June 11, 2020
By Alex Reddaway
Insurance products rarely feature prominently in the development headlines. This is particularly the case with funeral insurance. Yet, while insurance may underdeliver on excitement, it often overdelivers on impact, building resilience in low-income populations by identifying and addressing areas of vulnerability.
Samoa retains many of its traditions and the fa’asamoa (Samoan way) is still very influential. Traditional Samoan funerals bring together the entire community both to demonstrate their commitment and loyalty to the deceased as well as to offer support to their relatives through ritualised gift giving. While the original purpose was to provide relief to the relatives of the deceased, the cost of hosting funerals now far exceeds the value of the gifts received. Organising a funeral will typically cost a low to middle-income family between WST 15,000 to WST 30,000 (~USD 6,000 – USD 12,500). Lacking alternatives, many families turn to informal money lenders, small finance companies, employers, or dip into their pension savings with the provident fund in order to meet the cost of their social obligations.
Having identified funerals as a significant source of financial vulnerability, the Pacific Financial Inclusion Programme (PFIP) teamed up with Apia Insurance Company (AIC), to develop a solution. AIC is a Samoan owned and incorporated non-life insurance company that started operations in 2007. As of 2017, AIC employed eight staff to serve a customer base of 1,000 customers, primarily supplying property and vehicle insurance products. Supported by PFIP, AIC launched Samoa’s first Funeral Cover Insurance policy in October 2018, with the objective of selling 2,000 policies within two years, the equivalent of one percent of the country’s population. If the target were achieved it would indicate that by promoting the design of innovative, country specific financial products that address key areas of vulnerability, financial inclusion projects can draw more people into formal financial services while providing local businesses with avenues for growth.
The challenges were to structure the product in order to encourage adoption, and then to test innovative sales and distribution models to launch it. AIC decided to prioritise rapid uptake over profit, making the product accessible to people of all ages with no requirement for a medical certificate. Customers were also offered flexible payment schedules to help identify payment structures best suited to low and middle-income Samoans. Talks are also ongoing with mobile money providers to facilitate payments and to send automated payment reminders. The company tested a variety of product designs, including group policies that could be sold to community groups and companies.
In spite of the efforts to create an attractive product, sales started off sluggishly. AIC trialled three different marketing strategies before landing upon a successful one. Selling directly from the main branch resulted in only 45 policies sold in the first five months. This prompted AIC to invest in a wide-reaching marketing campaign, aiming to access as wide an audience as possible. This also produced mixed results. Finally, AIC decided to increase agent buy-in by building on a sales commission of 5% of the premium. This, combined with the wide ranging marketing campaign, proved to be a winning formula. By building general awareness of insurance products while also motivating staff to explain the benefits of the specific product, AIC were able to rapidly increase sales.
PFIP’s support was crucial in ensuring that the project overcame early setbacks. By funding two project staff for the trial period and offering financial support at key junctures, PFIP gave AIC the confidence to adopt a test and learn approach. By progressively refining its strategy, the company was able to sell 1,136 policies in its first year, well on course to reach its target of 2,000 policies. This represents a significant expansion in the company’s customer base, demonstrating that innovative products can extend the reach of financial services. External support also allowed them to target customer segments that are often underserved: 61% of policy holders are women, and 50% live in rural areas.
Having initially prioritised customer acquisition at all costs, the product continues to evolve as it incorporates lessons learned with the aim of ensuring long term viability. The first assessment found that the majority of policy holders were aged over 70 years and that most of the 22 death claims made came within 4 months of the policy start date. While paying out these claims established the company’s bona fides, it was not viable in the long term. AIC is currently considering extending the waiting period of the policy to 6 months and requiring a medical examination certificate from people over 65.
Funeral insurance may not be an obvious candidate to expand awareness of and access to financial services, but this case highlights the fact that vulnerabilities are very context specific. By starting small and offering support and guidance at key stages of product development, financial inclusion projects can help local actors develop innovative products that address these vulnerabilities and expand access to formal financial services in the process.
 (Seiuli, 2017)