In the first of a series examining worldwide developments in products, distribution and initiatives, Greg Becker begins by looking at India
When we think about providing cover to the lower socio-economic groups, we think about simple products. We think about simple underwriting. We think about a simple sales process. We want to minimize compliance risk. We want to minimise paperwork. We want the customer to know when they are covered. We want a clear payout. We do not want complicated policy documents. We want a simple claim process.
Are all of these possible? Maybe in the case of a personal accident policy that has been sold to more than eight million Indian farmers.
REWARD FOR HARD WORK
The product, Sankat Haran Bima Yojana (SBY), is sold by IFFCO-Tokio General Insurance (ITGI), where IFFCO is an acronym for The Indian Farmers Fertiliser Cooperative Limited.
IFFCO is one of the largest fertiliser distributors in the world. With every bag of SBY fertiliser it sells, the purchaser automatically receives Rs4,000 (£54) personal accident cover, Rs2,000 (£27) in the event of TPD or on loss of two eyes or limbs, and Rs1,000 (£14) on the loss of one eye or a limb.
A person who buys multiple bags of fertiliser can be covered for up to Rs100,000 (£1,351), which can be realised by purchasing 25 bags. The cover lasts for a year - this naturally aligns with a ‘fertilising' cycle. This can be seen as a useful product differentiation attribute helping to sell fertiliser the following year and also for the farmer's wife to understand when he is covered.
What makes this product special is that it does not have an explicit premium or a paper-based policy. The policy document is literally ‘the empty fertiliser bag' with the policyholder's name and the date purchased (which locks in the term) written on it. With more than 8,800 claims paid, substantial goodwill has been created and many financially illiterate customers have been given a positive insurance experience.
The premium, Rs1 (1p), is borne by IFFCO who use this partly as a branding initiative to help sell more fertiliser and other insurance products, which include cattle insurance and weather-related insurance products. They were successfully sold to the same group of customers.
With many Indians not having exposure to insurance products - or a positive buying experience - these types of interesting initiatives are needed. There have been others: in terms of product, there are some that can best be described as bank accounts that pay ‘cover' in lieu of interest. If a customer does not understand the concept of interest, then paying interest may not be a competitive draw-card.
In terms of access, there have been some interesting banking initiatives to broaden the access banking. Mobile phones have been used to enable people to become trusted banking nodes. Indian technology company A Little World sells a kit for £280 that allows people to set up a bank branch.
Some initiatives have been made possible due to unbelievably low administration costs. Max Vijay, a subsidiary of Max New York Life, launched an Insurance Savings Box. This is a savings product with some protection benefits that has flexible contributions.
It accepts contributions as low as Rs10 (14p) and returns a substantial portion of premiums on lapse (90% of recurring premiums). This is possible only if administration charges are miniscule.
Back to the UK, there have been attempts to guide the markets towards simple products, with the most prominent examples being CAT (charges, access, terms) standards and the stakeholder pension criteria.
Many would argue that the potential for simple financial products is not only being held back by product differentiation strategies that confuse the customer, but also by process complexity that raises the barriers to sale. This Indian Personal Accident product is an example of one with no underwriting and no exclusions.
While an underwriter could easily argue that short-term personal accident protection requires less underwriting than almost any other product, we should be questioning the extent to which precautions could be preventing innovative products to be developed.
The first world has exported insurance expertise to the developing world. It could be argued that the innovations in the future may be imported. IBM is Max Vijay's technology partner - when are they going to be bringing these systems and that cost structure to the UK?
Greg Becker is product development actuary at RGA
