Microinsurance: A good tool but a tough sell

Microinsurance can play a key role in alleviating poverty and has expanded dramatically over recent years. But as a recent ILO study explains, it takes more than a good idea to sell a product.

GENEVA (ILO News) – Microinsurance has expanded dramatically in recent years and now protects hundreds of millions of poor and vulnerable people around the world. But, it’s no easy sell.

The number of insured people has risen to 500 million from 78 million in 2007, according to the Microinsurance Compendium, Protecting the poor Volume 2 co-published by the ILO and the Munich Re Foundation. (See video coverage of the launch of the new Compendium.)

The range of coverage, once limited to basics such as credit, life and funeral, has also increased significantly.

“Low-cost insurance policies now cover the lives, health, crops, livestock and property of millions of the world’s most vulnerable citizens, helping to protect them against risks that could further impoverish them,” says Craig Churchill, who heads the ILO’s Microinsurance Innovation Facility.

Insurers can turn a profit. However, because of the low-cost of their products’ premium, they need a large volume of sales.

This is where the challenge for insurance companies begins.

Getting a farmer with little formal education and no understanding of insurance to believe they’ll get paid if their crop fails, for example, is no easy task. Sellers themselves often have limited education and no previous insurance experience.

Sell it right

And if the insurance is not properly explained, clients may not understand what they are buying or have excessive expectations from the policy. Such “mis-sales” hurt the reputation of the insurer, the seller and even the whole concept of insurance.

“When a sale is done right, clients recognize the benefits of the protection against risks, understand when and how to claim, and are more likely to renew their policy,” according to a recent ILO study titled Selling more, selling better: A microinsurance sales force development study.

To reach scale, insurers need a sales force that sells well and sells right.

That is why proper training, incentives and monitoring of the sales force are crucial.

The training process involves getting the seller to understand the social and economic benefits of insurance so that they can pass on that understanding to potential buyers.

One company in Latin America uses clients’ video testimonies to highlight the benefits of insurance. One video, for example, shares the experience of a wife who lost her husband and now relies on income from his life insurance.

And teach it right too

Passive learning methods, such as presentations or lectures, may not work well with trainees who have only basic levels of education. One alternative is to adopt a learning-by-doing approach, such as having trainees role-play a sale.

Insurers can also encourage sales staff to experience the product personally, for example by giving them a discount. By buying and using the product, sellers are equipped with a better understanding of its costs and benefits.

The ILO, through its Microinsurance Innovation Facility, supports the extension of insurance to millions of low-income people in the developing world, with the overall aim of reducing the vulnerability to risk of those least able to cope with it.

It provides grants to institutions to devise innovative approaches, supports research, analyses and disseminates information, and supports development of capacity among microinsurance providers.