Evaluating business success in the microinsurance industry of South Africa
Chummun, Bibi Zaheenah.
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Microinsurance is still at an embryonic stage in South Africa. The outcome is seen in the significant number of low–income people who are either financially excluded or know very little about Microinsurance. Insurance firms and the authorities are beginning to recognize the future potential of the low–income market and the longer term benefits of building a customer database in a new market segment. Knowledge and management strategies aimed to improve the business success of the microinsurance industry are also limited. This leads to the primary objective of this study, namely to measure business success of the microinsurance industry in South Africa. Hence, the secondary objectives are to perform a literature study on microinsurance to put the industry in perspective in South Africa, to compile a theoretical model to measure business success in the industry, to validate the model and to apply the model to measure the business success in the microinsurance industry. The study is presented in a series of four articles, each article serving a secondary objective. The empirical study measured business success variables on a 5–point Likert scale from a conveniently sample consisting of financial advisers operating within the microinsurance market. Some 261 questionnaires were received from the respondents of four insurance firms licensed to offer microinsurance in South Africa, namely Old Mutual, Sanlam, Metropolitan and Safrican Insurance firms. The results showed that fifteen business success independent variables could be identified from the literature, namely: communication, trust, financial literacy, product, price, place, promotion, culture, technology, microfinance–microinsurance link, microinsurance regulatory framework, human resource training and development, physical evidence, process and people. The criteria that measured each of the variables were determined and the variables with its measuring criteria were integrated into a structured questionnaire (each comprising 107 questions) for use in the microinsurance industry. The data were tested for reliability using the Cronbach Alpha coefficient, and the questionnaire was validated using the Kaiser–Meyer–Olkin test for sample adequacy, the Bartlett’s test of Sphericity and exploratory factor analysis. The results obtained indicated that the questionnaire is valid for use to measure business success in the microinsurance industry of South Africa. The results validated the identified variables, while also showing that some of the variables were dualistic in nature. Some variables were discarded due to unsatisfactory reliability coefficients. Descriptive statistics were used to measure the business success of microinsurance in the South African context. The mean results for business success for the microinsurance industry of South Africa portrayed a general dissatisfaction (results below the parameters of 60%) which means that much still needs to be done in the MI industry to reach business success, hence showing the importance and relevance of the research and the business success model which measured successfully. The findings revealed that trust and physical evidence have had the least bearing on business success with a mean result of 49.8% and 49.6 % respectively. On the other hand, business success in MI fails highest on credit–insurance link and price showing a mean result of 10.1% and 28.2% respectively requiring urgent management intervention. All of the variables identified need managerial address. Some of the more important recommendations are that investment in the professional appearance, attitude, caring component and good customer service are crucial to the business success of the insurer. Training and development of the agents and staff through passing of the Financial Sector Charter exams for an operating license in offering microinsurance Industry is more likely to increase the confidence of the low–income people, thus the element of trust could be established. A coherent insurance culture should be created among the low–income households through financial education and awareness programmes of microinsurance Industry. Financial literacy and communication work hand in hand to promote business success. A wider array of microinsurance Industry products should be designed instead of only the funeral cover, for instance, crop insurance for the farmers in times of climate instability. An affordable premium rate should be established before lapses and surrenders of policies take place just because during the contract, the customer sees that the premium charged is too expensive. To counteract that, a good financial assessment should be conducted beforehand. Communication through updated technology from head office to branches and vice versa should be faster to enhance customer service. More players should be involved, for instance, call centres, fast food outlets and retailers to promote microinsurance Industry products and services. Furthermore, branches should be located in convenient locations where the low–income households live. Accessibility of offices is found to be a key to business success. The microinsurance Industry should be designed in a way to secure microloans as collateral security. In case of death, the person who takes the loan does not lose his property as collateral security which even impoverished his beneficiaries. One must not forget that microinsurance Industry has been classified as an important tool to alleviate poverty levels which is an important phenomenon in South Africa. Therefore, the purpose should not be defeated. Finally but not least, there is a need for a microinsurance Act to be published as soon as possible to protect customer abuse especially in view of the fact that there is currently many unlicensed microinsurance providers according to the National Treasury of South Africa. In respect of the findings and results, many recommendations are made and can contribute wisely to the business success of firms, if implemented.