Microinsurance as a Disruptive Force

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26 November 2013
Juan Mazzini
Some of you may be familiar with Michael Raynor’s work around disruption. In his latest book he refers to being deliberately disruptive and how most companies that disrupt powerful incumbents start out focused primarily and often exclusively on connecting with a specific segment of the market, one that is poorly served — or not served at all. The microinsurance market is, with no doubt, an excellent source of innovation for insurers. It matches perfectly with the underlying conditions required for disruption to occur. Microinsurance is a foothold to an underserved, untapped, and fragmented market with a high cost to serve under the present business model. Innovative approaches to serve this market, including the required technologies, could afterwards be used with success upmarket, where insurers could benefit from agility, scalability, low operating costs, and the lessons learned by servicing a market with totally different dynamics. Innovation around product, pricing, packaging, distribution, processes, and technology, just to mention a few aspects, will be required skills. A good example is Bradesco Seguros in Brazil. Bradesco offers Accidental Death through a product named “Primeira Proteção Bradesco” which sold 1.3 million policies within the first year with monthly premium of US$3.50, single benefit of RS.20,000.00 and 1 monthly sweepstake of RS.20,000 (US$ 10,800). In fact, sweepstakes are an important marketing tool; apparently the most important motive for customers in buying the insurance product. Distribution is done through Banco Bradesco's own network of +3,500 branches, +25,000 banking correspondents (supermarkets, pharmacies, grocery stores, etc.) and mobile (sms). For those cities and villages close to the Amazon River, accessible only by boat and out of Banco Bradesco's traditional network, it required technological support and some inventive: Banco Bradesco introduced a boat containing a bank branch. Technology, such as web/mobile on.iBusiness and traditional POS, is used by agents and correspondents to manage the complete end-to-end process. Focus in simplicity and speed using an accelerated enrollment process by capturing customer data from the CPF or Social Security number. Banco Bradesco has years of experience financially serving the segment market aimed by microinsurance and they are taking advantage of this, though they encountered some more challenges you can read about, along with more real cases and in depth discussion around Microinsurance, in our recent report "Microinsurance in Latin America: Disruption in Practice" at


  • Bradesco's 'sweepstakes' product innovation smartly combines lottery with insurance, thereby appealing to the speculative instincts of consumers in addition to addressing a pure risk. At some point, instances like these will give rise to the question whether the only way to scale-up insurance among the low income masses is to tie it up with a fast moving product like credit or, as in this case, sweepstakes. The trick would then lie in taking advantage of volumes built on the back of a fast moving product to actually access the low income market and promote more pertinent insurance products like life and health. If this doesn't happen the volumes generated this way will wither away eventually, the way it happened with credit life products sold with micro-credit.

  • Arman, thanks for your comment. I agree.

    I also believe that insurance itself has a gambling component in nature: What are the odds that "x" event will occur (an if "x" happens I lose my car, or my house, or my business)? We decide relating those odds to the price of coverage. If price seems too high (or the odds too low), then you might decide to run with the risk yourself. If your budget is constrained, as it is in the case of people in BoP, insurance competes for the same scarce dollars than other essential elements, and the question about odds and price becomes even more relevant. It is even more challenging when the community has in place some sort of formal or informal risk mitigation between members.

    I understand that selling life/funeral insurance seems the easy way (with or without a sweepstake component), especially when it is about insuring the person that brings in the money for the family, but I also believe there is a great opportunity around insurance that protects all the sources of income (business/agro related for example), rather than just the goods you acquire as a consequence of such business effort (your house, your motorcycle or car for example).

    It should make more sense to buy insurance for those things that generate the income than for those that constitute an expense (every time you have to decide with a scarce budget).

  • Arman, I concede :)

    My point about gambling is that is a concept easy to relate to, and therefor facilitates the introduction of insurance to people that don't traditionally think of insurance as a risk management tool, but I am not justifying the sweepstakes with this. Even more, if sweepstakes are the trigger of the purchase and insurance is not considered essential, I predict that the initiative will fall short.

    As you say, once we move from that initial interest there is a need to work on the indemnity and the risk management elements which are central to a more insurance educated (or adviced) target market.

    Index based insurance (for crop insurance for example) is a good example of using gambling principles, while delivering a microinsurance product aimed to a business (income source) with a simple proposition for risk management.

    Have you seen any good examples of use of index insurance aimed to BoP? I know there is a pilot being run in Mexico these days.

  • Thanks Juan for your thoughts.

    While I generally agree with your hypothesis on odds versus the price and thereby the similarity with gambling, I think it is also essential to be mindful of the 'indemnity' element and the absence of upside risk in case of insurance which clearly distinguishes it from speculation. By the same reason it is difficult to sell insurance as compared to a speculative instrument like lottery. Also the behavioural contradiction demonstrated by average consumers when it comes to situations involving potential losses and gains (described vividly in the book 'Insurance and Behavioural Economics, Improving Decisions in the Most Misunderstood Industry') makes insurance selling the 'right' way really difficult and slow. This is where instances like Bradesco's sweepstakes experiment become more intriguing.

    I fully agree that insurance solutions should cover all risks pertaining to life, living and livelihoods and for the same reason it becomes essential to eventually 'hard-sell' more pertinent insurance products once you have built sufficient volumes riding on a fast moving product. The microfinance sector, by and large, failed in doing so. Let us see if the recent innovations can draw a different story.

  • Thanks Juan for appreciating my point though I didn't mean to contradict yours. In fact, we in the microinsurance sector are eagerly watching such innovations as the classical ways of insurance selling through partner-agent model etc. don't seem to generate sufficient volumes despite sizable investment. Another innovation to be keenly observed, as you might be aware, is providing automatic insurance coverage on sale of cell phone talk time.

    On index-based weather insurance I think, IFAD is doing some pilots in Africa and Asia. Here in India, again as you might know, most of the index-based insurance is subsidized and /or credit-linked. Purely voluntary pilots haven't really succeeded so far, the reason again being poor perception of value for such products. Most of the low income agrarian societies are fatalists and therefore for us, visiting a temple everyday is a better risk management strategy than insurance.....

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