Lecture 23 - Partners at the last mile: retailers, banking agents, and insurance companies. The following will be discussed in this chapter: The microagent model: Barefoot agents; insurance companies face the channels challenge; direct sales; the partner-agent model.
PARTNERS AT THE LAST MILE: RETAILERS, BANKING AGENTS, AND INSURANCE COMPANIES Summary of the Last Lecture • Instore Banking, banking Agents, Retailers become bankers, variations Overcoming the Core Challenges • Given the triple win nature of the banking agent proposition, there is an enormous opportunity not only for financial institutions and retailers, but also for auxiliary businesses Overcoming the Core Challenges • such as POS suppliers, technology designers, agent managers, or market research firms to assist in design, implementation, and ongoing support, provided key challenges are addressed Technology • Specialized technology is needed to equip banking agents: computer, printer, scanner, POS devices, and communication devices such as a fax or modem Technology • For models in which the financial institution’s and retailer’s systems need to communicate, selecting the right technology interface and ensuring quality data synchronization are perhaps the trickiest issues to resolve Technology • The latter, in particular, usually hinges on a robust core banking platform that may not always be present, particularly in smaller scale financial institutions Marketing • It is still unclear what type of clients will prefer using banking agents and how they feel about interacting with a retailer rather than a banker Marketing • Will they trust the retailer with their banking transactions? Financial literacy programs devoted to building trust and informing clients on safe use of credit and debit cards may help Marketing • Market research and segmentation are needed so that both the financial institution and retailers can make informed decisions about where to open banking agents (versus branches or ATMs) and what products to offer The Partner-Agent Model • A more cost effective way to bring insurance to low-income people is a piggybacking model The Partner-Agent Model • American International Group was among the first to develop this approach, in Uganda With more than 20 years in Uganda, AIG dominated the mainstream insurance market in the country The Partner-Agent Model • In 1996, FINCA Uganda, one of several large MFIs, asked AIG to create a partnership Together, the partners designed group life insurance and accident policies that covered clients and their families in case of death, disability, or hospitalization The Partner-Agent Model • FINCA loan officers distributed insurance certificates, collected premiums (folded into loan repayments), and helped process claims in the course of their weekly rounds to borrower groups The Partner-Agent Model • Because coverage was mandatory for all borrowers, there were no costly individual negotiations or sales, and no problem of adverse selection (in which only the riskiest people choose to buy insurance), which is especially important in a country with a high HIV infection rate The Partner-Agent Model • Based on the success of the two-year pilot, AIG refined the product and expanded it to other microfinance institutions and other countries in the region, finding ways to reduce premiums over time The Partner-Agent Model • AIG’s ability to rely on a trusted MFI partner was critical to profitable entry into the low-income market The Partner-Agent Model • By 2003, microinsurance generated 17 percent of AIG Uganda’s overall profits, and MFIs earned significant income by charging small fees for administration The Partner-Agent Model • • By 2005, AIG’s product covered about 1.6 million people through 26 MFIs in Tanzania, Malawi, and Uganda The Partner-Agent Model • AIG’s work with FINCA helped create demand, in effect developing a new market FINCA’s clients, most of whom had no experience with insurance, told their friends about the coverage, The Partner-Agent Model • and over the next several years clients of other MFIs began demanding insurance, too Eventually, nearly all MFIs in Uganda tied up with insurance companies The Partner-Agent Model • The model AIG created in Uganda is now widely applied by insurers using microfinance institutions as distribution channels The Partner-Agent Model • Compartamos Banco in Mexico, for example, is a conduit for Banamex Seguros insurance In one program twist, Compartamos combines mandatory basic life insurance coverage with voluntary additional coverage available on demand In the next Lecture • The Microagent Model: Barefoot Agents Summary • Insurance Companies Face the Channels Challenge • Direct Sales • The Partner-Agent Model ... businesses Insurance Companies Face the Channels Challenge • The ideal distributor will handle money and process transactions For this, the distributor must be financially sound and have strong... Market research and segmentation are needed so that both the financial institution and retailers can make informed decisions about where to open banking agents (versus branches or ATMs) and what products... the two-year pilot, AIG refined the product and expanded it to other microfinance institutions and other countries in the region, finding ways to reduce premiums over time The Partner-Agent