Out of a total adult population of approximately 5.4 billion worldwide, 1.5 billion – or 28% – are getting access to financial services through a post office. In addition, recent studies have shown that Posts are comparatively better at banking specific vulnerable groups – the poor, the less educated and those in the informal economy – than other financial services providers. Furthermore, in developing countries, Posts which offer account-based services have twice as many female clients as banks. All of this helps understand why postal networks are increasingly being recognized as powerful tools to advance financial inclusion.
Financial inclusion is about providing a range of financial services to people who were previously excluded from them. These services include payments, savings, credit and insurance. This last category is often overlooked but access to insurance products can make a significant positive difference in the lives of vulnerable individuals. Insurance helps mitigate shocks such as an accident, a death in the family, or a natural disaster. For fragile populations, having insurance can be the difference between remaining above the poverty line or falling below it. However, the uptake of insurance products is still incipient. In developing economies, only 17% of adults pay for health insurance (in addition to national health insurance, where applicable), and only 6% purchase crop, rainfall or livestock insurance.
A new study by the International Labour Organization (ILO) and the Universal Postal Union (UPU) looks at how postal networks can be leveraged to facilitate access to insurance. As of end of 2015, out of 178 Posts around the world providing financial services, only 72 (or 36%) offered insurance to their clients. Proportionally, there are more Posts in developed countries offering insurance (39.1%) than in developing countries (34.1%). There is therefore a huge potential for insurance companies to partner with postal operators for the distribution of their products. By doing so, they could benefit from the physical outreach of postal networks (661,000 post offices worldwide), clients’ trust with Posts, and also the willingness by many postal operators to diversify into financial services to compensate for the decrease in the more traditional mail business.
The study has identified 3 main business models that Posts are using to offer insurance:
- Agency partnership – The Post collects premiums, disburses claims/benefit payouts and issues policies on behalf of one or more insurance companies.
- Full-fledged partnership – The Post offers insurance products in partnership with an insurance company and assumes more responsibility in all stages of the operation, particularly product development.
- Own insurance – The Post offers its own insurance products.
The first two models involve the participation of an insurance company and are recommended for Posts who have limited financial services provision experience. Then the choice between one model or the other will depend on the level of involvement of the Post, its know-how and in general on what each partner can bring to the table in terms of product development, marketing, back-office, etc.
To select a partner, Posts should:
- Be proactive and market-oriented in their search for business opportunities;
- select a reputable partner in the insurance market that is strongly committed to understanding clients’ needs and to supporting distribution by its postal partner;
- clearly define and agree on the joint and individual roles and responsibilities of each party;
- ensure that responsibilities assigned play to the key strengths of each partner.
On the other hand, insurance companies should carefully analyze the Post’s potential for business, including the following aspects:
- Network, including capillarity, connectivity and how much of the network will be used to distribute insurance products;
- Staff skills, motivation and workload;
- An existing dedicated and mobile sales force, or the potential for forming one;
- Financial capacity;
- Legal and regulatory framework;
- Flexibility, including opening hours and adaptation to client needs.
To get more information, you can download the full study by Guilherme Suedekum here.