MICROINSURANCE CONSUMER EDUCATION

Microinsurance FOCUS Note - Zambia Issue 4 April 2013

The Microinsurance Focus Note - Zambia Series is published by FinMark Trust. This Focus Note has been authored by Lemmy Manje, Microinsurance Strategy Coordinator with input from Juliet Munro, FinMark Trust Zambia Coordinator. For past editions of this series, or for more information about FinMark Trust’s work in Zambia, please contact Juliet Munro, julietmunro@iconnect.zm. Photo: Courtesy of Professional Life Assurance Zambia  

Consum

er Education: Directions for Z

ambia

A Case for Microinsurance Consumer Education

Low-income people face various risks for which they require effective coping and risk management mechanisms. While insurance presents one of most effective risk management options, most low-income people use options that are not so effective. Research has shown that this outcome is often caused by lack of information and exposure to insurance.

Consumer education has emerged as an important focus area within the microinsurance field. The rationale of consumer education is to empower low-income people to understand the concept of risk and make informed risk management choices and, by so doing, to instill appreciation of insurance as a valuable risk management tool.

As the ILO observes,

Consumer education in microinsurance involves a systematic effort to teach risk management strategies and the role of insurance in order to promote better risk management practices among low-income household. For microinsurance, the expected outcome of the consumer education is the development of consumers’ skills, attitudes, knowledge and understanding of insurance in general as well as various types of insurance products and services, which in turn can potentially influence uptake of insurance products. Consumer education is supposed to provide a win-win solution to both microinsurance practitioners and consumers; assist low-income households make sound choices and stimulate demand for microinsurance products offered by practitioners1.

Consumer education in microinsurance aims to help low-income individuals make better risk-management choices. It can potentially lead to an increase in the uptake of insurance products amongst low-income people provided that appropriate products are available to them. Increased uptake, in turn, is expected to protect consumers from financial losses that can result from risks such as death, sickness, fire, theft, accidents or natural disasters such as droughts or floods. Insurance coverage can reduce the impact of these shocks on a low-income household or business. It is important to note that consumer education does not necessarily lead to increased uptake of insurance products among low-income people. The demand for microinsurance is influenced by a number of factors, which include product appropriateness and availability. Demand research has revealed the need among low‐ income clients to find more effective ways to cope with risks, even though they rarely see insurance per se as a way to bridge this gap2.

Perspectives and Practices Microinsurance is designed to target low-income people, provides a formal risk management option. These low levels of uptake coalesced with poor exposure to insurance, demands that low income have access to education on risk management.

Delivery channels

A growing body of literature documents innovative practices in educating low-income people on insurance using a variety of channels. Examples include use of edutainment in various forms such as live drama, educational visual short stories, radio drama and community training workshops. Box 1 provides some examples.

                                                                                                                         1 International Labor Organization, Microinsurance Innovation Facility, Knowledge management 2  USAID 2008, Lessons learned and recommendations for donors supporting microinsurance, CGAP Working Group on 2  USAID 2008, Lessons learned and recommendations for donors supporting microinsurance, CGAP Working Group on Microinsurance  

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Box 1: Examples of channels used to deliver consumer education

• India: The Micro Insurance Academy (MIA) promotes the use of TV media: a full movie was produced demonstrating the benefits of microinsurance. MIA also uses interactive games to deliver educative messages.

• South Africa: The South African Insurance Association (SAIA) has integrated insurance education into radio edutainment, which is proving to be an effective strategy. SAIA has also used other media, such as comics and community workshops.

• Kenya: A variety channels have been used, such as use of TV drama and comic magazines that mirror the drama content, brochures and radio programmes.

• Ghana: Concise TV episodes on insurance have been produced and are accessed through different media including the Internet.

• Brazil: TV advertisements have been produced highlighting the benefits of microinsurance, and aired regularly on national TV.

Content

In terms of content, though education programmes for microinsurance vary, they typically include the following:

• Risks and risk management mechanisms • The role of formal and informal risk management financial services (credit, savings and

insurance) • Insurance fundamentals and risk pooling

• The benefits of insurance as a risk management tool • Insurance product acquisition and service processes.

Emerging good practices

Through the examples noted above and other experiences of delivering consumer education, some good practices are starting to emerge, summarised in Box 2.

Box 2: Emerging good practices in microinsurance consumer education3

• Investments in consumer education will only trigger product uptake if parallel investments in improving the supply of insurance are made.

• Providing consumer education through partnerships between promoters, practitioners and other stakeholders can be a cost-effective market-development focused strategy.

• Content and delivery channels should be tailored to the local context, ensuring they are appropriate for their intended audience.

• Consumer education should be holistic and cover all available risk management approaches and services to empower consumers to make informed decisions.

• Content should include generic financial literacy terms and concepts, as well as concepts relating to short-term and long-term insurance.

• A clear distinction should be made between financial information/education and marketing/commercial information.

• Consumer education initiatives should be monitored and assessed to ensure appropriateness and impact, and to facilitate ongoing refinement.

• Using a mix of delivery channels helps to determine what works well for different types of audiences.

                                                                                                                         3 Based on SAIA (2010) consumer education strategy 2010, ILO, 2010, Microinsurance Innovation Facility Briefing Note 3, Emerging on consumer education on risk management and insurance)

 

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Consumer education in the Zambian context Financial education as a national priority

In July 2012, the Government of Zambia launched its National Strategy on Financial Education for Zambia. This is an important development that, if implemented effectively, will help to coordinate efforts and channel additional resources to improve financial literacy levels in the country. You may consider rephrasing, in light of IAZ stirred interest.

Specific investments in consumer education for microinsurance will complement initiatives under the National Strategy and contribute to the achievement of its overall goal.

Consumer education as part of market development strategy

In early 2010, the Microinsurance Technical Advisory Group (TAG) endorsed an action plan to catalyse microinsurance market development through a variety of supply strengthening and demand stimulation interventions, including consumer education.

As part of this process, it is acknowledged that consumer education is most effective when there is a sufficient supply of appropriate products for people to access. In order words, improving risk management knowledge, understanding and behaviour on the one hand, and increasing access to insurance products on the other, are seen as complementary activities 4. For this reason, it was agreed to defer investments in consumer education until a number of microinsurance products became available in the market, beyond the standard offering of mandatory credit life.

Since early 2012, there have been signs of a new market starting to emerge, with four voluntary microinsurance products now available, and the promise of more in the pipeline. Focusing greater attention on consumer education is therefore timely.

Insurer interest in microinsurance

Many insurers recognize the need for consumer education in stimulating demand for microinsurance. A number of companies that are now offering microinsurance products are attempting to integrate consumer education in their marketing campaigns, for example, through the use of drama during road shows. The public interest in these activities is sign that such investments can be effective in reaching out to low-income people.

Nevertheless, these efforts naturally lean more towards product promotion leaving a gap for more generic consumer education that facilitates choice. Insurers also recognize that consumer education is costly and joint efforts or an industry approach would be more cost-effective. Contrasting other insurance markets where associations are proactive in microinsurance promotion including facilitation of joint investments in consumer education, the Insurers Association of Zambia (IAZ) is not as engaged.

                                                                                                                         4 ILO, 2010, Microinsurance Innovation Facility Briefing Note 3, Emerging on consumer education on risk management and insurance)

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Potential directions Based on lessons learned elsewhere, there is a strong case for insurers and other stakeholders to come together and finance consumer education initiatives collectively. Possible partnerships could include the following:

Partnerships and joint investments • Membership associations: The Insurers Association of Zambia (IAZ) could mobilize resources

from its members specifically for consumer education. In terms of impact, there is likely to be a spill over to conventional insurance, as more and more people understand the benefits of insurance as a risk management financial service. IAZ could also consider partnering with the Insurance Brokers Association of Zambia (IBAZ) or the Association of Microfinance Associations of Zambia (AMIZ), both of which stand to benefit from increased microinsurance business amongst their clientele. In South Africa, Philippines and Brazil, insurance associations are very active in providing industry wide market development support including consumer education.

• Individual insurers: Insurers providing similar products could jointly fund consumer education initiatives focusing on their collective product type. For example, life and funeral insurers could come together and fund consumer education that highlights the benefits of long-term life planning and mitigating the impact of funerals. In South Africa life insurers jointly feature a radio drama aimed at educating the public on the benefits of life insurance.

• Public–private partnerships: Consumer education is an industry wide and enabling environment issue that inevitably requires engagement of various stakeholders. A public-private sector approach would therefore enhance prospects of widespread consumer education programmes. In Zambia, the Financial Sector Development Plan is one of opportunities for fostering collective public-private sector partnerships for microinsurance consumer education.

• Regulator-industry partnership: The Pensions and Insurance Authority (PIA) has a mandate of creating an enabling environment and ensuring microinsurance is provided based on financially- sound business principles and consumer protection. Consumer education can ensure that consumers are making informed purchasing decisions. PIA can work with insurers in ensuring consumers are knowledgeable about their insurance options. Depending of the current fee structure, it is possible for insurers to introduce a levy specifically for microinsurance consumer education.

Content and Delivery Channels As noted above, there is scope to use various ways of educating consumers on the benefits of insurance. This could be through live drama, radio and television drama and community training workshops. There is also scope to leverage on experiences of financial service providers and organizations that have been providing financial education. Other innovative strategies can be sought through competitive processes such as the Microinsurance Acceleration Facility5.

Research, Monitoring and Evaluation Consumer education programmes need to be monitored to assess effectiveness and overall impact, so that they can be refined and improved. The amount of investment on such research is likely to depend on available funding and the interest of donors and other stakeholders.

                                                                                                                         5 The Microinsurance Acceleration Facility (MAF) provides matching grants to insurers and relevant organisations interested in investing in innovative product development and distribution. FinMark Trust, ILO and UNCDF currently jointly fund the MAF.

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Budgeting and Funding

Budgeting and funding microinsurance consumer education initiatives: Specific consumer education projects can be budgeted once detailed costing and information on delivery channels is gathered. However, funding is likely to come from multiple sources including government, private sector, donors, development agencies and other relevant stakeholders. The partnerships outlined above as well as the different roles donors can play in supporting consumer education will also guide the funding strategies.

Role of donors and agencies

Globally, donors have supported the development of microinsurance a different levels; at the micro level by upgrading the capacity of competent providers and alternative delivery channels, at the meso level by assisting in the creation of a greater transparency in the sector and increasing access to reinsurance facilities, and at the macro level by strengthening the policymakers’ and regulators’ capacity to develop, supervise and regulate inclusive markets6. Consumer education is often viewed as an important component of consumer protection. Donors can play an important role in not only stimulating access to microinsurance but also safeguarding the interests of consumers. In Zambia, there are a number of donors and development agencies currently supporting financial inclusion in Zambia. These include the Embassy of Finland, DfID, FinMark Trust, the International Labor Organization (ILO), United Capital Development Fund (UNCDF), the World Bank and the International Fund for Agricultural Development (IFAD). The microinsurance development strategy spearheaded by the TAG has outlined specific consumer education activities such as microinsurance marketplace, consumer education radio programmes and visual productions. Within the microinsurance development strategy and microinsurance consumer education action plan, some of the specific outlined roles for donors include the following: • Supporting innovations in consumer education: Mirrored on the ILO’s Microinsurance

Innovation Facility, FinMark Trust, ILO and UNCDF are currently funding the Microinsurance Acceleration Facility (MAF), a matching find that supports innovations in product development and delivery. With additional funding, the MAF could be expanded to include support to innovative microinsurance consumer education projects.

• Supporting relevant associations: Building the capacity and structure of IAZ in developing content and delivery mechanisms for microinsurance consumer education can enhance their role in contributing to the creating of enabling environment for microinsurance.

• Supporting monitoring and evaluation: Measuring and sharing the results of investments in microinsurance consumer is important; provides opportunities for assessing the effectiveness and impact of consumer education initiatives.

                                                                                                                         6 USAID 2008, Lessons learned and recommendations for donors supporting microinsurance, CGAP Working Group on Microinsurance

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Microinsurance FOCUS Note Series MICROINSURANCE DEVELOPMENT PROCESS - ZAMBIA

FOR MORE INFORMATION Lemmy Manje Microinsurance Strategy Coordinator Email: lemmy_manje@msn.com Phone: +260 97 787 1427 Juliet Munro FinMark Trust Zambia Coordinator Email: Julietmunro@iconnect.zm Phone: +260 97 784 8311 Titus Kalenga Chairperson – Technical Advisory Group Email: titus@nicoinsurance.com Phone: +260 97 777 2238