insurance is trust. By ensuring trust, brands, both big and small, can start to unlock value and successfully engage with the low-income market.
To address the micro-insurance market insurance and financial services adequately, companies need to ensure four things that will to build trust in the category and provide low-income South Africans a SEAT at the table:
- Simplicity: People trust the things they understand. By ensuring simplicity in product portfolio, communication and interface, brands can enhance effectiveness. Capitec Bank has managed to penetrate the low-income market by leveraging this insight. The bank offers a single banking solution called the Global One account.
- Education: By educating South Africans about the value of insurance and enhancing financial literacy, brands will grow both their business and the category.
- Accessibility: Brands that ensure accessibility through presence, channel and payment will drive both recall and trust with the increase in frequency of interaction. This can be achieved through the right partnerships. Avbob, an SA insurer, teamed up with PEP, a mass-market SA retailer, by selling its policies in cash at PEP’s stores.
- Tangibility: Insurance is often viewed as a “black hole” where you pay money every month and get nothing back. This erodes trust and creates frustrations. By making the benefits of insurance tangible, brands can turn insurance from a grudge purchase to a nudge purchase. Outsurance offers tangible benefits through its Outbonus benefit. Clients get all their premiums back if they are claim free after 15 years. In the same vein, Clientele Life offers a tangible benefit by sending its clients airtime worth R200 if they claim on a funeral policy so that they can call their friends and family about the loss.
We look forward to seeing how these progressions will be implemented by the broader insurance business and marketing community.
The big take-out: Insurance providers will need to re-evaluate their operating models and build trust in the low-income market if they are to unlock value and successfully engage with low-income consumers.
Abe Louw is a strategist at Yellowwood.