On Monday, June 17th, Martin Hintz of Allianz, the insurance giant, gave a talk about their microinsurance programme for the Microfinance UK Club at a Morgan Stanley office in London. Martin’s interactive approach to his presentation showed that in his role as the group leader in microinsurance he is accustomed to answering questions and doubts raised from all angles and is ready to be put on the spot.
Allianz’s microinsurance programme targets those who earn from $1.25 to $4 a day, which worldwide encompasses about 2.6 billion people. Considering that the extreme poor are considered to be those who earn less than $1.25 a day, Allianz is not approaching them but what the firm does claim is that they focus on the bottom 60% of the low income households, which in my view does not mean much. That said, Allianz has now gathered an impressive customer base of 17.1 million people concentrated in South East Asian and recently Latin American countries.
For now Allianz is only offering life insurance to this demographic because, although there is higher demand for healthcare and education savings, such product types are more complex, with higher transaction costs and more stakeholders involved, and for this they decided to start with the most basic product.
What they offer is to pay the person’s loan to, say, a microfinance institute in case of death. As a matter of fact, for life microinsurance in most countries, Allianz does not exclude anyone except for age and keeps the costs low by not committing to gather detailed information about every customer. They instead include a loading on the annual premium to make up for the lack of in-depth screening. Nonetheless, they have kept the premium rather low at an average of €1 to €10 a year.
It is interesting how, for an insurance product with such a low premium the business strategy had to be modified accordingly, for it would not have been effective to pay agents commission at such rates. For this reason, and also because Allianz saw the need for local big aggregators who can represent them, they work currently with about 450 partners who are commonly local banks, microfinance institutions (MFIs) and non-governmental organisations. Sometimes, like in the case of the Philippines, Martin explained that Allianz works with post offices because such institutions tend to have the highest number of branch offices in the excluded regions where potential customers live.
This initiative on behalf of Allianz is impressive because, compared to their classic products, which on average result in a revenue of €100 billion, their microinsurance programme brings in just about €18 million which is peanuts for them. Also, through collaboration with their partners, Allianz is offering financial literacy training to their customers, whether it be through a Bollywood dance or a comic book. So, as this programme survives on the premise that it at least breaks even, one questions what is in it for them. This is precisely Martin’s job and he claims that through financial literacy training and life insurance offered at modest rates they are growing their customer base for the future. Upselling is crucial because it is in Allianz’s interest to grow with the customers.
On the other hand, can their microinsurance programme be considered a social mission? Despite Martin repeating several times that the products were designed according to the customers’ needs, he also admitted that people would be surprised to know how little insurance companies know about their customers. As a result, he was not able to give any insight about the demography of their current microinsurance customers except for the fact that they are mainly women because they tend to be clients of MFIs.
Taking into account that Martin’s focus is upselling, it can be said that Allianz is operating blindly for the moment since we are not sure if their customers are truly benefiting from the insurance. Are they modifying their risk strategies? Is the insurance getting people out of poverty?
But Martin is right – this is a learning journey. It is not productive to be too critical at this point in time. It is already an extraordinary achievement that a corporate giant like Allianz has started to cater their products for the usually excluded populations and, at least for their fear for reputational damage, the offered product and service should be meeting a decent standard that is ethical.
The big challenge for Martin has yet to be achieved, that is to convince the group CEO of the credibility of the business case for microinsurance. The hope is that once this programme gets the full support at executive level, Allianz will be able to collaborate in research to tweek the product and gather information on customer experience.