The role of the claims department in operating a microinsurance program may be even more sensitive than in mature markets. In any insurance market, large or small, the claims department engages with the customer in a time of need. How the insurer handles a claim shapes the customer’s trust in the company. In a microinsurance program, though, the claim experience can shape the customer’s trust in the entire system, not just the carrier. And one customer’s perceptions can spread quickly. To say that every claim experience is crucial is a profound understatement.
When implementing a microinsurance program, carriers have to overcome the fact that insurance is an intangible product. In mature markets, consumers understand that idea (or otherwise accept it). Microinsurance, however, has a learning curve. Insurers need to demonstrate continually that prospective policyholders actually receive something of value.
The protection microinsurance provides may take years to become tangible. Until that time, daily financial pressures can cause insureds to question the value of the investment they’ve made. And if insureds see the claim experience — when insurance becomes something real — as suboptimal, other community members may lose faith in the system. A few skeptics can have disproportionate influence, and the financial pressures of their peers will only amplify any concerns.
Many factors — from product development to sales and distribution to renewal — contribute to the ongoing success of a microinsurance program. The claims department plays a unique role in that process. Claims personnel should keep in mind these key considerations:
1. Long-term focus: Insurers need to invest in a robust infrastructure for capturing claims data. In the early years, its usefulness will be limited, but doing it right up front will accelerate the value of the data. As a result, insurers will be able to analyze claims histories and write profitable business more effectively — and much sooner — than if they take an incremental approach to centralized data collection and management. Proper data collection requires ongoing investment and significant reengineering. The only way to accumulate historical loss data is to get started — and to use an infrastructure that the market can grow into.
2. Commitment to service: Claimants in a microinsurance market will have an acute need to be made whole. Superior service will help the market trust the microinsurance program, leading to increased penetration, ongoing viability, and profitable growth. In markets where microinsurance is appropriate, insurance protection tends to be a new concept, and it can be difficult to gain trust. Effective claim handling is proof to the local market that insurance works. Early success stories are the best educational tools available.
3. Metrics-based management: Management by metrics is the only quick way to incorporate learning, improve service (which will drive market viability), and provide the operational discipline necessary to establish trust among customers and potential customers. Further, it establishes effective management practices from the start, increasing the likelihood of profitable growth. And growth is crucial to maintaining carrier commitment to any program. If it’s going to last, a microinsurance program needs effective management. For the claims department, that means relying on the metrics that claims executives in mature markets watch closely every day — cycle time, closure rates, and average paid, for instance.
4. Industrywide data: From catastrophe planning and response to claim fraud detection and remediation, access to industrywide data can accelerate effective risk and capital management. A solution like ISO ClaimSearch, for example, can lead to fast-tracking meritorious claims and identifying suspicious activity. Having the local industry’s data in one place also supports a level of analysis that can benefit all insurers and policyholders.
5. Risk transfer: Microreinsurance can help make microinsurance easier to manage. With a loss aggregation service like PCS, insurers would be able to transfer risk more effectively, especially for catastrophe events. Even if such a service isn’t necessary in the early years of a microinsurance program, having the infrastructure in place up front will make risk transfer possible later, as insurers and reinsurers will have the data they need to make better capital allocation decisions.
Developing a microinsurance program is a long-term investment and has potential unique in today’s global insurance industry. Early entrants can turn first-mover advantage into an opportunity to gain significant market share that can accumulate for years as barriers to entry for competitors grow higher and higher. To gain such benefits, insurers need to implement a strong and effective infrastructure up front, and they need to make sure it can scale. Rapid obsolescence becomes a competitor’s opportunity.