Zambia
About the country
The Microinsurance market in Zambia is still at an early stage of development and dominated by life insurance, however it is steadily growing and experimenting with new products.
When the Facility became involved in Zambia in 2009, the microinsurance market was in a nascent stage. An initial market and regulatory analysis – completed by Cenfri and funded by the ILO, the UNCDF and FinMark – provided a good overview of the opportunities and challenges to the development of the Zambian microinsurance market. This analysis showed that while insurance penetration was very low, around 1%, there were signs that the Zambian insurance sector was awakening and considering low-income insurance distribution. Therefore, it was decided to create a Technical Advisory Group (TGA) including diverse stakeholders from the insurance industry, government, microfinance providers, and donors. Its mission was to develop and implement a strategy for microinsurance development in Zambia which is still in process of being implemented.
Our engagement
Overview
The Facility has actively participated in the development of the microinsurance market in Zambia. The followed strategy has been to accelerate the provision of insurance to Zambia’s low-income market through supply strengthening, demand stimulation and enabling environment creation. The experiences and lessons learned so far show that moving a market requires well-structured market facilitation strategies aimed at overcoming a wide range of market constraints. The market development approach adopted in Zambia was to first address supply side issues before investing in demand stimulation and developing guidelines for regulating microinsurance business.
Component 1: Supply strengthening
Insurance companies and distributors need to further develop their capacities in designing and delivering insurance services to low-income people.
The market development process in Zambia continues to focus on strengthening the supply side through various capacity building activities:
- Market Research for Microinsurance Workshop
This workshop is designed to provide knowledge and skills on how to translate consumer insights into improved results of microinsurance products.
- Microinsurance Innovation Seminar
This seminar is designed to stimulate further interest in microinsurance and investments in product diversification, by focusing on innovations in product design and delivery for health, agriculture and non-life microinsurance products. The seminar also provides insights on business strategies to enhance scale and outreach as well as improve efficiency in distribution, premium collection, enrolments and administration.
- Microinsurance Acceleration Facility (MAF)
The third round of the MAF will focus on (1) enhancing client value (2) innovative delivery (3) Extending geographical spread and (4) broadening risk coverage. One of the major objectives is stimulating product design and delivery of products beyond credit life and funeral policies.
Component 2: Demand stimulation
Insurance remains a new product among the low-income population segment, still requiring investment in awareness on benefits of insurance as well as available microinsurance products on the market.
The main demand stimulation activity is the annual insurance week. Its main goal is to increase awareness on the benefits of insurance as a risk management financial service, as well as showcase the insurance products currently available on the Zambian market. The main activities of the insurance week include:
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Sensitization
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Education
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Product awareness
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Component 3: Enabling environment creation
The new developments in Zambia’s microinsurance landscape are pointers to an opportune time to have microinsurance regulations in place. The work accomplished by the Pension Insurance Authority (PIA) in drafting these regulations is an important step.
The main activities for enabling environment creation are:
- Provide technical assistance on the drafting of microinsurance regulations
- Promoting an enabling environment and supervisory framework of microinsurance business
It is likely that microinsurance regulations will be finalized ahead of the new Insurance Act. The regulations draft will be circulated to the TAG and subsequently to industry stakeholders. The continued support from the PIA in supporting and approving microinsurance products ahead of new Insurance Act and microinsurance regulations has been appreciated by the industry. Moreover, some insurers feel having regulations in place will certainly propel further traction.
Market development results
Since the Facility became engaged in Zambia there have been significant developments in the microinsurance landscape. In particular, there has been a tremendous growth in the number of lives covered; from less than 90,000 lives in 2009 to around 1 million lives in 2013. There has also been a slight change in the distribution of the coverage with a small entry of agriculture insurance.
Despite this slight product diversification, the microinsurance business is still dominated by life insurers. The engagement level is very high for life insurers; among the eight active insurers, six are life insurers and two non-life insurers. A number of non-life insurers have also indicated plans to pilot or launch microinsurance products, citing agriculture and personal accident as potential products.
The distribution space continues to change as insurers search and test new channels of reaching low-income consumers. Partnerships with diverse distributors are increasing including: microfinance Institutions, banks, mobile network operators, workers unions, microenterprise associations, community agents, agribusinesses and farmer groups. Despite these positive developments, securing and managing distribution partnerships continue to be a key challenge for most insurers. Due diligence, role allocation, contract enforcement and close monitoring seems to be some of the critical areas.
While considerable progress is being recorded, much attention is still required particularly on sustainability of existing products as well as ensuring client value. The microinsurance landscape survey shows that the current claims ratio is very low, less than 25%, for most of the microinsurance products. In 2013, the value of gross premiums collected was ZMW 36,302,233 while the total claims paid out was ZMW 4, 425,015.
Lessons
A consistently low claims ratio can be problematic since it could be a sign of low client value or lack of product understanding. The microinsurance landscape survey in Zambia showed that the current claims ratio is very low, less than 25%, for most of the microinsurance products. However, this is probably justified given that most of the products are still in infancy stages and are dependant heavily on the occurrence of death being the risk most covered by the current microinsurance products. The picture is likely to change given that most of the products would have a longer lifespan.
The dominance of an insurance product can be detrimental to market development. Microinsurance business in Zambia is still dominated by life insurers with a very high level of engagement. However, the engagement levels are certainly likely to change over time given that microinsurance business is becoming more and more attractive to insurers in Zambia. In 2013, one of the major developments was the entry of non-life insurers with two insurers implementing pilots in agriculture insurance. In 2014, more products are likely to be launched. Products in the pipeline include health and agriculture insurance as well as a loyalty life insurance product through a mobile platform that is likely to cover than 2 million Zambians.
A convenient market development approach could be to first address supply side issues. The strategy followed in Zambia was first strengthening the supply before investing in demand stimulation and regulation. Through various capacity building activities the market development process in Zambia has focused on strengthening the supply side. The interventions have included capacity building trainings and innovation seminars. The workshop on market research for microinsurance proved to be a good tool to provide knowledge and skills on how to translating consumer insights into improved results of microinsurance products.
Large public events can help stimulate demand and have a long-term impact on the insurance industry. The major activity for demand stimulation in Zambia is the annual insurance week that includes several consumer education and public awareness activities. The implementation and funding of the insurance week brings together a number of stakeholders and organisations that either support financial inclusion initiatives or promote the access to insurance for low-income households and individuals.
In order to create an enabling environment it is essential to promote the development of microinsurance regulations. There has been close collaboration with the Pensions and Insurance Authority (PIA) by providing technical assistance on the drafting of microinsurance regulations. The continued support from the PIA in supporting and approving microinsurance products ahead of new Insurance Act and microinsurance regulations has been appreciated by the industry.
Public-private partnerships are useful to ensure multi-stakeholder engagement. The role of the TAG has been central to the development process of the microinsurance market in Zambia. This multi-stakeholder group has encouraged an active engagement of the insurance industry, government, and donors. In particular, the PIA has been recognized as a TAG member that can identify key government departments and officials that will be an entry for dialogue with the TAG on the feasibility of PPPs for microinsurance delivery in Zambia.
