October 10, 2006

Venezuelans who get it

Katy says: The following is a translation of an interview with Jean Paul Rivas, the President of CruzSalud. It was originally published in Debates IESA, in its July-September, 2006 issue. It does not appear to be available online.

"We can't see the poor from the highway"

Insurance for the poor? Anyone who has traditionally worked in the medical insurance business knows this is not a question that requires much discussion. The poor are, supposedly, unable to afford an expensive service such as medical attention. However, in the last year and a half, a novel entrepreneurial experience is tending to those caraqueños that insurance companies do not take into account.

Jean Paul Rivas is an entrepreneur with more than fifteen years of experience in the insurance and pension business. A year and half ago, along with three other partners, he founded CruzSalud, a company that offers pre-paid medical care to some ten thousand affiliates in the barrios and other populous zones of Caracas.

CruzSalud sells medical plans ranging from 18 to 40 thousand bolívars per month, which include home medical care, emergency care, dental emergencies, all the supplies needed to get either emergency care or an operation in a public hospital (ranging from the doctor's robe to an electronic scalpel), specialized medical consultations and lab tests. It has ambulances and care units that allow them to reach all of Caracas, 24 hours a day. The easiest way to pay the monthly fee is to buy a pre-paid card in drug stores, kiosks, bakeries and other authorized places, and to activate it just like you would a pre-paid cell phone card.

Sixty employees, including doctors, work in CruzSalud, and they also employ some eighty external physicians. A call centre takes emergency calls day and night, offers up information and renews memberships. Its headquarters is in the Lebrún industrial zone in Caracas, and it has administrative offices in the San Miguel and La Línea barrios of Petare.

Q: Where did the idea to start CruzSalud come from?
JPR: The only thing that is sure to grow in Venezuela is poverty. Before starting CruzSalud we projected the growth in the insurance market for the next ten years: we concluded the market was going to decline because, every day, fewer and fewer people will be able to buy insurance. Regrettably, the number of poor people is bound to go up for several reasons: political, economic, and demographic. The poor are a large market with collective, not individual, purchasing power; in them, we saw a market we could do business with. There are fifty insurance companies in Venezuela, fighting each other for ten percent of the population. Who is looking at the needs of the other ninety percent?

But there's something more: that ten percent of the population used to be twenty percent some twenty years ago. In other words, before, those same fifty insurance, plan administrators and pre-paid assistance companies were fighting for twenty percent of the population, and now they are fighting for ten percent. What percentage will they be fighting over in fifteen years, given the economic rhythm the country is in?

Q: Did you make actuarial calculations?
JPR: We didn’t do any calculations. It was more of a perception, an intuition about what was going on in the market. After having worked in this industry for fifteen years, you realize that the market is contracting, in spite of the numbers the Insurance Superintendence sometimes publishes. According to those numbers, the market is growing, yes, but in terms of bolívars, not in terms of people insured. If premiums go up by thirty percent, sales go up by thirty percent. But, are there thirty percent more people insured? No.

Q: So you discovered the poor.
JPR: No, I think other people discovered the poor.

Q: You identified them as a market.
JPR: That is what we did, and it remains a gamble. It’s not the same to talk about the poor than to talk about poverty. Poverty from a macro, actuarial or sociological point of view is one thing, but it’s quite another to look at the day-to-day life of the poor. The difference is that poverty, from an economic point of view, perhaps isn’t such. For example, when you go to a place like Petare you see people from different socio-economic levels. For some people, Petare is all in the D or E segment, but the truth is that there are differences: A, B, C, D and E segments.

The owner of the local hardware store, who has his car, who puts it away early so it won’t get stolen, whose kids go to a private college: he belongs to segment A, but one tends to think of him as being in segment D. The kid in the front of the drugstore smoking crack, he belongs to segment E. You have to understand the economics of the poor: because of his dynamics, he can have five thousand bolívars every day, but he never has thirty thousand bolívars; he earns today, gets paid today, plays today and needs to eat today. That is the life of the poor. You have to understand the lady who gets up at five in the morning and only has seven thousand bolívars in her pocket at the end of the day, who never has seventy thousand bolívars, and who buys two tomatoes, a quarter of a cabbage, a cube of chicken broth and a cigarette.

Those of us from the upper-middle class have a hard time understanding poverty. That is what we’ve been learning in CruzSalud, we’ve begun entering their world. When you realize that 85 percent of Venezuela is like that, then you understand that we are the outsiders. If we think the poor have to adapt to us were going in the wrong direction; we are the ones who have to adapt to them. We are not a mass-market company, we don’t advertise on television to reach the barrios. We go into the barrios on foot with our doctors, our nurses and our home units, and we open offices in the barrios.

Q: So then we must realize we are a minority.
JPR: Yes, and we will be an even smaller minority as time goes by. You have to realize how much money the informal sector moves: billions of bolívars, and more than half of the economically active population. People spend 4 billion bolívars a day in gambling and lotteries. Who’s got that kind of money in their pockets? It’s four billion bolívars that are coming from somewhere. How many businesses in Venezuela deal with 4 billion bolívars per day? Very few.

Q: What are the products you offer people with low incomes?
JPR: We offer the health services they need. Although they need a lot, we go as far as they can pay. Something that surprised us when we began to design the products was that their true need wasn’t coverage for one hundred million when they need it, but having somebody to call. People in the middle class always have a doctor handy: a brother-in-law, a cousin, a friend, and a neighbour. The poor have to wait until some nurse they know comes home at night. That is why we developed a call centre, where people can call and have a doctor available twenty-four hours a day.

The first thing they do is not believe you: “and you are going to come all the way up here?” They sign up and then they test us: “I feel bad, come over.” They test you to see if it’s true, because they’re not used to buying intangibles or services but concrete things. You have to build trust with them.

Now, how do you charge nine or eighteen thousand bolívars per month in the barrios? With prepaid cards. For them it’s not strange to buy prepaid cards. We managed to to talk to them in their commercial lingo. They don’t go to the bank. The street vendor who goes to the bank loses his spot, the jeep driver who goes to the bank wastes all day. The only time they have to go to the bank is on Sundays at Sambil. The solution, from their standpoint, is not to make a bank deposit. They don’t have a credit card and they are not on payroll, they work on their own.

Q: Where do these ideas, this way of seeing the world, the country and the poor come from?
JPR: They came when we realized the insurance market was not growing, that companies were spending millions of bolívars taking customers from each other. Then we wondered: where is the vision? Where is the ambition to do much more? There was a market opportunity, a way of helping the country.

Q: What do you mean by “helping the country”? How do you show us you’re honest about that?
JPR: Helping the country implies doing things like we do in CruzSalud: when, for a few thousand bolívars we can give a child paediatric care and give him medications, and making that a sustainable business. That is my particular way of helping my country. When we help a patient, when we hire a young doctor about to get married or wanting to get married who wants to buy her own apartment, and by hiring her we are helping her achieve her goals, those little things are what help the country.

Q: Are you a variation of Barrio Adentro?
JPR: We go into the barrios, although not as “adentro.” We don’t go to where cars or motorcycles can’t reach, or where people need to walk for 45 minutes to get there. We don’t go there, Barrio Adentro is there. Those are the places where people live in extreme poverty; where people don’t have anything to eat and can hardly afford a product like ours. We operate in the more established barrios. For example, in Petare we are in El Carmen, Maca, El Carpintero, La Línea, and we are also entering Catia, Caricuao and the 23 de Enero.

Q: What is your relationship with Barrio Adentro?
JPR: We’ve become a complement to Barrio Adentro. There are people who believe in the Cuban doctors, there are those who do not, but people certainly feel like someone is there for them. Sometimes they don’t have supplies, they have certain needs, sometimes they work, other times they do not. On the other hand, we always work. People now have options they did not have before; they have the choice of something I like to call “comfort in their zone”: both programs in their barrio. People in the barrio with higher incomes can pay for a private plan, then there’s us and whoever can’t pay anything goes to Barrio Adentro.

Working in popular zones is not like opening an office in Acarigua from the Caracas headquarters. To open a health module in a barrio, the nurse has to be from the area. You need “validators:” people from the area who can certify you are there to do good and will not take advantage of them. When you settle down in a barrio you have to get to know the community boss, the organized community in the street. They are more organized than we think they are. We get to sit down with the Barrio Adentro doctor, with the lady from the salon, with the man from the drugstore, with the neighbour and with the street vendors across the street, because it’s an intense lifestyle.

Aside from our offices in Lebrún we are in a private residence in La Línea, in Petare. We rented out half of the living room, put a front window and that’s where our doctor receives patients. The people who own the house have been there for 25 years. When you are a part of a community everybody knows you, everybody wants to get to know you and find out what you’ve come to do. The difference with the middle class is huge: it’s common that in a building the years go by and people don’t know each other. In Caracas’ residential districts, people who live in one block don’t know anyone beyond the second to next house. But they should know, because helping each other is important.

Q: How did you learn all this? Did you consult a sociologist?
JPR: We spent a year planning this thing. We went to the barrios, we walked, we observed, we spoke to the people. We studied models from other countries. These systems work well in India and Nepal. We realized that in underdeveloped countries, public and private health care systems tend to complement each other. We decided to study what is being done in those countries; we did not go study the Spanish or the Swedish systems. When we entered in Venezuela, we realized that we were more like India and some African countries than developed ones, so we went there to see what was being done there.

Q: You discovered the poor as a people, but also as a community. You talked about having to establish connections with the owner of the salon, the guy who owns the drug store, etc.; so people in the barrios have to know one another because they have to help one another.
JPR: We did not discover them; we can’t see the poor from the highway. Someone had to make that step. People like us don’t do it for fear of their personal safety, because they don’t know how to navigate and because it’s an unknown world. We wanted to be pioneers and we were not afraid. Last year we made more than 2,500 house calls in the barrios, 24 hours a day, and we have not had the first incident with personal safety. Of course there is a lot of crime, like in the rest of the country, and a lot of poverty. We decided to enter in an organized manner. Traditional marketing says that you have to think “these are my costs, this is my price, and whoever can afford it has to pay, and if not they can look for something cheaper.” But when your market is that 85 percent of poor people, you have to know what their willingness to pay is, and whether you can actually help them or not.

Q: So Michael Porter is right? You develop a good product or service if the customers are demanding?
JPR: Customers in the barrios are very demanding; because, though it may seem than five or ten thousand bolívars is not a lot, it is to them. Once in Petare I was told the nearest CAT Scan was in Sabana Grande. When I told them there were two in La Urbina, they told me they were talking about the nearest one in terms of their pocket, not in terms of distance. When they find out that for the 400 bolívars that a bus ticket costs they can save 1,500 bolívars on a cheaper scan, they are willing to spend an entire morning in line waiting. The value of money is great to them, so they become demanding customers. When they pay CruzSalud those ten or twenty thousand bolívars per month they expect a lot in return, they expect you not to disappoint them.

Something else: not only are they demanding, but also they protect you as long as you’re good and efficient. We’ve had a lot of things happen to us. They will call at three in the morning with a sick child, with a temperature of 40 degrees. So the person calling tells the paramedic: “When you are nearby, call me and I will go with the child to the police module and you can see him there.” People know their limitations, they know where they live and they don’t want the doctor to have a bad experience, because they know that if the doctor has a bad time he won’t come back. In middle class sectors, when they call for an ambulance and it hasn’t arrived in five minutes they call a hundred times and start complaining. In the barrios people don’t complain as much, but they expect a lot more from you: they expect you to live up to your promises. It’s a pact of words, you could almost not have to write written contracts, but you have to shake hands, you have to look them in the eyes so they can trust you. The mistake a lot of people in the A/B segments make is that, to them, people in the barrios are like the people they employ in their homes. But the barrios are filled with businessmen, entrepreneurs, and college graduates; it’s a complex world.

One of the big challenges of private companies going into low-income segments is that there is no formal economy. When you rent a space in a barrio, nobody is going to draw up a lease and it will not get notarised. How could a multinational possibly rent a space in a barrio without signing a contract?

Q: There is an extended system of micro credits that can loan up to a million bolívars without a single paper being signed.
JPR: All based on the word of the client, because their greatest asset is their word and they are not willing to lose it because they have nothing else. They don’t have luxury goods, they don’t have a home or a car; what they have is their honesty and their credibility and they are not willing to lose it.

Q: Why have so few of the minority in Venezuela dared to reach out to this other part? If the insurance market is not growing, isn’t there a prime business opportunity there? Why were you guys the first to make the leap? Why hasn’t there been any competition?
JPR: Because it’s very hard to adapt to the lifestyle in the barrio. For a bank, for example, the business of micro-financing is difficult because you can’t open a branch in a barrio nor can you hire a manager willing to work there and attract customers. The technological platform is of no use there either, because people earn weekly wages; you can’t draw up a credit document and notarise it because there are no notaries. When traditional companies try and enter, they realize there are no channels, they can’t reach the people so they have to invent their own channels.

Little by little, though, comfort zones in the barrios are beginning to grow. It’s a phenomenon of today’s Venezuela. Companies are making the effort to reach places like the 23 de Enero with movie theatres, with shopping malls that are as close as possible to where people live; they are taking comfort to where people live. It’s one of the great things we are beginning to understand. A generation ago, people living in marginal areas studied so they could move to a better area. That is ending because the country doesn’t allow it anymore. People are getting married and live in the same place where they have always lived. “Why should I move since everybody knows me here and nobody hurts me? Why should I go somewhere else if I’m fine here? Let’s make one more roof, I keep on studying, I get married and I live here.”

Q: What are your short-term goals in terms of growth?
JPR: We want to end 2007 with close to one hundred thousand members.

Q: In a year and a half you plan on multiplying your existing customer base by ten?
JPR: A year ago we didn’t have anybody and now we have ten thousand! And that’s just Caracas. This is a market of millions of people. We plan on opening elsewhere in the country, where obviously growth will be slower but where there is a great market as well. If the traditional insurance and medical industries compete for 3 million people and there are 20 million nobody is paying attention to, I think we’re being conservative. There will be competition for sure, but the market has great growth potential. Companies will have to specialize more and more or face a steep decline; there is no other way to grow in Venezuela in the next five to ten years.

Q: What is CruzSalud’s biggest challenge?
JPR: From an entrepreneurial point of view, growth. We have great plans for creating jobs and improving people’s lives. That’s what we have done from day one. That’s our way of growing.