FinDev Blog

Can Lenders Also Sell Insurance and Investment Products?

How to ensure the sale of appropriate non-credit products to microcredit customers
Photo by Dvara Trust

Formal credit providers have increasingly gained prominence as a channel for distribution of non-credit products, such as insurance, investment and retirement products, to low-income households in India. Having access to an existing customer base with whom they interact regularly, microcredit channels in particular offer cost and informational advantages over those led by other credit providers such as commercial banks and the non-credit product providers themselves and their agents, who generally sell only one type of product.

Reaching customers in remote, sparsely populated or rural locations with a single non-credit product can become prohibitively expensive and the unit economics unviable. However, microlenders, who have already cracked the unit economics on small loans, are well-placed to sell these products viably and can take advantage of economies of scope which reduce the total cost per product. Indeed, some microlenders offer a small bouquet of microinsurance or savings products that piggyback on their microcredit operating model.

So why haven’t these channels taken off well?

Unfortunately, these pathways have not yet been successful in substantially increasing uptake of non-credit products. Microlenders in India had 58.9 million unique borrowers as of March 2020 and most of these microlenders are not engaged in selling life insurance beyond credit life products that ensure protection of the loan portfolio in the event of a borrower’s death. At a macro level, India’s insurance penetration (ratio of premium to GDP), which stood at 3.7 percent at the end of 2018, continues to be lower than the world average of 6.1 percent.

To understand why the financial system has not been able to deliver protection for India’s people, particularly in the low-income segments, we interviewed practitioners among non-credit product providers, agents, microlenders and newly licensed banks in India. We learned that microlenders face two common challenges when trying to sell multiple products:

1. Prioritization in the sales conversation

Microlenders tend to offer non-credit products to their customers in two ways: bundled with credit or offered separately but concurrently with loans. Insurance is often bundled with credit to mitigate credit risk for the lender, or simply because it makes sense for the customer to have protection. Various non-credit products are also often pitched separately as stand-alone products by loan officers at the time of offering a loan.

In both of these situations, credit is the primary product, and non-credit products often do not receive adequate attention. Prioritizing non-credit products in credit-dominated sales conversations is particularly challenging for loan officers whose main responsibilities are disbursing loans and collecting repayments. As a result, non-credit products are not fairly evaluated against customers’ financial needs. In addition, customers may hesitate to question the features of the non-credit product, thinking it might affect the chances of their loans getting approved. In the absence of cheaper or quicker alternatives for credit, customers can feel forced to purchase products which do not meet their needs.

2. Loan officer capacity and cognitive overload

The other challenge is that loan officers are not adequately equipped to sell multiple products. Multi-product sales conversations require loan officers to thoroughly understand and explain all the features of both credit and non-credit products, discuss with the client how they would fit with their particular financial situation and field questions. The ideal professional profile to lead such a complex interaction would be a certified financial planner, which most microlenders cannot afford. Loan officers, on the other hand, typically serve between 500 and 900 customers per month, and can experience cognitive overload when attempting multi-product sales conversations with their clients, an issue that cannot be overcome merely by the provision of additional training.

Ultimately, loan officers without enough information and decision-making support can end up mis-selling or providing bad advice, leading to customers buying products that are not right for them.

Is there a way forward?

To ensure suitable outcomes for customers, microlenders should first assess a customer’s financial situation, needs and objectives before offering non-credit products. Whether bundled with credit or sold separately, any non-credit products offered should be in line with the customer’s objectives, and must consider the customer’s risk capacity and ability to meet the financial obligations associated with such products. This process should be documented and required as a first step before selling non-credit products to potential customers. But who can undertake this process, given the loan officer capacity challenges we just discussed?

One solution is to take the decision on which product to sell away from loan officers and instead use tech interfaces with backend analytics to determine which products to sell to which customers. Only for exceptional cases, and with explicit permission from their superiors, could loan officers override the system’s heuristics. If the criteria in the backend analytics are thought through and set up well, they could prevent the sale of erroneous or inappropriate products to customers.

In addition, a tiered approach to training, equipping and grading individual loan officers can be considered to address the capacity issues of loan officers in selling non-credit products. In such a system, loan officers would be allowed to sell only those products for which they have successfully completed the requisite training and been evaluated as fully conversant to undertake a sale. Only the more capable staff would thus begin to sell multiple products and take on the more sophisticated sales conversations with customers.

Alternatively, microlenders could enlist a separate cadre of staff to sell only insurance, so that they can stay focused on perfecting their pitch and meeting sales targets on this front, without mixing the credit and non-credit product sales.

While selling non-credit products can be a complex process for microlenders, we believe that these measures could help microlenders to stay relevant and add new value for their customer base.

What have your experiences been? Do you know of any providers who have successfully managed these challenges?


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Bert Opdebeeck , Microinsurance Master, Belgium
24 August 2020

Sadly, microinsurance is approached by too many MFIs - and insurers - as a separate line of product, with commission income as its value proposition for the MFIs. Given the effort to sell vs. income, that's a hard sell indeed.

At Microinsurance Master, we work with MFIs and insurers to approach insurance as a part of a holistic solution for MFI-clients. Agriculture insurance is a logical addition to agricultural input loans; funeral cover to savings for example.

By bundling insurance, MFIs can improve the value proposition they offer to their clients from where - overtime - up- and cross-selling can occur.

The value proposition of insurance for MFIs lies in the ability to offer its clients a better solution, improved client satisfaction and retention and competitive advantage.

Not only technology or insurers officers are a way out for overcharged loan officers. Several MFIs have successfully involved their members in selling insurance and helping their fellows with claims, helping their community agents to gain respect and income in their communities.

MFIs and microinsurers both work to graduate people out of poverty. An alliance between both players should be logical and straightforward. Yet, few MFIs have really fully been able to unlock the microinsurance potential for their clients.

Luckily, there are some truly inspiring examples out there that prove this point, like Dhan Foundation in India and Card MRI in the Philippines. So, what are we waiting for?

Here is another blog I wrote on the topic:

Sowmini Prasad , Dvara Research , India
28 August 2020

Thank you for your comments and for directing us to useful resources. We agree with you on the point that MFIs offer a promising route to take insurance to low-income segments and further financial inclusion. While bundling can certainly be an innovative method to offer risk cover to clients at the point of sale of other financial products, we find that its value proposition to the client is often reduced when solutions offered are not tailored to their insurance needs. Credit insurance, for example, often protects the interests of the lender and not so much the client, while the cost is passed on to the latter. As rightly pointed out by you in your blogpost, customer centricity and not profit as the sole motivator would be the ideal way to go about it.

Sanjeev Agarwal , Dvara SmartGold Pvt Ltd, india
07 August 2020

While there definitely a need to, more effectively use the MicroFinance customer network to cross sell other relevant financial products to the 59 million low income household borrowers. The path to achieve this cannot be a 'separate' cadre of staff because (1) a loan product is a 'pull' product and savings/insurance is a 'push' product a separate cadre selling savings/insurance will not have the same level of leverage as compared to the loan officer (2) the commission/margins of savings/insurance is substantially lower and hence the economics of a separate cadre will only make sense if the savings product officer is able to generate 4 to 5 times more business (3) in order to meet monthly/quarterly/annual profit targets, the leadership will primarily focus on the higher margin Loan product. The only solution is if at the Leadership Team, there is a clear agreement that as part of the Financial Inclusion mandate, fulfilling the holistic needs of their customer is more important AND every level of sales hierarchy is incentivised only on the basis of achieving the agreed mix of loan + savings + insurance

Sowmini Prasad , Dvara Research , India
28 August 2020

Thank you for your comments. While we agree that the loan officers have more leverage in creating the required pull for selling non-credit financial products, the hope is that over time MFIs are not completely dependent on the commissions generated by these products and hence are able to create enough space in terms of budgets/costs to sell insurance products in a manner more suited to the needs of the clients. However, a policy, driven by the leadership team, and an incentive structure that is focussed on encouraging the holistic financial well-being of customers is definitely an important step that can help to set the right tone for sales in the organization.

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