emerging cross-country insights

Folie 1

Emerging cross-country insights

Business models and their regulatory implicationsRegulatory approaches

Hennie Bester, 17 July 2013Drafting Group meeting: Issues paper Market Conduct, Distribution and Consumer Protection in Inclusive Insurance MarketsManila, Philippines

12 Introduction

A2ii synthesis process: develop three thematic notes to synthesise trends and issues across countries on key microinsurance policy, regulatory and supervisory topics

Scope of notes determined by A2ii Technical Team:

First note - Evolving microinsurance business models and their regulatory implications

Second note - Different approaches taken by regulators to catalyse microinsurance markets and their impact

Third note - Input into forthcoming IAIS issues paper on market conduct, distribution and consumer protection specifically related to microinsurance

3Information sources

3nice!4 Note 1

Evolving microinsurance business models and their regulatory implications:

How do we categorise the various business models?

What are they and how do they evolve?

Risks distinctive to microinsurance business models?

What are the regulatory implications & responses?

5 Note 1






6 Business Models: categorisation

Preferred approach: nature of intermediation processDifferent forms of intermediation present different risksUnderwriting risks also relevantNature of the risks determine regulatory responses

RisksIntermediationRegulatory Responses7Intermediation is the method of linking a buyer and a sellerA business model (generally i.e. for any business) is fundamentally about how to link a buyer with a sellerIntermediation is particularly important in insurance because insurance is sold and not boughtThe issue of intermediation is even more important in MI because of factors like difficulties in access, low premiums and values meaning high volumes needed etc.And from a supervisors perspective intermediation is the most definitive aspect due to the increased risks as a result.Hence intermediation is the main parameter by which we define discrete business modelsBusiness Models: categorisationWhy emphasise intermediation?

7Business Models: value chainTraditional insurance:

vs.Microinsurance: longer value chainRein-surerInsurerAdministratorPayments providerAggregatorClientsIntegrated Technology PlatformIntermediation channelBroker/agentRein-surerInsurerAdministrationPaymentsClientsIntegrated Technology PlatformIntermediation channelBroker/agent8This slide needs a refresh. The way to go I would suggest is to create a similar graphic for the traditional insurance value chain - which we want to be a lot shorter. Also change the word "Technology"to "Integrated Technology Platform".9 Note 1






10 8 discrete business models

Individual salesProxy sales forceCompulsory salesGroup decisionLocal self-helpAuto enrolmentPassive salesService-based sales11 Model 1: Individual sales

InsurerAgent / Broker / Call centreCCCCCCRoleUnderwriterProduct developmentPremium collectionAdministrationMarketingSalesInsurance decisionEvolution: Traditional sales model that insurers extend down-market for MI in parallel to or before experimenting with alternative mass distribution channelsPost-alternative distribution movement back to the agent where advantage of face-to-face interaction becomes apparentExamples: SINAF Seguros, Grupo Villa (Brazil), Metropolitan REI (South Africa)Description: One on one active sales through fulltime insurance agents or brokers, including outbound call centres; can be supported by in-bound call centres; no client aggregator involved.RoleUnderwriterProduct developmentAdministrationSalesMarketingConsolidating dataPremium collection

Insurance decision12 Model 2: Proxy sales forces

Evolution, cross-selling: Instigated by the insurer , aggregator or 3rd party.Evolves from aggregators wishing to diversify incomeFor insurers, aggregator represents an easy existing contact point to the target marketEmbedded credit life: Evolves from the demand for credit and the need to protect the default risk for the credit supplier. Often first product sold in microinsurance market.Examples: Credit life; Bancassurance; Retailer sales: Casas Bahia (Brazil); Utilities: Codensa Mapfre (Colombia)Description: Insurance sold to existing clients of non-insurance entities where the policy is marketed with the sale of another product. Active sales persons involved, but the salesperson works for the aggregator and the insurance is ancillary to the primary good that they sell.Product can be standalone (cross-selling to third party client base) or embedded in underlying service. Insurance decision is voluntary in the case of cross-selling, but often compulsory in the case of embedded credit life. InsurerRetailer/ Utility / Bank/ Credit providerSales forceSSSSSCCCCCC13 Model 3: Compulsory

RolePrescribe product parametersUnderwriterProduct developmentPremium collectionAdministrationMarketingSalesPurchase decisionAgentAgentAgentInsurerInsurerInsurerCCCCCCRegulationDescription: Insurance required by regulation for certain categories of citizens.Examples: Third party motor vehicle insurance (most countries)Social health insurance for formally employedEvolution: In response to specific public needs, eg protection of road users; health needs of employed populationOften the "beginning" of asset insurance market RoleUnderwriterProduct developmentPremium collectionAdministrationMarketingSalesPremium collectionPremium collectionInsurance decision14 Model 4: Group decision

InsurerBroker / AgentGroupCCCCCCDescription: Members of a group become policyholders by virtue of group rather than individual decision; collective negotiation; either universal cover by virtue of membership of group or opt-in Examples: Labour unions (Doves, South Africa), PASI (Brazil), China village model; cooperatives; Association of Tanzania bus drivers, Protecta partnership with educational institutions (Peru)Evolution: Evolves where there are existing groups which reduce distribution costs Insurers leverage the member database of the groupsGroups offer value added services to members15 Model 5: Local self-help

RoleUnderwriterProduct developmentPremium collectionAdministrationInsurance decision

If non-members allowed:SalesMarketingGroupCCCCCCCCCCCCNon-membersDescription: Group of persons pool own risksExamples: Philippines MBAs; funeraria and cooperatives, burial societiesEvolution: Develops in the absence of appropriate/accessible formal alternatives or where people do not trust formal options or prefer own provision on the basis of solidarityStrong community tiesRolePrescribe productProcurementSubsidise premium Premium collectionUnderwriterAdministrationClaims paymentBroker & agents used for distributionMarket maker administrator for loyalty schemesClaims16 Model 6: Auto enrolmentInsurerInsurerInsurerCCCCCC3rd party decision & fundingDescription: 3rd party purchases insurance on behalf of policyholders. This may be the government subsidising insurance on behalf of class of citizens or a 3rd party aggregator such as an MNO or bank purchasing insurance for its clients as a loyalty scheme. There is commercial underwriting..Evolution, public provision: Develops from a strong state mandate & social goalsMay be a response to market failuresLoyalty benefits:Value added service to reduce client churn3rd party market-maker such as innovative brokerOpportunity for extending the reach of the insurance market in undeveloped marketsExamples: Health insurance in India (RSBY), state funded agricultural insurance (NAIS, India); disaster risk in rural China; Waseela BISP (Pakistan); MNO loyalty schemes: TIGO BIMA (Tanzania), TIGO (Ghana)17 Model 7: Passive sales

RoleUnderwriterProduct developmentPremium collectionAdministrationMarketingMarketingPassive salesPremium collectionAdministrationInsurance decisionInsurerCCCCCCDescription: Individual purchases insurance without intervention of sales personExamples: Internet sales; Clientele hospital cash plan (South Africa), Pep/Hollard (South Africa); inbound call centresEvolution: Particular insurance product has become "commoditised. Market familiar with the concept of insurance Atypical in undeveloped markets.Passive channel18 Model 8: Service-based salesRoleUnderwriterProduct developmentPremium collectionAdministrationMarketingSalesService providerInsurance/ product decisionProviderSalesforceSSSSSCCCCCCDescription: Securing a service to be rendered in the future through an insurance policy. Voluntary individual choice. The entity which sells the insurance is the same one that provides the service. May be underwritten by the provider or by an insurer.Examples: Health insurance provided by health service providers; funeral assistance; funeral parlours in Colombia and BrazilEvolution: Driven by strong demand for underlying service Client cannot afford service without insurance Does not require a well developed insurance sector to evolve 19Scenarios of evolutionScenarioDescriptionModelsBottom up spontaneous developmentInsurance evolves spontaneously on the back of underlying consumer needs and to fill gaps in formal provision.Service-based sales, Local self helpExternal market catalystBoth insurers and aggregators are comfortable in their traditional market segments with limited capacity for expansion. A third party such as a corporate broker or administrator sees the opportunities for market making and starts to match insurers and groups Loyalty auto-enrolment, Group decision, Proxy sales forceState drivenThe public provision model dominates. It can either crowd out private provision in the low-income end of the market, or public provision can leverage the market mechanism, thereby building capacity and triggering interest among private insurers to provide top-up cover or to reach parts of the market not provided for by public provision. May play out in parallel with bottom up scenarioGovernment auto-enrolmentCompetitive dynamicsMarket competitive pressures and innovative players mean that the market "takes on" the mass market challenge and works with third parties to implement alternative distribution. Can stem from competition in insurance or amongst potential aggregators e.g. MNOs wishing to provide additional benefits to subscribers. Loyalty auto-enrolment, Passive sales, Proxy sales force, Group decision, Individual salesService provider needsWhere insurance is used to mitigate client financial risk for service providers such as credit providers (where insurance takes the place of collateral for low income clients not able to provide collateral) or where service providers sell insurance to promote securing of underlying service, e.g. funeral service providers for funerals and medical service providers where clients not able to make single bulky payments for treatment.Credit life, Service-based sales20 Note 1






Prudential riskAggregator riskSales riskPolicy awareness riskPayments riskPost sales risk216 discrete microinsurance risks

22 Microinsurance risk categories

Risk categoryDescriptionPrudential risk Risk that insurer not able to keep its promises & deliver the benefits to the beneficiaries.Aggregator riskThe risk of reduced client value and inappropriate products being sold to clients when an insurer accesses the aggregated client base of a non-insurance third party to sell its products through that channel.Sales risk Risk that the salesperson will misrepresent the product to the client or sell a product that the client does not need.23 Microinsurance risk categories

Risk categoryDescriptionPolicy awareness riskRisk that the insured is not aware that he or she has an insurance policy and is therefore unable to lodge a claim should the risk event occur. Payment riskRisk that the premium will not reach the insurer, that the premium will not be paid on the due date or that the cost of collecting the premium is disproportionate.Post sale riskRisk that clients face unreasonable post-sale barriers to maintain their cover, change products, make enquiries, submit claims, receive benefits or make complaints.24 Microinsurance risk categories

Risk categoryDescriptionRisk driversPrudential risk Risk that insurer not able to keep its promises & deliver the benefits to the beneficiaries.Capacity (risk management capacity, financial management capacity, product design capacity, etc.) of the underwriter - which leads amongst others to the design of inappropriate productsLack of supervision of the underwriter - which can be caused by the informality of the underwriter (it is not licensed and therefore not subject to supervision), or the lack of capacity of the supervisorUnderwriter is too small (scale issue), particularly in relation to the size of the risk poolInadequate corporate governanceLack of actuarial data for the particular target market to enable sound pricingAggregator riskThe risk of reduced client value and inappropriate products being sold to clients when an insurer accesses the aggregated client base of a non-insurance third party to sell its products through that channel.Disproportionate bargaining power between insurer and aggregator where the latter owns the clients through a prior business relationship; (aggregator need for brand protection can act as mitigating factor)Bargaining power of the aggregator vis-a-vis the client is inserted in the purchasing decision between the insurer and the client - especially prevalent in creditFinancial risks and interests of the aggregator (as opposed to the client), e.g. credit risk, risk of product defectsTerms of contractual relationships between the insurer and aggregator and insuredLimited availability of mass distribution channels in a particular market25 Microinsurance risk categories

Risk categoryDescriptionRisk driversSales risk Risk that the salesperson will misrepresent the product to the client or sell a product that the client does not need.Sales persons have insufficient knowledge and skills to sell insurance products of the kind sold to the target marketIncentives for the salespersons are misaligned with the interests of the client, for example there is no incentive to ensure policy renewals (such as up front commissions only); or the commissions are capped at a level which discourages sales effort; or the incentives are to sell the product or service in which the insurance is embedded (such as credit) rather than the insurance product.Inadequate accountability of sales personsPolicy awareness riskRisk that the insured is not aware that he or she has an insurance policy and is therefore unable to lodge a claim should the risk event occur. Absence of a specific sales action, for example in the case of automatic enrolment for a publicly funded insurance benefit or a loyalty-type insurance product.Tick box sales process, for example with embedded productsLow level of financial literacy on the side of the client26 Microinsurance risk categories

Risk categoryDescriptionRisk driversPayments riskRisk that the premium will not reach the insurer, that the premium will not be paid on the due date or that the cost of collecting the premium is disproportionate. Presence of an intermediary between the insurer and aggregator or client who can delay payment of the collected premium to the insureror neglect to make the payment at all.Seasonal or irregular income of clients which cause them to miss monthly or other set dates for payment of premiums.Mandatory payment system requirements that apply to premium collection, for example that it has to be paid through a bank.Post Sales riskRisk that clients face unreasonable post-sale barriers to maintain their cover, change products, make enquiries, submit claims, receive benefits or make complaints.Clients with limited knowledge and experience of insurance.Lack of reasonable access to the insurer or the intermediary after the sale (low income clients prefer personal contact - a person or a branch to go to).Faceless insurers (from the clients perspective) who underwrite policies distributed by third parties.Unscrupulous insurers, notably in countries with compulsory insurance, coupled with inadequate supervision.Manner in which group underwriting is done, notably when there is selective non-renewal of cover by insurers.Incidence or past history of monopolistic insurance provision.Risk can also come from the community, for example where there are cultural fears of autopsy and the insurance company requires an autopsy report to pay the claim on a life policy.Unreasonable requirements from insurers to submit claims.27 Risk matrix

Prudential risk Aggregator riskSales riskPolicy Awareness riskPayments riskPost sales riskIndividual salesxxxProxy sales forcesxxxx

xCompulsory salesxxxGroup decisionxxxLocal self-helpxAuto enrolmentxxPassive salesxx

Service-based salesx

x

28 Note 1






29Regulatory Implications of MI business modelsMI business models: issues arisingImplications for supervisorsInvolvement of multiple parties in delivering the insurance productLonger value chain means more entities, not all of them under supervisors jurisdiction or traditionally allowed for in insurance regulatory framework.Accountability of entities can be problematic if not primarily supervised by insurance supervisor.Broader suite of distribution outlets imply proliferation of insurance agents/sales representatives

Need for intra-agency coordination, especially with other financial sector regulators and telecoms - so that the insurance supervisory objectives can be achieved in respect of entities that do not traditionally fall within the insurance supervisors jurisdiction.Need to make all entities functionally accountable to insurance supervisor for insurance-related services renderedDelegated supervision may be required to deal with multitude of additional intermediaries involvedReduced skills and competence of persons selling insuranceNon-traditional agents and representatives and proxy sales forces have different skills set to traditional brokers or agents, do not necessarily have insurance experience or qualificationsMay not have sufficient knowledge and skills to sell insurance products of the kind sold to the target marketNeed to adapt intermediary entry and ongoing requirements in line with new market realitiesMust find balance in allowing broader set of intermediaries while not sacrificing consumer protectionMay require alternative ways of ensuring competence, e.g. product-specific training rather than prior qualification or experience.2930MI business models: issues arisingImplications for supervisorsMisaligned incentives for sales persons or channelIn the case of proxy sales forces, service-based channels, auto enrolment, passive sales and even group decisions, the interests for the sales channel are primarily aligned to that of the third party, underlying service or group, and may be misaligned with the interests of the individual client.E.g. need to mitigate credit default risk, build customer loyalty, or motivation to sell underlying service or primary goods or services sold by cross-selling partnerMay need to adapt regulatory framework to align incentives, e.g.:reconsider commission structures and interplay with incentivesconsider code of conduct and other instruments (e.g. cooling off period) to ensure all act in consumers best interestsreconsider consumer recourse optionsEnsuring consumer choice in whether and which insurance to takeReduced bargaining power of insurer vis--vis new intermediaries in the distribution chainThe microinsurance value chain is often based on partnerships between insurers and third party aggregators that provide access to their client base. This leads to a situation of unbalanced bargaining power, as the aggregator owns the clients and can therefore demand substantial sums from the underwriter in exchange for (often exclusive) access to their database.Need to strengthen bargaining power of insurer, e.g. by:Requiring identity of insurer to be disclosedRequiring direct contractual relationship between insurer and clientRequiring disclosure of contract between insurer and aggregator to supervisorIncreased distribution costsThe combination of a longer value chain, with more entities to remunerate along it, as well as enhanced bargaining power of those parts of the value chain controlling access to the client base may lead to increased distribution costs for lower relative value for the clients.Need to monitor cost trends and resultant consumer value and respond if required, e.g. by:Monitoring (requiring reporting of) claims and expense ratiosMandatory disclosure of commission and cost structurePublishing comparative distribution costs to promote competitive forcesRegulatory Implications of MI business models31Regulatory Implications of MI risksMI business models: issues arisingImplications for supervisors

Increased reputational risk for insurersAs a result of the dominance of non-insurance interests in the longer microinsurance value chain, the insurer is often no longer a strong driver of the client interface. This can lead to increased reputational risk, should an action of the channel lead to a mis-sold policy, to policy awareness risk or to post-sale risk.Need to consider ways in which to ensure that the client interface treats customers fairly and will result in valid claims, e.g. by:Considering a code of conduct for all intermediariesImposing explicit disclosure and simplification requirementsRegulating the process, allowed requirements and maximum time for claims paymentsReconsidering the effectiveness of consumer recourse optionsEnhanced consumer protection concerns due to nature of target marketClients have limited knowledge and skills to make informed decisionsReduced bargaining power of client vis--vis insurer and intermediaryClients have fewer resources to access consumer recourse mechanisms which can undermine the effectiveness of independent or third party recourse mechanismsNeed to ensure that the sales process and the information disclosed during it speak to the realities of the target market, e.g. by:Public consumer awareness and education campaignsProduct simplification requirements, for example plain language and limited exclusions - linked to file and use or prior product approval Explicit disclosure requirements, i.e. minimum terms and conditions to be disclosed to the client verbally and/or in writing, often linked to a requirement that it be done in the vernacularReconsidering the effectiveness of consumer recourse optionsRegulatory responsesRiskRisk triggerImpactRegulatory responseImpact3233Regulatory responses: Prudential riskRisk descriptionRisk driversPrudential risk: Risk that insurer not able to keep its promises & deliver the benefits to the beneficiariesCapacity (risk management capacity, financial management capacity, product design capacity, etc.) of the underwriter - which leads amongst others to the design of inappropriate productsLack of supervision of the underwriter - which can be caused by the informality of the underwriter (it is not licensed and therefore not subject to supervision), or the lack of capacity of the supervisorThe underwriter is too small (the scale issue), particularly in relation to the size of the risk poolInadequate corporate governanceLack of actuarial data for the particular target market to enable sound pricing.Observed responsesLower entry and compliance requirements for underwriters (tiering or concessionary approach), while retaining a minimum entry requirement to weed out entities that are too small - primarily here to entice entities into formal supervisionPermitting wider spectrum of legal entities other than public companies, for example mutual or mutual-type entities and civil society organisations, to become underwritersProduct restrictions to reduce prudential risk eg benefit or premium caps, term restrictions, restrictions on insurance risks - or prescribing specific pricing formulas to applyPrior approval of products to check actuarial soundness of pricingSimplified but regular reporting to supervisorSeparation of business requirementMinimum corporate governance requirementsMinimum threshold for size of risk pool34Regulatory responses: Aggregator riskRisk descriptionRisk driversAggregator risk:The risk of reduced client value and inappropriate products being sold to clients when an insurer accesses the aggregated client base of a non-insurance third party to sell its products through that channel.Disproportionate bargaining power between insurer and aggregator where the latter owns the clients through a prior business relationship (aggregator need for brand protection can act as mitigating factor)Bargaining power of the aggregator vis-a-vis the client is inserted in the purchasing decision between the insurer and the client - especially prevalent in creditFinancial risks and interests of the aggregator, e.g. credit risk, risk of product defectsTerms of contractual relationships between the insurer and aggregator and insuredLimited availability of mass distribution channels in a particular marketObserved responsesImpute by law a direct insurance relationship between insurer and insured irrespective of contractual relationship between aggregator and clientDisclosureof contract between the insurer and the aggregator to the supervisorProhibition on making extension of credit or purchase of good conditional on entering into a related insurance policyProhibition on credit provider requiring lender to enter into an insurance policy with a specified insurer - i.e. mandatory choice of insurer even though the insurance policy may be mandatoryMandatory reporting of claims ratios and expense ratios to supervisorMandatory disclosure of commission and cost structure to the clientPublic disclosure of comparative statistics on distribution cost by the supervisor, for example on the internet (transparency rules)Prior approval of products to check cost structuresCaps on aggregate intermediation costs (commission and other costs combined)35Regulatory responses: Sales riskObserved responsesMinimum qualification and training (including time and training content) requirements for sales persons, often as a dedicated microinsurance agent category of intermediaryRegistration requirements for sales persons - sometimes registration obligation is delegated to the relevant insurer with a reporting duty to the supervisorUncapped commissionsMandatory structuring of commissions to include both an upfront and an as and when componentPrescribed code of conduct of (microinsurance) sales personsProduct simplification requirements, for example plain language and limited exclusions - linked to file and use or prior product approvalExplicit disclosure requirements, i.e. minimum terms and conditions to be disclosed to the client verbally and/or in writing often linked to a requirement that it be done in the vernacularFile and use requirement for mass communication materials proposed to be used by insurerStatutory cooling off period during which the insured can withdraw from the insurance contractRisk descriptionRisk driversSales risk:Risk that the salesperson will misrepresent the product to the client or sell a product that the client does not need.Sales persons have insufficient knowledge and skills to sell insurance products of the kind sold to the target marketIncentives for the salespersons are misaligned with the interests of the client, for example there is no incentive to ensure policy renewals (such as up front commissions only); or the commissions are capped at a level which discourages sales effort; or the incentives are to sell the product or service in which the insurance is embedded (such as credit) rather than the insurance product.3536Regulatory responses: Sales risk (Continued)Observed responsesInsurers made liable/ responsible for all the actions of their intermediaries as if the latter were their employeesMandatory complaints resolution procedure to be maintained by the insurer (usually at its own cost rather than on a user charge basis) with or without minimum performance standards for the complaints resolution processRisk descriptionRisk driversSales risk:Risk that the salesperson will misrepresent the product to the client or sell a product that the client does not need.Inadequate accountability of sales persons

3637Regulatory responses: Policy awareness riskRisk descriptionRisk driversPolicy awareness risk: Risk that the insured is not aware that he or she has an insurance policy and is therefore unable to lodge a claim should the risk event occur. Absence of a specific sales action, for example in the case of automatic enrolment for a publicly funded insurance benefit or a loyalty-type insurance product.Tick box sales process, for example with embedded products.Low level of financial literacy on the side of the clientObserved responsesRequirement for post-sales communication to the insured within a specified period, for example 30 days, from the date on which he or she entered into the insurance policy (especially in embedded products)Dedicated communication campaign targeting the insured population Moving from a fully publicly funded to a part contribution system, i.e. not full subsidy and automatic enrolment, but part subsidy, part premium payment by insured.Mandatory choice between multiple insurers in the case of compulsory products to make the insurance sales process more explicit to the client.38Regulatory responses: Payments riskRisk descriptionRisk driversPayments risk: Risk that the premium will not reach the insurer, that the premium will not be paid on the due date or that the cost of collecting the premium is disproportionate. Presence of an intermediary between the insurer and aggregator or client who can delay payment of the collected premium to the insureror neglect to make the payment at all.Seasonal or irregular income of clients which cause them to miss monthly or other set dates for payment of premiums.Mandatory payment system requirements that apply to premium collection, for example that it has to be paid through a bank.Observed responsesMaximum period set within which premiums must be paid by intermediary collecting them to the insurer.Requirements to ensure the financial soundness of intermediaries and ring-fence premiums collectedReceipt of premium by intermediary imputed to be receipt of premium by insurerStatutory grace period (during which cover remains in place) if premium not paid when due. Length of the grace period can be made proportionate to how long the policy has been maintained.More flexible premium collection options/ payment system options.Regulate the structure of payments to facilitate irregular or lump sum payments.39Regulatory responses: Post sales riskRisk descriptionRisk driversPost sales risk: Risk that clients face unreasonable post-sale barriers to maintain their cover, change products, make enquiries, submit claims, receive benefits or make complaints.Clients with limited knowledge and experience of insurance.Lack of reasonable access to the insurer or the intermediary after the sale (low income clients prefer personal contact - a person or a branch to go to).Faceless insurers (from the clients perspective) who underwrite policies distributed by third parties.Unscrupulous insurers, notably in countries with compulsory insurance, coupled with inadequate supervision.Manner in which group underwriting is done, notably when there is selective non-renewal of cover by insurers.Incidence or past history of monopolistic insurance provision.Risk can also come from the community, for example where there are cultural fears of autopsy and the insurance company requires an autopsy report to pay the claim on a life policy.Unreasonable requirements from insurers to submit claims.Observed responsesLiberalisation of the insurance market.Public consumer awareness and education campaigns.Registration and training of salespersons.Prohibition on selective cancellation of individual cover within a group policy.Insurers to provide option of a monetary benefit instead of an in-kind benefit.Prohibition on deductibles in microinsurance policies.Prescriptions regarding documentation that may be required by an insurer to settle a claim (for example, that it shall be kept to a minimum or be limited to specified documents)Maximum periods for claims processing and claims payment.Insurers to maintain client recourse systems with or without minimum performance standards.Insurer to handle all microinsurance complaints in the first instance before any further recourse is permitted.Clear communication (verbally and/or in writing) of available recourse mechanisms to client, including the identity of the underwriter.40 Note 2

Regulatory approaches to the promotion of inclusive insurance markets

What is a regulatory approach?

Which approaches exist?

What triggers a particular regulatory approach?

What is the impact of different approaches?

41 Note 2






What is a regulatory approach?42Policy objectives for access to financial servicesPolicy objectivefor access to insuranceFiscal toolsSupervision / enforcementSupervisory capacityRegulatory approach to facilitate access to insurancePolitical, economic & social contextMarket conditionsRegulatory tools42important to explain that it's not just tools, but also objectives and overarching policy approach that will determine regulatory approach. see my notes in your regulatory approaches notes. it's almost more "elements" of a regulatory approach than tools per se. for me, tools would be regulatory requirements, mandates and penalties through which the regulatory approach is put into action, through which market impact is achieved.43 Note 2






44Regulatory approach continuumRegulatory approach continuumDirective ApproachState does not identify which risk should be covered and doesnt make a financial contribution (no fiscal exposure).State determines which target market should be covered and sets requirements to private sector to cover these groups as a condition for being allowed to operate.Access to insurance by regulatory requirementConcessionary regime A reduction in the regulatory burden to enable lower risk products to be marketed to lower income clients at lower cost, whilst maintaining the normal regulatory burden for conventional insurance.The concessions provided to reduce the regulatory burden encourages insurers to move downmarket as this is now a potentially commercially viable.Nudge ApproachRegulator does not consider it necessary to reduce the regulatory requirements for insurance provision to stimulate outreach into the low income market. It is considered sufficient to make policy declarations supporting access to insurance and to create some environmental enablers (e.g. lower cost, more accessible payment systems)Public provision ApproachState identifies risk to cover and outsources intermediation to private sector. Often substantial subsidies provided (fiscal exposure).The state makes certain elements of insurance mandatory but includes state subsidy.The state is the primary driver in increasing access to insurance through a combination of direct subsidies, regulation and public decree.NepalUgandaChinaIndiaColombiaMongoliaPhilippinesBrazilKenyaNigeriaLesothoMozambiqueSouth AfricaSwazilandTanzaniaZambiaGhanaEthiopia4445 Note 2






46Regulatory approaches: triggersApproachTriggersPublic policySocial goalsWell developed insurance sector (distribution)DirectiveStrong development mandateLimited supervisory capacityHigh regulatory burdenMarket failuresDeep insurance sector but limited distributionConcessionaryStrong development mandateSufficient supervisory capacityHigh regulatory burdenInformalityLimited breadthMarket failuresNudge by designStrong development mandateLow regulatory burdenFear of systemic instabilityWell developed insurance sectorNudge by defaultWeak development mandateLimited supervisory capacity 4647 Note 2






48What is the impact of regulatory approaches?Approaches Impacts observed Public PolicySubsidies make it viable to operate where insurers would not otherwise have done so, but persistency rates after termination of subsidies can be lowPartial subsidies tend to be more effective, since culture of payment is developed rather than culture of entitlementTriggers market provision if the state contracts private providers to deliver the servicesCan also catalyse new products, for example health top-up products where public health insurance inadequateCan increase barriers to entry if state provision crowds out private investment Directive approachNew clients are being served that would otherwise not be served, but targeting not always accurate and could be difficult to monitorCan lead to suppliers discovering viable and sustainable market opportunities Concessionary approachLimited examples yet of successful formalisation, but observed in Philippines with substantial support and led by large providerConcessions in distribution utilised before concessions in underwriting especially mass channels NudgeInstitutions that are already serving the market strengthen their outreachMarkets do not respond to product restrictions without concessionsNo visible impact where market is under-developed48remember to ask for HB feedback on this and to explain your rationale for grouping into "market enablers" and "barriers to entry"Questions and discussion49

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emerging cross-country insights

Documents

various business models

microinsurance markets

sellera business model

risks distinctive

key microinsurance policy

increased risks

note input

note different approaches