The smallholder farmer in Kenya, the street vendor in Mexico or the motorcycle taxi-driver in Indonesia – all of them have something in common. They are economically active, and strive to climb the socioeconomic ladder by expanding their businesses. Whether it's investing in a new field; opening a first restaurant; or adding another motorcycle to start a fleet, emerging consumers need access to financial services. This means loans to finance business growth, an account to transfer and receive money, and insurance to protect the livelihoods and assets they have built so far.
For a long time this Emerging Consumer segment was ignored by the financial sector, which traditionally targeted the small but wealthy middle and upper classes in emerging economies. But in the second half of the 20th century, international organisations and NGOs made the first step to target the other 80% of the population. While the original purpose was poverty alleviation, it also paved the way for new mass-consumer markets financed by microcredit. Since then, the microfinance movement has matured and found its way into mainstream banking.
MICROINSURANCE - A WAKING WALLFLOWER
Microinsurance, however, remained a wallflower. Only in the early 2000s it was recognized by the development community as a tool to protect the poorest of the poor. At this level, microinsurance has rarely been a stand-alone, economically sustainability endeavor. NGOs and International Organisations provide financial support to microinsurance schemes, and governments have often been called on to extend social protection schemes to the poorest in society. As a result, we need to debate whether microinsurance is actually a macro tool that requires state intervention.
Furthermore, it is worth asking whether this type of approach has missed the important number of emerging consumers who remain below the radar of both the insurance industry and the international development community. When it comes to rethinking microinsurance for emerging consumers, we face a different set of challenges than if we regard it as a tool for poverty alleviation. In addition, by shifting the focus to financially enabled individuals, insurance becomes a purchase decision rather than a state benefit. Ultimately, this is what will transform financial inclusion into a sustainable proposition able to reach scale.
In this space, the main challenges that providers need to address for their new emerging consumer base can be summarized under the three A's: Awareness, Access, and Affordability.
Many of the emerging consumers are first time insurance buyers. They also have specific needs and different consumptions patters. To attract this group of customers, the insurance industry will have to raise more awareness around the benefits of insurance and build trust by consistently demonstrating its value, for instance by paying and not by avoiding claims.
The traditional distribution models do not work and are too expensive. The mobile industry, for example, has a high penetration amongst emerging consumers and an obvious choice would be to leverage mobile technology for insurance distribution. There are several InsurTech companies out there who make use of mobile technology to reach the emerging consumers, such as MicroEnsure, BIMA, Democrance and Inclusivity.
Last but not least, the emerging consumer is used to consumption patterns that respond to the daily cash-flows that define the informal sector. For instance, an annual insurance premium contract is therefore not optimal for this customer group. Short duration insurance policies, eg monthly or even daily, must become an option.
MILLENNIALS AND EMERGING CONSUMERS SHAPING THE FUTURE OF INSURANCE
Emerging consumer business is low-premium-high-volume business and requires a fundamentally different approach to the insurance value chain.
As with all consumer-driven business, the consumer needs to be at the centre of our thinking. However, with insurance we face the issue that our industry is also challenged by our own legacy of outdated IT-systems, high unit cost of production, impede product innovation and a focus on push sales rather than engaging the customer on a journey.
While the discourse is shifting the focus from "Microinsurance" to the "Emerging Consumer", it is quite interesting that the principles of reaching the emerging consumer have been picked up by the InsurTech community in the US and elsewhere. In fact, Millennials have a similar set of expectations of insurance products as Emerging Consumers: the use of digital, engaging in client journeys, simple products without fine print, short duration policies or pay-as-you-go.
I find it a great eye-opener that emerging consumers in growth markets and the next generation consumers in the developed world have so much in common. Now it is up to the insurance industry to rise to the challenge of developing new risk pools that can close a significant insurance protection gap in both worlds!
I'm very proud and excited to play a part in this journey that will not just help transform the insurance sector, but more importantly, help lay the foundations to a more prosperous, sustainable and equitable world.