This post written by Barbara Magnoni and Emily Zimmerman.
How can we extend financial products and services, like microinsurance, to low-income consumers at scale? In theory, “low touch” sales and services can reach large numbers of people at low cost. But so far, attempts to enroll new customers without active sales efforts have largely failed. As a result, “high touch” sales and distribution channels are seen as necessary to convince low-income consumers to purchase financial products, especially unfamiliar and complex ones such as microinsurance. But these high touch channels may incur costs that the small premium revenues struggle to cover.
Is it too soon to dismiss low touch methods? Can a balance be struck that provides the information, support, and “touch” level that encourages clients to buy, while keeping distribution costs in check?
The Microinsurance Learning and Knowledge (MILK) project partnered with the insurer Suramericana (“Sura”) in Colombia to explore insurance demand in two of its alternative distribution channels. The first aims to reach customers of credit cards offered by the supermarket chain Éxito through customer service agents, a relatively low touch but not entirely passive sales method. The second channel is higher touch, targeting customers of regional gas companies through door-to-door salespeople of Brilla, a service provider affiliated with the gas companies.
We surveyed clients who bought insurance through these two channels to determine the type of client for whom they are effective in generating sales. We found that customers reached by the higher touch Brilla channel were more likely to be women, to be poor, and to have less access to and experience with a range of financial services than those who bought through the lower touch Éxito channel.
While this sheds doubt on the potential for including the financially excluded with low-touch sales, we consider that one way to shift into lower touch mechanisms might be to build trust in the product and brand. Trust (possibly created through previous experience with insurance) might substitute for complete up-front information in the decision to purchase insurance. While outright distrust of any of the providers in our survey was low, the lower touch customers were more likely to trust both insurer and channel “very much.”
These differences in profile and consequent needs of each target market align well with the sales strategy of each channel. For Éxito customers, who purchase during a more hectic, rushed interaction, the lower touch sales strategy seems to rely partially on those customers’ greater experience with financial services and higher levels of preexisting trust in providers. Brilla customers, on the other hand, are sold insurance door-to-door, offering personalized, high touch attention in primarily lower-income neighborhoods.
These observations have important implications for those considering ways to economize costs of microinsurance distribution. In early stages of market development, and for those who are unbanked and unfamiliar with insurance, high touch strategies may be most effective. Insurers should weigh the higher costs of high touch strategies against their greater effectiveness for this consumer group, also considering the potential costs of cancelations and resolving disputes from unsatisfied customers who purchase products they do not fully understand through low touch strategies. High touch sales, if effective in building experience and trust, may build the foundation for a gradual transition to low touch customer service over time for other products, potentially including mobile and online platforms. In Colombia, where some segments of the population have experience with financial services, including insurance, and where insurance brands are often well-known, insurers such as Sura have already begun experimenting with this process, segmenting target groups and focusing on delivery channels that reach these groups with varying levels of touch.
However, not all microinsurance markets share the Colombian market’s maturity and outreach. In less mature markets, it may be relevant to consider the ways that insurers can accelerate the process of building experience, awareness and trust, for example though subsidized free trials. In Ghana, various mobile carriers offer free insurance as an incentive for loyal airtime customers, selling top-ups when customers decide to renew. In Mexico, the MILK Project’s randomized controlled experiment with Banco Compartamos revealed that microfinance clients who received free life insurance were largely willing to purchase this insurance at cost when its subsidy was removed.
Both high touch sales and subsidies may be effective in boosting insurance outreach as a precursor to lower-touch delivery. Both, however, come at a cost, and more research is needed to better understand the long-term benefits of each method.