PREPARED

By
Clifford, C.Adebe,S

LECTURE 3

4/19/2024 1
Discuss the key differences between microinsurance and traditional
insurance.
 Microinsurance product development & pricing

 Objectives:
◦ Understand the microinsurance product
development cycle.
◦ Appreciate the value of following a systematic
product development cycle
◦ Pricing meaning
◦ Pricing requirements for MI
◦ Case studies for self study

4/19/2024 3
Clifford, C 4/19/2024 4
 Product development process

Microinsurance
Understan
d the
product market
Prototype
development Product e developm
ent and
valuation
process is testing

continuous and
Consumers
designed to ensure
Competition
that resulting Partner
selection
products provide
Product Organisational and
rollout Assessment preparatio
value to the clients n

Product
Pilot finalizatio
testing n and
and process
Analysis design
 Product Development cont…
 Product development is a complex and sometimes a
resource consuming activity.
 Most commercial insurers often skip steps in this
process.
 Insurers often think they understand traditional
markets and can apply the similar principles in their
product development process.
 Sometimes there is also a rush for achieving large risk
pools or business opportunity as opposed to following
a structured product development process.
 Institutional Assessment
 Motivation-Developing a MI product that responds to needs
of the market
 Commitment –Is the institution ready to fully commit to serve
the low-income segment (staff, management and board)
 Capacity- ability to develop MI product (time and h/resource)
 Cost –effectiveness- Innovation in terms of marketing,
service delivery and management -> reduced cost of
operations
 Simplicity –ability to develop simple products/solutions
 Funding – Is there a budget to effectively implement product
development process?
 Market Research
 Demand: what are the needs of the target customers?
 Supply: Who are your competitors or insurers planning to
invest in microinsurance? What kind of products are they
providing?
 Delivery mechanism: What delivery channel are
available? Which channel has experience in delivering MI
products?
 Regulations: How might the regulatory, supervision and
policy environment affect the provision of
microinsurance?
 Content Tools
 Risks
 Financial diaries
 Prioritized risks
 Frequency and Severity  Financial services access data
 Coping mechanisms  Focus group discussions
 Pros and cons of the coping  Individual interviews
mechanisms
 Knowledge of insurance  Prototype tests
 Experience with insurance  Product pilots
 Willingness to pay
 Client satisfaction surveys
 Trust in insurance companies
 Cultural and behavioural factors
 Prototype testing is a step after a market
research
 The key inquiry is: “Did we get this right?”
 Specific questions in a prototype testing:
◦ Are potential clients receptive to the product?
◦ Do they like the product?
◦ Does the product really address the
prioritized risk management needs of
potential clients?
 ◦ Will it be easy for them to access the
product?
◦ What do they think about the benefit design
in relation to the premium?
◦ Will the product offer value above the
coping mechanisms they currently using?
 While initial market research mainly uses
qualitative data, prototype testing mainly
uses quantitative data
 Getting the right product is good but success of the
product also depends on the getting the distribution model
right.
 Decisions on which distribution channel involve a selection
process which includes suitability, functionality and
partnership risk assessment.
 Distribution partners are critical for access and product
servicing.
 Distribution partners must be involved in the product
development process
 Once the partner has been decided, process from
enrolment to payout are clearly outlined.
 Finalize the product design and formalize the delivery
process.
 Coverage- benefit package and control mechanism
(adverse selection, moral hazard & Fraud)
 Type of cover
❖Compulsory vs voluntary
❖Group vs individual
 Terms/ eligibility criteria
 Prepare Policy document (simple to use and understand)
 Preparation of procedure documents (eg. claims)
 Pricing – done with appropriate actuarial tables and
professional actuaries.
 Development and testing (mathematically) staff incentives –
impact that the incentive might generate.

Case study – Delta Life Insurance (Bangladesh)

❖ process problem- too many signature to approve
claim
 Pilot testing is often overlooked.
 Pilot testing is a critical step in the product development cycle.
 Objectives of pilot tests:

Gauge the
Gauge product Evaluate the value appropriateness and
acceptance levels proposition of the efficiency of systems
product and processes
(front and back offices)
 Example 1: The Demonstration Effect in
Nepal
The timeline for the In the Kalaiya area of Nepal, after providing
pilot should ideally benefits to the families of two deceased
sufficient time for: persons within a short time, there was a
rapid increase in the number of clients
◦ Claims experience showing interest in purchasing the
◦ renewals. microinsurance product. (CMF Nepal, Pilot
Testing of a Micro Life Insurance Product,
Results and Lessons Learned)
Source: USAID Microinsurance Note 4

It is costly to roll out a wrong product or right product with

wrong systems and processes
 SEWA did not have
Example 2:
a formal structured
VimoSEWA,
pilot test.
India
Transition from
Mandatory to
Voluntary yielded
good lessons
  If the pilot yield good results, the natural step is rollout
 Depending on the results, sometimes product
refinements may be required before rollout
 Training, systems and Marketing

It is costly to roll out a wrong product or right product with

wrong systems and processes
 Products must be evaluated periodically to assess both
client value and business viability.
 PACE developed by ILO’s Impact Insurance Facility is
good tool for client value assessment.
 Business viability is often assessed using standard Key
Performance Indicators.
 After product evaluation, strategic decisions have to be
made on whether the product must be refined,
enhanced, redesigned or withdrawn from the market.
 Appropriateness -by reviewing coverage, benefit level,
Product
eligibility criteria and availability of value-added services
Focuses on accessibility and simplicity by investigating
Access choice, enrolment, information, education, premium payment
method and proximity
It measures both affordability and value for money, while also
Cost looking at additional costs and efforts to keep down overall
costs of delivery

Assesses responsiveness and simplicity-claims procedures

Experienc
e
and processing time, policy administration, product tangibility
and customer care
◦ Faster product acceptance by potential clients
◦ Products is designed to meet the real needs of
potential policyholders
◦ Determining appropriate product education and
marketing strategies
◦ Getting the right sales teams and incentive
structures
◦ Getting the right distribution models
◦ Influence better renewal rates
◦ Finding the right systems or processes
◦ Increased trust and client loyalty to the institution