I’m halfway through a five-part series about how insurers can use microinsurance as an entry point to emerging markets. If you’re just tuning in, check out the first two parts of the series:
Partnership models for microinsurance
As with any business, there are several business models that can support an effective microinsurance strategy. Here are three:
- Partner-agent. This is the most common model: partners work together to develop products, the insurer takes on the risk and the partner distributes the products. This model leverages the partner’s existing infrastructure and reputation, while the insurer can reduce costs and improve speed to market. On the other hand, insurers must pick their partners wisely and must manage the relationship intensively. Training and due diligence are essential.
- Public-private partnership. Governments use this as a quick way to establish microinsurance in their countries, by subsidizing premiums or underwriting catastrophe risk. Insurers can then establish their products and build their business. However, subsidization can make it difficult for insurers to get a real sense of the viability of their products—and they must also prepare for the possibility of subsidies being reduced or withdrawn.
- Direct. Just as it sounds, this model describes an insurer that develops and distributes microinsurance products directly to the market. While they have greater control and retain ownership of their customers, the distribution and administrative costs can be significant. Insurers also need to have a keen understanding of the target market, its local community dynamics and of microinsurance itself.
One last point: as with any business relationship, managing a microinsurance partnership can be tricky. Partners often have different priorities and different constraints, which can limit—or threaten—delivery and sustainability. To overcome these issues, it’s important to focus on common objectives.
Tune in next week, when I talk about the operating models that can support a microinsurance strategy.
To learn more, download Succeeding at Microinsurance through Differentiation, Innovation and Partnership (pdf; opens in a new window).