Monday, 09 December

Postassurance: Untapped channel for insurance penetration

Feature Article
Ghana Post

A growing body of research suggests that access to and use of financial services has a beneficial impact on individuals’ lives, particularly for vulnerable populations, through improvements in household consumption and well-being

Appropriate financial services can help vulnerable households reduce risk, build resilience, smoothen consumption, safeguard savings, better manage the consequences of unforeseen events, and invest in assets and grow businesses. Without access to these services, poor households have to rely on informal mechanisms, which are often insufficient, unreliable and expensive. Financial inclusion strives to ensure that all households and businesses, regardless of their income levels, have access to and are able to make use of financial services.

Post Office has been offering financial services for over 150 years. In the United Kingdom, the first postal account was opened in 1861. The giro payment system, a retail payment system based on written transfer and standing payment orders submitted through the Post, was first introduced and institutionalized on a national scale in 1883 by the Habsburg Empire, covering present-day Austria, Hungary and the various Balkan and central European countries under its rule.  Insurance is also part of this long tradition of financial services offered by Posts: India Post introduced an insurance scheme targeting its own employees in 1884, extending it to employees of other public institutions in 1888.

Postassurance is a partnership between the postal organization and insurance company to provide various insurance services to potential clients using the post office as a channel of distribution. In consolidating world of financial services, the concept of Postassurance has taken a central role in the strategy of growing insurance penetration. Insurance products distributed through the Posts channel have become a natural choice for mass-market clients looking for simple and low-cost products available from a trusted financial institution. Globally, postassurance is emerging as an important insurance distribution channel that has not only allowed insurance companies to expand their geographical presence but also enabled Postal service providers to expand their overall product portfolio. 

Insurance products can make a significant positive difference in the lives of vulnerable individuals by helping households mitigate shocks and improve the management of expenses related to unforeseen events such as medical emergencies, a death in the family, theft or natural disasters. 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. The insurance gap poses both challenges and opportunities for governments and policymakers, insurance companies, and Posts to advance financial inclusion.

A relatively small number of Posts are offering insurance products, even among those that already have financial services in their portfolio of products and services. As of 2015, out of 178 Posts around the world providing financial services, only 72 offer insurance to their clients. Proportionally, there are more Posts in developed countries offering insurance (39.1%) than in developing countries (34.1%)

Benefits of Postassurance

The Posts present characteristics that have the potential to transform postal networks into well-suited providers of insurance. These characteristics, when properly developed, can provide the following advantages:

 National outreach 

Owing to their universal service mandate, postal networks are often extremely well spread out in their countries. In some countries, such as India and Egypt, the postal network is larger than the networks of all commercial banks taken together. In Ghana, there are about 286 branch network across the country, which makes the post a strategic partner to enhance insurance penetration and serve as a One-Stop-Shop for clients in this era of competitive business environment.

Rural advantage

Some Posts rely on their network of postmasters to provide financial services to customers. For instance, Ghana Post’s clients can receive remittances at Post offices closed to them. Similar approaches based on the network of postmasters could be used for postal insurance. Posts’ presence is particularly relevant in rural areas, zones generally of little interest to other financial services providers. Postmasters could be a powerful sales force in rural areas.

Product diversification 

The willingness to diversify products and to give relevance to insurance among the range of postal services is a factor that can contribute to Posts’ success in the insurance field. Many postal networks around the world are evolving from mail-centred bureaucracies to more diversified commercial enterprises with a clear mandate to expand financial inclusion. Although mail services have historically been the core business of the Post, decision-makers are increasingly looking for options to enlarge the portfolio of services.

The kind of business model that should be adopted depends on various elements, such as the legal and regulatory frameworks in the country, the Postal Service’s levels of IT infrastructure and expertise on financial services, and local insurance market characteristics, to name just a few. Therefore, although Posts willing to enter this market can draw on other Posts’ experiences, there is no one-size-fits-all recipe. Posts need to consider their own context and come up with tailor-made strategies.

The business models used by Postal organizations to deliver insurance to customers are:

• 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. Here the Postal organization register’s and obtain license as an insurance provider and regulated by the National Insurance Commission. 

These three business models involve varying degrees of involvement by the Post in the operation. 

As the Universal Postal Union (UPU) commemorates World Post Day on 9th October, a day set aside to celebrate the achievement of the Post; Ghana Post has strategically positioned itself for mutually beneficial business partnership with various business entities. I want to use the occasion of World Post Day to edge government to give business attention to Ghana Post by entrusting courier delivery services needs of MMDAs and other government agency services to Ghana Post, to shore up revenue growth of the company. 

Congratulations to Board, management and the hardworking staff of Ghana Post, especially staff and management of Western region for their relentless efforts to see Ghana Post excel.

Source: Theophilus Tei Ayanou, Regional Head/Western Region