What is inclusive innovation?
In Rwanda, many people are currently living without insurance and only have limited access to formal finance. Paying for traditional insurance premiums is well out of reach. We travelled to the country to help four of the biggest local insurance companies come up with their very first microinsurance products for this target group. We partnered up with Microinsurance Master and Access to Finance Rwanda, a non-profit organization that facilitates and funds innovation projects to improve the livelihoods of the poor. During an intense 2-week program, we guided these pioneers from customer empathy, through ideation and business modelling. We ended with a prototype tested in the field and a business case ready to pitch.
In this article, we’ll share how microinsurance could have a tremendous impact on the country’s poor, while also providing a considerable opportunity for companies willing to enter this market.
If you’re looking to organise an initiative yourself, click on the button below to find out what we did during the 9 days we were in Kigali, along with some handy tips and tricks. That way, you’re well on your way to giving it a try!
Red Ocean vs. Blue Ocean?
The Red Ocean of insurance
In this blog, Bert Opdebeeck from Microinsurance Master points out a painful truth about the Kenyan economy: insurance is in the throes of a bitter price war because competition is limited to the top slice of the market. It’s no different in Rwanda: fourteen companies are competing for over one million customers, a mere 8% of the country’s population.
By contrast, over 90% of the country is excluded from basic insurance products, apart from the basic universal health insurance offered by the government. A quick survey taught us that similar dynamics exist not only for other financial products, but also for other industries in Rwanda and the rest of the East African Community.
Microinsurance: Golden opportunity with a double bottom line
The income streams of the 90% can be characterized as low, unpredictable and irregular. Yet financial setbacks are numerous and frequent. From funeral costs, to hospitalization charges or loss of personal goods, risk is a big part of their lives. The goal of microinsurance is to increase their financial stability. By understanding the risks they face, insurance companies can create an innovative service that is both profitable for the insurer, and affordable for the customer.
We went out into the streets, travelled to tea plantations, and visited ‘agakiriros’ (work spaces for micro-entrepreneurs with the tools and supplies they need to do business) to interview potential customers. Everywhere we went, we heard the same message: people are acutely aware of the risks they face and would jump at the opportunity to get insured if the conditions were right, ie. in their price range, with pay-when-they-can options, and speedy access to much-needed funds. We came to conclusions very similar to Daryl Collins in his book Portfolios of the Poor: People have complex financial portfolios and are eager to find formal alternatives that are more trustworthy, and suited to their lives.
We were on the right track!
The four days leading up to the customer interviews consisted of a deep look at the research that had been gathered to date. All teams had interviewed as many as 97 respondents in one-to-one interviews and focus group discussions. The challenge was to distill the key risks of a typical persona within the target segment. Once this was defined, we were able to get creative and ideate on the ideal solution for them. We also came up with sustainable business models with a healthy profit margin for the companies, and that could be offered at a reasonable rate for the customers.
Business modelling and technology
The things holding back the poor from buying insurance are twofold: the perception that insurance is only for the rich, and the harsh reality that policies are indeed priced in ways that are difficult for them. These are things that can be fixed. Here are the four elements that are needed to achieve the ‘double bottom line’ generating a profit while creating a positive social impact:
- Human-Centered Design (HCD) – understand the precise needs and the daily lives of the people you are serving. What risks are they most looking to get covered? What are their income and spending patterns? Where, how, and how often do they currently use similar services? What determines whether they trust an alternative over the current informal financial networks that exist?
- The technology to reach these people is available, all you need to know is how and when to use it. HCD allows these companies to see exactly how the various forms of microinsurance can fit into their lives. Mobile tech, weather indexes, optical character recognition software for scanning pictures of doctor slips…can these technologies help you?
- Which business model should you pursue, and how should you price your service? Due to mechanisms like ‘hyperbolic discounting’, in times of need, 100 euros received immediately can be worth more than 150 received tomorrow. Taking these mechanisms into account often makes it possible to lower benefits, making policies far more affordable (with lower premiums), yet delivering higher perceived value. Here is a similar case.
- You need a business model that tackles this. Can you add flexibility to the way people pay premiums? Can you come up with mechanisms that allow customers to make claims and receive benefits within a few hours?
- Are there partnerships that you can leverage? A key strategy in bringing services to market is bundling. It’s tough to get a microinsurance venture off the ground without this strategy. Successful cases are the mobile microinsurance offered by BIMA that adds insurance onto purchases people already make. This not only makes it possible to demonstrate value without selling the products outright, it also creates a stable way of collecting premiums that people seldom drop out of.
After two days in the field and seven days of building, the teams had an exact view on what to offer and are now gearing up for the long haul. Like the example from Pioneer insurance shows below, the road can be long, but the rewards are worth it.
The day-to-day planning of our project in Rwanda
Getting to the heart of the problem, with heart
We started the week with a refresh of the human-centred design (HCD) method and how it links to Lean Startup. From there we went on to reframe the research the teams had already done to turn it into something tangible and usable. CGAP shared their tools, which are tailored to the microfinance sector. (check ‘m out here!) They helped the teams fine tune some of their interview insights and turn them into design principles, and to define the main risks each target group faced and how to overcome them.
Breaking rules to build better lives
We started the day with our signature brainstorm cards but used additional brainstorm cards designed especially for the specific market we were addressing. (More on that, coming soon…). We continued with rule breaking and opposite thinking. The goal was to look at regular insurance and turn some aspects of it on its head. In regular insurance, you want low frequencies and high claim values (houses burning down, car crashes, etc). But microinsurance is more successful when the claims are frequent and actually serve as proof of value, as well as the added marketing value for those who are uninsured to see that it works. One of the problems to solve is proving the right to a claim. This needs to be as simple as possible. We worked on the customer journey to ideate on what to do to simplify, upgrade or remove unwanted features.
Blueprints to get customers out of the red
Everyone chose their favourite ideas and reworked them down to a concept card. Based on that, discussion rounds were held to process the choices. A group idea was chosen and drawn up into a service blueprint to determine all the steps for the customer and what needed to be done or provided. We got down to the nitty gritty. And it got gritty.
Prototyping not stereotyping
First, the teams looked at the risky assumptions of their idea, determined where their customer knowledge was lacking, and addressed technical questions on feasibility. We made some back-of-the-envelope calculations to determine whether it could become a sustainable business and then pivoted and adapted ideas. Based on these considerations, we defined a way forward deciding what we would test and with which prototypes.
Reaching out to understand
We hit the road with our clipboards, questionnaires and prototypes and each team interviewed four to eight people who fit the customer profile. We were floored by the acute awareness and skill with which all of them handled serious insecurities and immensely variable incomes. They almost schooled the team on insurance concepts. They knew all about insurance, but thought “it wasn’t for them” because of their social economic status.
They were the perfect would-be customers to interview and test prototypes of totally new products. We determined how people make decisions and which financial decisions weigh most heavily on them; what preconceived ideas, stereotypes, and shortcut reasonings exist around insurance. We learned so much about how these people live their lives, right down to how they manage payments for bus fare to bring food to a friend or family member who’s in the hospital.
Insight into oversights
Looking at our interview notes, recordings, and transcripts to glean insights from them, we were able to see patterns emerge of what our target group wanted and needed. The teams updated their concepts by adding features, removing them, radically rethinking the claims management model, etc. They then re-examined their business models to patch them up, investigate new partnership models, such as bundling, which is how microinsurance breaks open a nascent market. Many cases apply insurance on top of what already exists, such as purchases that are already being made, and then up-sell (ex. Tigo, Bima). We identified the new most important assumptions and updated existing prototypes or created entirely new ones. The teams were ready to hit the road once again. The motto was: “If you’re not surprised, you’re doing it wrong.” Participants had gotten a glimpse of the customer’s life and couldn’t wait to get back out on the streets to learn more.
Microinsurance for micro-entrepreneurs
Field day number two! This day involved a trip to the Agakiriros, a state-funded shared space where carpenters, welders, tailors, etc. can work, rent machinery, or find supplies. There, the team split up and spoke to 8 entrepreneurs in total. Around us, beds were being made to measure, car interiors were being re-upholstered/refurbished, engines were being picked apart for parts which were re-purposed and welded on the spot. These were people in the throes of their workday, often providing for as many as 5 children. And yet they willingly took an hour out of their day to speak to us. We learned they wanted as much insurance as they could afford. And they told us exactly what pricing they wanted and what benefits they needed.
From concept to conception
Another round of concept refinement. Teams listed their learnings and tweaked their proposition further. They mapped out the entire client conversation for claim reporting and all other steps of the journey. Then they filled out the business model canvas. This tool proved very useful to identify whether a team was aligned on its approach. After this, it was time to plan the way forward. Who would do what? By when? Which person within the company needed to be trained? What sort of commitment was everyone willing to make?
Some people were very passionate about seeing it through, even if the business wouldn’t break even until 5 years down the line. Others wanted to go back to their corporate clients, but everyone saw the immense value of the techniques and the mindset they had developed.
Developing the perfect pitch
All teams had to pitch to Access to Finance Rwanda (AFR), the funder and instigator of the project, as well as some key experts in the industry. To do this, the teams determined their goal, the strategy they would use, and what to say. They mapped out what needed to be included in the presentation, plus the three most important messages to streamline the pitch. The storyline had to have an engaging story arc with presentation materials to support the narrative. The teams had a pitch dry run with us on Feb. 8 and we guided them further for their pitch on March 8 for further funding.