At first glance, the types of small-ticket insurance bought by a subsistence farmer in India and a traveling businessman in Germany are worlds apart. And most insurers manage them as if they are completely different products. We believe this is a mistake.
It’s not that we’re downplaying the differences – they are significant. The customers not only have vastly disparate levels of affordability. In mature markets they are also familiar with the concept and workings of insurance, they probably trust insurance companies to honor their claims, and they are relatively accessible. In emerging markets, carriers need to educate potential customers about the benefits of insurance, they need to establish trust from a low base, and they need to develop dependable ways of communicating with them.
What’s more, for low-income customers, microinsurance is their primary coverage, whereas for affluent customers, small-ticket insurance is almost always supplementary to their core insurance. Crucially, too, small-ticket insurance in mature markets tends to be highly profitable, whereas in mature markets most carriers are still struggling to find business and operating models that generate strong returns.
So if these are the differences, what are the similarities? There are quite a few:
- The premiums and the insured amounts are on the small side, at least in absolute terms.
- The products tend to be simple. They require minimal advice, and are quick and easy to buy and pay for. The claims process is also simple.
- Distribution is often highly innovative and technology-dependent. In mature markets it increasingly takes advantage of geo-location and other contextual data to offer products that are topical, such as sports-injury insurance when the prospect arrives at a ski resort. In emerging markets it depends on (often converged) mobile technologies to reach consumers who are poorly served by conventional infrastructure and insurance channels.
- In both cases, partners and ecosystems often play a central role.
- Both have tremendous potential for growth.
These similarities, in our view, are more important than the differences. Which is why, in a later post, I will argue the case for looking at them deeply to find similarities in the operating platform and opportunities for re-use in different markets. I believe that small-ticket insurance and microinsurance have a common benefit: they are far more intensive than traditional insurance products when it comes to the frequency of customer interaction, and thus the opportunity to build rapport and trust with customers.