Learning Journey Hollard Insurance Group LJ3 FINAL_0.pdf · ABSA MEF. An outbound campaign was conducted in April 2009. As part of this campaign, 31 policies were sold, of which one

Learning Journey

Hollard Insurance Group

Mzansi Short Term Voluntary Insurance

Contents

Project Basics ......................................................................................................................... 1

About the project ........................................................................................................................ 1

Project Update ....................................................................................................................... 3

Key Indicators ............................................................................................................................. 3

What is happening? .................................................................................................................... 3

Project Lessons ...................................................................................................................... 6

On establishing distribution channels quickly and effectively ...................................................... 6

On ensuring timely and successful product launch ...................................................................... 6

On developing appropriate consumer education materials ......................................................... 7

On designing and maintaining appropriate information systems to support microinsurance

product lines ............................................................................................................................... 7

Next Actions .......................................................................................................................... 8

Learning Journey: August 2012 1

Project Basics

About the project

The Hollard Insurance Group (Hollard) established in 1980, is the largest independent, privately owned

insurance group in South Africa and provides both life and short-term (non-life) insurance. Hollard has a

long history of working in the low-income market and views the market as a core element of its strategy

in South Africa and internationally.

Key to Hollard’s sustained growth has been its partnership philosophy, which permeates all of Hollard’s

day-to-day activities. The philosophy is focused on recognizing like-minded partners, understanding

respective strengths and driving long-term value through optimized structures to ensure mutual success.

In 2008 Hollard sought funding from the Microinsurance Innovation Facility to explore how to deliver

voluntary short-term insurance (e.g. household structure and contents) to the low-income market in

South Africa and the region.

In South Africa, only 11 per cent of adults have asset insurance, 10 per cent have life insurance, and 10

per cent have medical insurance, whereas 46 per cent have funeral insurance (albeit 20 per cent of

funeral cover is made up of informal burial societies)1. In the low-income market, penetration of short-

term insurance is particularly low; less than 2 per cent of the poorest 60 per cent of the population have

asset insurance2.

The aim of the project is to assess whether short-term (non-life) insurance is a viable proposition in this

market, focusing on asset-based insurance such as household structure and contents cover.

Reaching this market required considerable investments in the following areas:

• Redevelopment of the claims processes: Using low cost runners to reduce the cost of claims

assessment through the use of technology

• Market education: To support effective decision-making and brand awareness. High quality market

education will be needed to create an understanding of the benefits of insurance. This will also allow

interaction with the distribution channel. The majority of potential consumers have not had access

to short-term insurance. It is important to educate and inform them before marketing products.

• Market insights: It is important to gather all experiences and use them to inform next steps. Formal

and informal data collected needs to be analysed on an on-going basis

• Management of call centres selling the product: Experiences gathered from selling Jet Home

Protect (JHP) through a number of call centres show that selling this product is different from selling

other insurance products.

1 Source: FinScope 2007

2 This is represented by the commonly used Living Standards Measure (LSM) 1-5 category which is the focus of the transformatory Financial

Sector (Black Economic Empowerment) Charter.


Hollard developed a property product, covering both building and contents, and wanted to partner with

a retailer for distribution. Hollard sought distributors that could meet the following criteria:

• Allow the low-income market to pay premiums in cash

• Be flexible with regards to the date customers pay their premium each month

• Permit customers to make lump sum payments or partial payments to account for erratic cash

flow.

Hollard has partnered with Jet Stores to distribute the product. Jet Stores distribute the product,

amongst other insurance products, as part of their financial services offering to their customer base. Jet

Stores are part of the EDCON Group, a long-term partner of Hollard, focused on the low- to middle-

income market.

When the product was designed it was intended to be distributed through other channels, such as Take-

It-Eezi and ABSA Microenterprise Finance (Absa MEF). However, numerous challenges were

experienced during the launch with Take-It-Eezi and the partnership did not proceed. A small pilot was

conducted with Absa MEF.

Project Summary

Project Name: Mzansi Short Term Voluntary Insurance

Project Start Date: August 2008

Duration: 3 years

Country: South Africa

Product: JET Home Protect – cover for the loss or damage to the house structure,

fittings and contents caused by fire, lighting, explosion, storm, wind, hail, snow, natural flood

and burglary. This includes everything from boundary wall to your carpets and TV. It also covers

you for the accidental death of or injury to other people caused by fire at your house.


Project Updates

Key Indicators

As of January 2011 AMEF Jet Home Protect

Number of months 1 15

Number of leads 883 173,539

Number of sales 31 6,891

Sales-to-leads ratio 3.5% 4%

Active policies 1 3393

Average claim US$ 648

Claim ratio 15%

Number of claims 92

Annual dropout rate 60%

Breakdown of total claims paid for Jet Home Protecti as of 20 January 2011 (ZAR)

Content

(35%)

Structure

(65%)

Total Claims

cla

ims

as

% o

f R

an

d v

alu

e

Fire

(57%)

Theft

(11%)

Storms

(32%)


Timeline of significant activities and events

Mzansi Short-Term Voluntary Insurance timeline of interventions

Product Development

Design and development of the product was informed by market research. Focus group research was

conducted and findings were shared amongst the project team and debated to ensure that target

market needs were taken into account.

Product concept testing was held during focus groups with Jet account holders who owned homes and

belonged to the LSM 1-5 categories. The findings highlighted a fair, but limited, understanding of the

purpose of insurance; limited to insurance preferences such as funeral and health. Most respondents

were able to mention a list of insurance companies indicating the awareness that these companies exist,

but knowledge was vague and based on hearsay rather than personal experience. In addition, most did

not have insurance; those who did were primarily funeral insurance customers.

Pilot and Launch of Product

Hollard conducted a pilot aimed at testing the customer value proposition with small and micro

enterprises (SMMEs) that were loan clients of the microenterprise finance programme managed by

ABSA MEF. An outbound campaign was conducted in April 2009. As part of this campaign, 31 policies

were sold, of which one remains active. The size of the database of SMMEs was small and reorganization

within the organization meant that this project could not continue beyond testing the value proposition.

Of the 884 leads successfully loaded into the system only 410 (46 per cent) were contactable,

significantly reducing the leads-to-sale conversion rate. This was predominantly due to clients not

answering or the phone numbers being invalid.


Call centre staff recorded client feedback from contacted but unsuccessful sales. Of these, 39 per cent

indicated the product was either too expensive or that they could not afford it, 42 per cent indicated

that they did not want the cover or were not interested, and 11.5 per cent indicated that they had either

bought a product elsewhere, already had a better product, or believed this product not to be

competitive. Lastly, 8 per cent of all people successfully contacted bought the insurance product.

Jet Stores successfully launched an outbound sales campaign to Jet account holders to sell the asset

product. Later, it also conducted an inbound sales campaign. A number of challenges were experienced

with the call centres were responsible for selling this product. Despite this, the product is being sold to

Jet account holders only via an outbound campaign. A number of initiatives were tested to support the

sale of this product, including consumer financial education workshops combined with a

marketing/promotional campaign targeted aimed at the Jet consumer base. Below are examples of

marketing material used by Jet.

In-store poster Mobile Billboard Fold-up leaflet

Sample marketing material

Jet Home Protect (JHP) Product

The product is currently only selling through an outbound sales campaign to Jet account holders,

running since August 2009. A number of challenges have been experienced. These include:

• Agreeing on appropriate remuneration and incentives for the call centers selling the product

• Ensuring that staff selling the product fully understand and can pitch it effectively

• Clients not familiar with this product resulting in longer sales calls and less conversion because

more time is spent explaining product

• Jet had recently changed its merchandising and in-store strategies and the revised strategies

increased the focus of in-store advertising to its core product line, clothing. This limited the in-

store advertising strategies available to Hollard and did away with in-store insurance posters

and banners.

• Marketing initiatives such as use of transit TV were unsuccessful due to timing in December an

appropriate month to launch such a campaign and secondly the campaign was not targeted

specifically at Jet account holders

• Finally, in addition to the outbound call center, the policy was also made available through an

inbound call center. Policy sales through this call center were limited and only five policy sales


were recorded in December 2010. Overall, the marketing campaign was considered

unsuccessful and the inbound call center and minibus taxi advertising were suspended.

Feedback from past sales

Post-sales calls were undertaken for both the JHP and Absa MEF policies to assess clients’ perceptions of

the products. The calls included five questions presented to existing clients to understand whether the

product met their needs:

• Please confirm that you are still a policyholder?

• Do you understand what the insurance policy covers?

• In your policy what are the most important features?

• Are there any insurance needs that you have for yourself, your family or business?

• Have you or would you recommend this insurance product to your family and friends?

The results of the post-sales campaign confirmed that the product matched the need of the population,

with a greater interest for the theft and content coverage. When comparing the risk events prescribed in

the Mzansi policy (Mzansi policy refers to product standard in terms of short-term product requirements

developed by the short-term insurance industry) with focus group discussion and subsequent post-sales

calls, it appeared that the Mzansi policy addressed the key risks faced by the target market. The

participants ranked their three main risks to be fire, storm, and theft. Of the 42 clients who indicated a

specific cover attribute of value, 23 cited fire, 25 theft and 13 storms, as the most important feature of

their policy.

Claims processing for asset insurance is significantly more expensive than for funeral insurance, as

shown in the table below. Asset insurance requires higher levels of management. The need for an

assessor and the possibility of multiple claims are significant cost drivers.

Claims process for funeral vs. asset insurance

Funeral insurance Asset insurance

Cash benefit or in-kind funeral services Repair and replace asset as first option. Cash

payment when asset cannot be repaired or

replaced.

Documentation required: ID of deceased

and death certificate

Police incident number

No individual underwriting on sale No individual underwriting on sale

Claim not verified beyond death certificate Assessor report

Single claim per life insured Multiple claims possible

End to end process can be finalized over

the phone

End to end process requires both telephonic

and face-to-face assessment

Hollard contracted Cocoon Network to conduct pre-assessment of policyholders household and content

in attempt to establish if pre-assessment could potentially reduce the cost of claims assessment and

management of risk on insured properties. The pre-assessment runners (casual employers who would

visit each insured home to establish type of structure, conditions and contents) were equipped with

innovative mobile and mapping technology to capture the content, state and location of the insured


property. The technology used was a product of the Google Earth Mapping and Mobile Solutions

project. The data collected during this exercise included:

• Confirmation of property location and GPS coordinates

• Confirmation of property owners details

• Description of the type of exterior wall

• Description of the type of roof

• Presence/absence of perimeter fence and the type of material it is made from

• Room configuration of the property

• Presence/absence of a lockable gate

• Presence/absence of burglar bars on all doors and windows

• General condition of the property

• Overview of contents (appliances) per room

• Photographs of the property and contents such as appliances and furniture

The project has assessed 350 properties over a limited period. At the time that represented about 10

per cent of the in-force book. Hollard expected to assess a higher proportion of the portfolio but lack of

quality data, unavailability of owners, and difficulty of transportation led to the assessment of only 350

houses.

The cost of assessments was considerably high, although the technology was useful and data collected

was detailed and complemented by actual photos. This approach is only feasible if it includes more

insurance companies that can provide the assessor with economies of scale that will reduce costs.


Project Lessons

On selecting the distribution channels

It is crucial to understand your partners’ motivation to distribute the product, especially in an instance

where the partner has limited insurance experience or interests. Partners’ motivation will have a direct

bearing on the amount of upfront and on-going involvement and support offered by the partner. As

expected, a partner with insurance experience/expertise is more likely to commit to a higher level of

involvement and longer-term engagement. A partner that offers only distribution capability might only

be looking for commercial gains or driven by a need to increase client value but less interested in being

involved and supporting the partner throughout the process. The partner should sign off on the business

case and both parties need to be aligned on objectives.

It is important to recognize, and plan for, the fact that a partner’s core business will always remain its

priority. Shift in core business demands and pressures will draw the partner’s attention and available

resources. It is therefore crucial to ensure that the partner understands what will be required of them,

upfront. Jet changed its merchandising and in-store strategy to increase the focus of in-store advertising

on its core product line, clothing. This limited the in-store advertising strategy available to Hollard and

prevented the use of in-store insurance posters and banners to advertise the product.

Distribution partner selection is critical to the success of the product. Due to the collaborative decision-

making nature of the joint-venture agreement between Hollard and its distributing partners, selecting

the most suitable partner for product testing and launch is critical. The following factors can influence

the success of the product:

• Nature of the distribution partner’s business. The type of business conducted by the

distribution partner could strongly affect the success of the product. Low-level of formality of

the distributing partner can create regulatory challenges with regards to market conduct

regulation as seen with the failure to launch the Take-It-Eezi product offering.

• Number of accessible and eligible clients. The number of active clients that subscribe to the

distributing partner is critical to the success of the channel. In the case of Absa MEF, the low

number of clients prevented scale.

• Competing product sold within the same distribution channel: This product was competing

against existing product lines, funeral, personal accident, dental etc. Agents are most likely to

sell products that they understand or can sell easier.

On ensuring successful and timely product launch

There is a need to ensure that proper system pre-launch audits are undertaken to address:

• System capability alignment with new product features being introduced

• Process flow requirements that may be different for the microinsurance product versus

traditional business lines to avoid the need for manual interventions

There is a need to document lessons internally. Extensive knowledge exists within Hollard; however,

they have not been properly documented. Some of the delays could have been avoided if previous

lessons regarding system capability, process designs and training rollout had been captured.


On developing appropriate consumer education and marketing material

An effective way of reaching audiences is to involve them in an energetic performance through

industrial theatre versus lecture-style teaching. The performance-based approach selected by Hollard

focuses on promoting financial wellness in good economic times and bad. Through the use of humor,

the team takes the audience through the basics of building financial stability. The message is: All you

have to do to be financially stable is to comply with the P.I.G. concept (Plan. Invest. Generate.).

Monitoring and evaluations preparation needs to occur at the start of the education campaigns, not

after the fact. Hollard was planning to evaluate its education activities, but realized that it did not

capture contact information from the previous 15,000 attendants. This led to delays in assessing the

impact of the activities.

Education and marketing campaigns must be targeted and focused on potential clients. For Hollard,

the workshop attendees did not represent the target population. Hollard wanted to reach property

owners and individuals with sufficient disposable income through their education campaigns, as they

were the likely clients of the product. Most of the workshop attendees were not homeowners and their

household income levels were low so they were not in a position to buy the product. Secondly, the

target market for Jet Home product is really specific (Jet account holders, property owners) and impact

of a generic marketing campaign is limited. The minibus campaign proved to be inefficient, as the

audience was too large to have an impact on Jet account holders.

On reducing claim assessment cost

It was difficult to conduct pre-inspections of houses. Hollard attempted to use low-cost runners,

equipped with mobile solutions and mapping technology to conduct pre-inspection and post claim

inspections to reduce fraud, keep costs low, and minimize documentation. However, the project has

only assessed 17 per cent of the policies in-force. Hollard expected to assess a higher proportion of the

portfolio but lack of quality data, unavailability of owners, and difficulty of transportation led to the

maximum assessment of 350 houses.

Using a low-cost runner model for claim assessment will only be cost effective, as compared to the

traditional claims assessment model, with sufficient volume and claim frequency. Under the low-

runner cost model, every insured property needs to be pre-inspected at the time of enrolment and post-

inspected when claims are filed. The cost of pre-and post-inspection is R500 per policy. While this cost is

lower than the traditional cost of claims inspection of R2,500 per claim, since all the policies need to be

pre-assessed, the total cost of claims assessment of the low-cost model is R3,445,500. In the traditional

claims model, the cost of claims assessment would be R230,000 for the 92 claims filed. The claim runner

model could be cost effective if claims represent more than 20 per cent of the portfolio (today, it

represents about 1.3 per cent). Claim frequency may be too low to sustain the proposed approach.

Number of policies sold 6,891

Estimated cost of runners (assume upper

end of cost estimate (R500))

R3,445,500

6,891policies x R500

Estimated cost of claims assessors to

date (assume an average of R2,500)

R230,000

92 claim x R2,500


On the effectiveness of call centers to sell asset insurance

Leads data quality and quantity is key to ensure success of sales through call centers. Call centre staff

must have sufficient leads with relevant profiles to enable them to close sales. This is true for all types of

product but even more crucial for asset insurance where it is important to target homeowners. Majority

of sales call were terminated because person on the phone was not the owner or did not own the

property they lived in.

The complexity of asset insurance requires a dedicated sales force, with adapted incentive

mechanism. Experience from first year of sales through call centers showed that sales agents were not

familiar with property products leading to low incentive to sell the Jet product and cases of mis-selling.

When selling multiple products through a single sales channel, sales agents are more likely to promote

the products that are easiest to explain and most likely to sell. To overcome this, sales agents either

need to be limited to selling only asset insurance or need to be provided with different remuneration for

longer sales interaction with clients or lower take-up rates. Lastly an alternative option would be to set

up a dedicated call center environment and focus on selling asset insurance to potentially improve the

take-up of the product. All suggestions included above would increase the cost of distribution relative to

other insurance products such as funeral.

Sales agents must be trained to educate the client at point of sale. Low levels of awareness of asset

insurance relative to funeral insurance changes the nature of the interaction between the sales agent

and the potential client. Household content and structure insurance involves multiple risk events with

multiple product lines. This leads to a more complex policy origination exercise, as more client and asset

information is required than for a similar life or funeral policy. Sales staff might need additional training,

as they are not familiar with asset insurance and the learning curve for agents will be longer than on

funeral insurance.

A face-to-face sales strategy could lead to higher take-up. The outbound call center approach used in

the retail distribution channel is not ideal and perhaps not suited to the sale of household structure and

content insurance to first-time buyers. The target has limited or no knowledge of asset insurance. The

use of agents who would be able to educate and inform clients about the product during the sale

process would be ideal. Agents typically spend more time selling their products and the face-to-face

discussion allows for a detailed discussion and opportunity for client to ask questions. Agents could

potentially assess households before selling them and therefore capture additional information that

could be used at claims stage.

On client perspective of the product

Product appropriateness is not guaranteed to achieve take-up given other spending priorities. Around

63 per cent of post-sales interviewed would recommend the product to a friend or family member,

confirming the population values the product. However, given the current conversion rates it seems that

although clients value the product, this does not translate into take-up. Additionally, experience of the

South African Insurance Association also supports this point. SAIA noted that despite a willingness by the

target market to act to mitigate risk events, their preferences are for other products such as funeral and

health, evident by the success of the dental and hospital cash plan launched during the same period.


Preliminary take-up rates of JHP and Absa SMME policies indicate demand for the asset product. The

pilot sales effort of the JHP product resulted in a conversion rate of leads-to-sales of 4 per cent. The

Absa SMME products – which ran over a much shorter period – achieved a leads-to-sale ratio of 3.5 per

cent. This may seem low but the rate compares well to the target of 5 per cent for pilot projects sold

through EDCON and the average performance of outbound call centers of between 1 and 5 per cent for

products that the target market is familiar with, and for products sold to higher LSM categories.

Perceived risk and actual claim behavior can be different. Consumers often overestimate frequent risks

(and underestimate infrequent risks) because they are more familiar with the impact frequent risks have

on loss of assets or income. In the case of the Jet Home product, clients seem to favour the theft

coverage (results from post-sale campaign) even if current claim experience shows that fire is the largest

monetary risk. It might be the case that homeowners in South Africa are more familiar and concerned

with loss of assets to theft than fire, even though fire has the potential to be more costly. A balance

needs to be struck between designing the product around the perceived risk (improving take-up) and

designing the product around the claims behaviour (improving client value).

More client engagement is required to ensure that clients understand what they have bought. Low

levels of awareness of asset insurance products and the absence of pre-event risk mitigation strategies

in the target market raises the challenge of packaging the product and including adequate and

appropriate information in a compact manner. The policy document contains simplified wording to

ensure that the client understands what is covered. However, the short sales process (done

telephonically) and policy documents that are mailed to clients are not sufficient to ensure that the

client fully understands the product, what is covered, and the various processes and requirements in

maintaining cover.

Open enrolment and cash premium collection could improve take-up by widening access to non-

account holders. The post-sales calls indicated that word-of-mouth recommendations of existing or

lapsed clients could result in additional policy take-up. The value of recommendations is however

limited as the policy is currently only available to account or loan holders of JHP. During the post-sales

calls exercise, clients of JHP indicated that referral of the product to friends and family is problematic as

the policy is limited to account holders.

On pricing asset insurance products

In the absence of existing claims data for the target market, inputs from the distribution channel is

critical in informing assumptions used by the actuarial team to derive appropriate pricing. The

actuarial team relied heavily on the client information provided by the distribution channel to derive

pricing. Both the JHP and Absa SMME products’ pricing was adjusted multiple times before they were

launched. Product price adjustments were based on the perceived affordability to the client, and

benefits were therefore amended to balance them with affordability. The product development team

informed by research and other relevant sources and distribution channel played a critical role in

identifying the core needs of the client and negotiating lower premiums with the actuarial team.

Risk premiums are only one component of the total premium and the acquisition and fixed costs

components can be reduced when moving beyond the pilot phase. Distribution and administration

costs can be key costs drivers for selling microinsurance. To reduce the ultimate cost to the client,

attention should be focused on the acquisition and fixed-cost components of the premium. Hollard


actuaries indicated that the pilot phase non-confirming administration system was adding additional

cost layers to the overall process. The product development team has indicated that a fully integrated

administration system would only be possible once the policy has been fully piloted and launched.

Re-pricing should be conducted once sufficient claim experience has been gathered. Nevertheless,

companies may have to quickly adapt to competitors and client feedback in order to achieve take-up.

Even if the preliminary results show that the product is profitable, Hollard actuaries have indicated that

the 52 claims do not present sufficient claims experience to adjust the risk premium. The main reason

for this is the limited time the book has been running. Cyclical, seasonal and geographical distribution of

policyholders’ final impact on the book has not yet become clear. But, market analysis and results from

post-sales interviews did show that the premium level for the Hollard asset insurance product was more

expensive than competitors, and may hinder take-up. As a consequence, Hollard reduced the premium

by half to R49.


Next Actions

In the next period Hollard plans to:

• Provide JHP as a standard product offered by the joint venture, which means that standard

profit sharing mechanism will be in place between Hollard and EDCON

• Distribute the product through other delivery channels, in particular through banks

• Enable cash payment at Jet stores

• Conduct an impact study on the financial education activities

• Disseminate educational messages via mobile phones communication

• Test different marketing techniques

i Jet Home Protect – a short term insurance product covering building up to R50000 and contents up to

R50 000 and includes theft up to R15000.

Documents

Learning Journey Hollard Insurance Group LJ3 FINAL_0.pdf · ABSA MEF. An outbound campaign was conducted in April 2009. As part of this campaign, 31 policies were sold, of which one