Transcript Folie 1

Emerging cross-country insights
• Business models and their regulatory
implications
• Regulatory approaches
Hennie Bester, 17 July 2013
Drafting Group meeting: Issues paper Market Conduct, Distribution
and Consumer Protection in Inclusive Insurance Markets
Manila, Philippines
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
2
Information sources
Country
China
India
Mongolia
Nepal
Pakistan
Philippines
Brazil
Colombia
Mexico
Peru
Ethiopia
Ghana
Kenya
MI Diagnostic/
country study MI-specific regulations
*
Country
Nigeria
Uganda
Lesotho
Mozambique
South Africa
Swaziland
Tanzania
Zambia
Botswana
Namibia
Malawi
Zimbabwe
MI Diagnostic/
country study MI-specific regulations
*
*
*
*
*
*
*
*Proposed
3
Note 1
Evolving microinsurance business models and their
regulatory implications:
1. How do we categorise the various business models?
2. What are they and how do they evolve?
3. Risks distinctive to microinsurance business models?
4. What are the regulatory implications & responses?
4
Note 1
Evolving microinsurance business models and their
regulatory implications:
1. How do we categorise the various business models?
2. What are they and how do they evolve?
3. Risks distinctive to microinsurance business models?
4. What are the regulatory implications & responses?
5
Business Models: categorisation
•
•
•
•
Preferred approach: nature of intermediation process
Different forms of intermediation present different risks
Underwriting risks also relevant
Nature of the risks determine regulatory responses
Intermediation
Risks
Regulatory
Responses
6
Business Models: categorisation
Why emphasise intermediation?
Hence intermediation is the
main parameter by which
we define discrete business
models
And from a supervisor’s
perspective intermediation
is the most definitive
aspect due to the
increased risks as a result.
Intermediation
Supervisor
The 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.
Microinsurance
Intermediation is the
method of linking a buyer
and a seller
Business
Model
Insurance
A business model
(generally i.e. for any
business) is
fundamentally about
how to link a buyer
with a seller
Intermediation is particularly
important in insurance because
insurance is sold and not bought
7
Business Models: value chain
Intermediation channel
Traditional insurance:
Reinsurer
Administration
Insurer
Broker/agent
Payments
Clients
Integrated Technology Platform
vs.
Microinsurance: longer value chain
Intermediation channel
Reinsurer
Insurer
Administrator
Payments
provider
Broker/agent
Integrated Technology Platform
Aggregator
Clients
Note 1
Evolving microinsurance business models and their
regulatory implications:
1. How do we categorise the various business models?
2. What are they and how do they evolve?
3. Risks distinctive to microinsurance business models?
4. What are the regulatory implications & responses?
9
8 discrete business models
1.
2.
3.
4.
5.
6.
7.
8.
Individual sales
Proxy sales force
Compulsory sales
Group decision
Local self-help
Auto enrolment
Passive sales
Service-based sales
10
Model 1: Individual sales
Role
Underwriter
Insurer
Product development
Premium collection
Description: One on one active
sales through
Administration
fulltime insurance agents or brokers, including
Marketing by inoutbound call centres; can be supported
Sales
bound call centres; no client aggregator
involved.
Agent /
Broker / Call
centre
C
C
C
C
C
C
Evolution:
- Traditional sales model that insurers extend
down-market for MI in parallel to or before
Insurance decision
experimenting with alternative
mass
distribution channels
- Post-alternative distribution movement “back
to the agent” where advantage of face-to-face
interaction becomes apparent
Examples: SINAF Seguros, Grupo Villa (Brazil),
Metropolitan REI (South Africa)
11
Model 2: Proxy sales forces
Description: Insurance sold to existing clients ofRole
noninsurance entities where the policy is marketed with the sale
Underwriter
of another product. Active sales persons involved, but the
development
salesperson works for the aggregator andProduct
the insurance
is
ancillary to the primary good that they sell.Administration
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,
Sales but often
compulsory in the case of embedded credit life.
Insurer
Retailer/ Utility /
Bank/ Credit
provider
S
S
Sales force
S
Marketing
Consolidating data
Evolution, cross-selling:
- Instigated by the insurer , aggregator or
3rd party.
Premium
collection
- Evolves from aggregators wishing to diversify income
- For insurers, aggregator represents an easy existing
contact point to the target market
Insurance decision
Embedded 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.
S
S
C
C
C
C
C
C
Examples: Credit life; Bancassurance; Retailer sales:
Casas Bahia (Brazil); Utilities: Codensa Mapfre (Colombia)
12
Model 3: Compulsory
Role
Prescribe product
Regulation
parameters
Underwriter
Insurer
Insurer
Insurer
Product development
Premium collection
Administration
Description: Insurance required
by regulation for
certain categories of citizens.
Marketing
Agent
C
Agent
C
C
Agent
C
C
C
Evolution:
Sales
- In response to specific public needs, eg
protection of road users; health needs of
employed population
- Often the "beginning" of asset insurance
Purchase decision
market
Examples: Third party motor vehicle insurance
(most countries)
Social health insurance for formally employed
13
Model 4: Group decision
Role
Underwriter
Insurer
Product development
Premium collection
Broker / Agent
Administration
Description: Members of a group become
policyholders by virtue of group rather than individual
decision; collective negotiation; eitherMarketing
universal cover
by virtue of membership of group or opt-in
Sales
Premium collection
C
Evolution:
- Evolves where there are existing groups which
reduce distribution costs
Premiumof
collection
- Insurers leverage the member database
the
groups
Insurance decision
- Groups offer value added services to members
Group
C
C
C
C
C
Examples: Labour unions (Doves, South Africa), PASI
(Brazil), China village model; cooperatives; Association
of Tanzania bus drivers, Protecta partnership with
educational institutions (Peru)
14
Model 5: Local self-help
Role
Group
Underwriter
C
C
Product development
C
C
Premium collection
C
C
Insurance decision
C
C
Administration
C
C
Description: Group of persons pool own risks
C
C
Non-members
Evolution:
- Develops in the absence of
appropriate/accessible formal
alternatives or
If non-members
where people do not trust formal options or
allowed:
prefer own provision on the basis of solidarity
Sales
- Strong community ties
Marketing
Examples: Philippines MBAs; funeraria and
cooperatives, burial societies
15
Model 6: Auto enrolment
3rd
Description:
party purchases insurance on behalf of
policyholders. This may be
the government
subsidising
Prescribe
product
insurance on behalf of class
of citizens or a 3rd party
Procurement
aggregator such as an MNO or bank purchasing
Subsidise premium
insurance for its clients as
a loyalty scheme. There is
Premium
collection
commercial underwriting..
3rd party decision & funding
Insurer
C
Insurer
C
C
Insurer
C
C
Role
C
Underwriter
Evolution, public provision:
- Develops from a strong
state mandate & social
Administration
goals
Claims payment
- May be a response to market failures
Loyalty benefits:
- Value added service Broker
to reduce
clientused
churn
& agents
for distribution
- 3rd party ‘market-maker’ such as innovative broker
“Market maker” administrator for
- Opportunity for extending
the reach of the insurance
loyalty
schemes
market in undeveloped
markets
Claimsin India (RSBY), state
Examples: Health insurance
funded agricultural insurance (NAIS, India); disaster risk
in rural China; Waseela BISP (Pakistan); MNO loyalty
schemes: TIGO BIMA (Tanzania), TIGO (Ghana)
16
Model 7: Passive sales
Role
Underwriter
Product development
Insurer
Premium collection
Administration
Marketing
Marketing
Passive
channel
Description: Individual purchases insurance
without
Passive sales
intervention of sales person
Premium collection
Administration
Evolution:
- Particular insurance product has become
Insurance decision
"commoditised.“
- Market familiar with the concept of insurance
- Atypical in undeveloped markets.
C
C
C
C
C
C
Examples: Internet sales; Clientele hospital cash plan
(South Africa), Pep/Hollard (South Africa); inbound call
centres
17
Model 8: Service-based sales
Role
Underwriter
Provider
S
Product development
S
Salesforce
S
Premium collection
S
Administration
S
Description: Securing a service to beMarketing
rendered in the
future through an insurance policy. Voluntary individual
Sales
choice. The entity which sells the insurance is the same
providerby
one that provides the service. May beService
underwritten
the provider or by an insurer.
Evolution:
Insurance/
product
- Driven by strong demand for underlying
service
decision
- Client cannot afford service without
insurance
- Does not require a well developed insurance sector
to evolve
C
C
C
C
C
C
Examples: Health insurance provided by health service
providers; funeral assistance; funeral parlours in
Colombia and Brazil
18
Scenarios of evolution
Scenario
Description
Models
Bottom up
spontaneous
development
Insurance evolves spontaneously on the back of underlying consumer needs
and to fill gaps in formal provision.
Service-based sales,
Local self help
External
market
catalyst
Both 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 force
State driven
The 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 scenario
Government autoenrolment
Competitive
dynamics
Market 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
sales
Service
provider
needs
Where 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, Servicebased sales
19
Note 1
Evolving microinsurance business models and their
regulatory implications:
1. How do we categorise the various business models?
2. What are they and how do they evolve?
3. Risks distinctive to microinsurance business models?
4. What are the regulatory implications & responses?
20
6 discrete microinsurance risks
1.
2.
3.
4.
5.
6.
Prudential risk
Aggregator risk
Sales risk
Policy awareness risk
Payments risk
Post sales risk
21
Microinsurance risk categories
Risk category
Description
Prudential risk
Risk that insurer not able to keep its promises &
deliver the benefits to the beneficiaries.
Aggregator risk
The risk of reduced client value and inappropriate
products being sold to clients when an insurer
accesses the aggregated client base of a noninsurance 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.
22
Microinsurance risk categories
Risk category
Description
Policy 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.
Payment 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.
Post sale risk
Risk that clients face unreasonable post-sale
barriers to maintain their cover, change products,
make enquiries, submit claims, receive benefits or
make complaints.
23
Microinsurance risk categories
Description
Risk
category
Prudential
risk
Risk drivers
Risk that insurer not • Capacity (risk management capacity, financial management capacity, product design
able to keep its
capacity, etc.) of the underwriter - which leads amongst others to the design of inappropriate
promises & deliver
products
the benefits to the
• Lack of supervision of the underwriter - which can be caused by the informality of the
beneficiaries.
underwriter (it is not licensed and therefore not subject to supervision), or the lack of
capacity of the supervisor
• Underwriter is too small (scale issue), particularly in relation to the size of the risk pool
• Inadequate corporate governance
•
Aggregator The risk of reduced
risk
client value and
•
inappropriate
products being sold to
clients when an
insurer accesses the
•
aggregated client
base of a noninsurance third party •
to sell its products
through that channel. •
Lack of actuarial data for the particular target market to enable sound pricing
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 credit
Financial risks and interests of the aggregator (as opposed to the client), e.g. credit risk, risk
of product defects
Terms of contractual relationships between the insurer and aggregator and insured
• Limited availability of mass distribution channels in a particular market
24
Microinsurance risk categories
Description
Risk
category
Sales risk
Risk drivers
Risk that the
• Sales persons have insufficient knowledge and skills to sell insurance products of the kind
salesperson will
sold to the target market
misrepresent the
product to the client • Incentives for the salespersons are misaligned with the interests of the client, for example
or sell a product that
there is no incentive to ensure policy renewals (such as up front commissions only); or the
the client does not
commissions are capped at a level which discourages sales effort; or the incentives are to
need.
sell the product or service in which the insurance is embedded (such as credit) rather than
the insurance product.
• Inadequate accountability of sales persons
Policy
Risk that the insured • Absence of a specific sales action, for example in the case of automatic enrolment for a
awareness is not aware that he
publicly funded insurance benefit or a loyalty-type insurance product.
risk
or she has an
insurance policy and
is therefore unable to • “Tick box” sales process, for example with embedded products
lodge a claim should
the risk event occur. • Low level of financial literacy on the side of the client
25
Microinsurance risk categories
Description
Risk
category
Risk drivers
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.
Post Sales Risk that clients face •
risk
unreasonable post- •
sale barriers to
maintain their cover,
change products,
•
make enquiries,
submit claims,
•
receive benefits or
make complaints.
•
Payments
risk
Presence of an intermediary between the insurer and aggregator or client who can delay
payment of the collected premium to the insurer or 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.
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 client’s 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.
26
Risk matrix
Prudential Aggregator Sales risk Policy Awareness Payments Post sales
risk
risk
risk
risk
risk
x
Individual sales
x
Proxy sales forces
Compulsory sales
x
x
x
x
x
x
x
x
Auto enrolment
x
Passive sales
Service-based sales
x
x
x
x
Group decision
Local self-help
x
x
x
x
x
x
27
Note 1
Evolving microinsurance business models and their
regulatory implications:
1. How do we categorise the various business models?
2. What are they and how do they evolve?
3. Risks distinctive to microinsurance business models?
4. What are the regulatory implications & responses?
28
Regulatory Implications of MI business
models
MI business models: issues arising
Implications for supervisors
Involvement of multiple parties in delivering the
insurance product
• Longer value chain means more entities, not all of them
under supervisor’s 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
supervisor’s jurisdiction.
• Need to make all entities functionally accountable to
insurance supervisor for insurance-related services rendered
• Delegated supervision may be required to deal with multitude
of additional intermediaries involved
Reduced skills and competence of persons selling
insurance
• Non-traditional agents and representatives and proxy
sales forces have different skills set to traditional
brokers or agents, do not necessarily have insurance
experience or qualifications
• May not have sufficient knowledge and skills to sell
insurance products of the kind sold to the target market
• Need to adapt intermediary entry and ongoing requirements
in line with new market realities
• Must find balance in allowing broader set of intermediaries
while not sacrificing consumer protection
• May require alternative ways of ensuring competence, e.g.
product-specific training rather than prior qualification or
experience
29
Regulatory Implications of MI business
models
MI business models: issues arising
Implications for supervisors
Misaligned incentives for sales persons or channel
• In 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 partner
May need to adapt regulatory framework to align incentives,
e.g.:
• reconsider commission structures and interplay with
incentives
• consider code of conduct and other instruments (e.g. cooling
off period) to ensure all act in consumers’ best interests
• reconsider consumer recourse options
• Ensuring consumer choice in whether and which insurance
to take
Reduced bargaining power of insurer vis-à-vis new
intermediaries in the distribution chain
The 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 disclosed
• Requiring direct contractual relationship between insurer and
client
• Requiring disclosure of contract between insurer and
aggregator to supervisor
Increased distribution costs
The 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 ratios
• Mandatory disclosure of commission and cost structure
• Publishing comparative distribution costs to promote
competitive forces
30
Regulatory Implications of MI risks
MI business models: issues arising
Implications for supervisors
Increased reputational risk for insurers
As 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 intermediaries
• Imposing explicit disclosure and simplification requirements
• Regulating the process, allowed requirements and maximum
time for claims payments
• Reconsidering the effectiveness of consumer recourse
options
Enhanced consumer protection concerns due to nature
of target market
• Clients have limited knowledge and skills to make
informed decisions
• Reduced bargaining power of client vis-à-vis insurer and
intermediary
• Clients have fewer resources to access consumer
recourse mechanisms which can undermine the
effectiveness of independent or third party recourse
mechanisms
Need 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 campaigns
• Product 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
vernacular
• Reconsidering the effectiveness of consumer recourse
options
31
Regulatory responses
Risk
trigger
Regulatory
response
Risk
Impact
Regulatory responses: Prudential risk
Risk description
Prudential risk:
Risk that insurer not able
to keep its promises &
deliver the benefits to the
beneficiaries
Risk drivers
• Capacity (risk management capacity, financial
management capacity, product design
capacity, etc.) of the underwriter - which leads
amongst others to the design of inappropriate
products
Observed responses
• Lower 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 supervision
• Lack 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 supervisor
• Permitting wider spectrum of legal entities other
than public companies, for example mutual or
mutual-type entities and civil society organisations,
to become underwriters
• The underwriter is too small (the scale issue),
particularly in relation to the size of the risk
pool
• Inadequate corporate governance
• Product restrictions to reduce prudential risk eg
benefit or premium caps, term restrictions,
restrictions on insurance risks - or prescribing
specific pricing formulas to apply
• Prior approval of products to check actuarial
soundness of pricing
• Simplified but regular reporting to supervisor
• Separation of business requirement
• Lack of actuarial data for the particular target
market to enable sound pricing.
• Minimum corporate governance requirements
• Minimum threshold for size of risk pool
33
Regulatory responses: Aggregator risk
Risk description
Risk drivers
Aggregator risk:
• Disproportionate bargaining power between
The risk of reduced client
insurer and aggregator where the latter owns
value and inappropriate
the clients through a prior business
products being sold to
relationship (aggregator need for brand
clients when an insurer
protection can act as mitigating factor)
accesses the aggregated
client base of a noninsurance third party to sell
its products through that • Bargaining power of the aggregator vis-a-vis
the client is inserted in the purchasing
channel.
decision between the insurer and the client especially prevalent in credit
Observed responses
• Impute by law a direct insurance relationship
between insurer and insured irrespective of
contractual relationship between aggregator and
client
• Disclosure of contract between the insurer and the
aggregator to the supervisor
• Prohibition on making extension of credit or
purchase of good conditional on entering into a
related insurance policy
• Prohibition 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 mandatory
• Financial risks and interests of the aggregator,
• Mandatory reporting of claims ratios and expense
e.g. credit risk, risk of product defects
ratios to supervisor
• Mandatory disclosure of commission and cost
structure to the client
• Terms of contractual relationships between
the insurer and aggregator and insured
• Public disclosure of comparative statistics on
distribution cost by the supervisor, for example on
the internet (transparency rules)
• Limited availability of mass distribution
• Prior approval of products to check cost structures
channels in a particular market
• Caps on aggregate intermediation costs
(commission and other costs combined)
34
Regulatory responses: Sales risk
Risk description
Risk drivers
Sales risk:
• Sales persons have insufficient knowledge
Risk that the salesperson
and skills to sell insurance products of the
will misrepresent the
kind sold to the target market
product to the client or sell
a product that the client
does not need.
• Incentives 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.
Observed responses
• Minimum qualification and training (including time
and training content) requirements for sales
persons, often as a dedicated microinsurance
agent category of intermediary
• Registration requirements for sales persons sometimes registration obligation is delegated to
the relevant insurer with a reporting duty to the
supervisor
• Uncapped commissions
• Mandatory structuring of commissions to include
both an upfront and an “as and when” component
• Prescribed code of conduct of (microinsurance)
sales persons
• Product 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 vernacular
• File and use requirement for mass communication
materials proposed to be used by insurer
• Statutory cooling off period during which the
insured can withdraw from the insurance contract
35
Regulatory responses: Sales risk
(Continued)
Risk description
Risk drivers
Sales risk:
• Inadequate accountability of sales persons
Risk that the salesperson
will misrepresent the
product to the client or sell
a product that the client
does not need.
Observed responses
• Insurers made liable/ responsible for all the actions
of their intermediaries as if the latter were their
employees
• Mandatory 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 process
36
Regulatory responses: Policy awareness risk
Risk description
Risk drivers
Policy awareness risk: • Absence of a specific sales action, for
Risk that the insured is not
example in the case of automatic enrolment
aware that he or she has
for a publicly funded insurance benefit or a
an insurance policy and is
loyalty-type insurance product.
therefore unable to lodge a
claim should the risk event
occur.
• “Tick box” sales process, for example with
embedded products.
• Low level of financial literacy on the side of
the client
Observed responses
• Requirement 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.
37
Regulatory responses: Payments risk
Risk description
Risk drivers
Observed responses
Payments risk:
• Presence of an intermediary between the
• Maximum period set within which premiums must
Risk that the premium will
insurer and aggregator or client who can
be paid by intermediary collecting them to the
not reach the insurer, that
delay payment of the collected premium to the
insurer.
the premium will not be
insurer or neglect to make the payment at all.
• Requirements to ensure the financial soundness of
paid on the due date or
intermediaries and ring-fence premiums collected
that the cost of collecting
the premium is
disproportionate.
• Receipt of premium by intermediary imputed to be
receipt of premium by insurer
• 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.
• Statutory 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.
38
Regulatory responses: Post sales risk
Risk description
Post 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.
Observed responses
Risk drivers
• Clients with limited knowledge and experience • Liberalisation of the insurance market.
of insurance.
• Public consumer awareness and education
campaigns.
• Lack of reasonable access to the insurer or
• Registration and training of salespersons.
the intermediary after the sale (low income
clients prefer personal contact - a person or a • Prohibition on selective cancellation of individual
branch to go to).
cover within a group policy.
• Faceless insurers (from the client’s
• Insurers to provide option of a monetary benefit
perspective) who underwrite policies
instead of an in-kind benefit.
distributed by third parties.
• Unscrupulous insurers, notably in countries
• Prohibition on deductibles in microinsurance
with compulsory insurance, coupled with
policies.
inadequate supervision.
• Prescriptions regarding documentation that may be
required by an insurer to settle a claim (for
• Manner in which group underwriting is done,
example, that it shall be kept to a minimum or be
notably when there is selective non-renewal
limited to specified documents)
of cover by insurers.
• Maximum periods for claims processing and claims
• Incidence or past history of monopolistic
payment.
insurance provision.
• Insurers to maintain client recourse systems with or
• Risk can also come from the community, for
without minimum performance standards.
example where there are cultural fears of
autopsy and the insurance company requires • Insurer to handle all microinsurance complaints in
the first instance before any further recourse is
an autopsy report to pay the claim on a life
permitted.
policy.
• Clear communication (verbally and/or in writing) of
• Unreasonable requirements from insurers to
available recourse mechanisms to client, including
submit claims.
39
the identity of the underwriter.
Note 2
Regulatory approaches to the promotion of
inclusive insurance markets
1. What is a regulatory approach?
2. Which approaches exist?
3. What triggers a particular regulatory approach?
4. What is the impact of different approaches?
40
Note 2
Regulatory approaches to the promotion of
inclusive insurance markets
1. What is a regulatory approach?
2. Which approaches exist?
3. What triggers a particular regulatory approach?
4. What is the impact of different approaches?
41
What is a regulatory approach?
Policy
objectives
for access
to
financial
services
Political,
economic
& social
context
Policy
objective
for access
to
insurance
Fiscal tools
Regulatory
approach
to facilitate
access to
insurance
Regulatory
tools
Supervision /
enforcement
Market
conditions
Supervisory
capacity
42
Note 2
Regulatory approaches to the promotion of
inclusive insurance markets
1. What is a regulatory approach?
2. Which approaches exist?
3. What triggers a particular regulatory approach?
4. What is the impact of different approaches?
43
Regulatory approach continuum
Regulatory approach continuum
Public provision Approach
Directive Approach
Concessionary regime
Nudge Approach
State identifies risk to cover and
outsources intermediation to
private sector. Often substantial
subsidies provided (fiscal
exposure).
State does not identify which risk should be covered
and doesn’t make a financial contribution (no fiscal
exposure).
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.
Regulator 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)
The state makes certain elements
of insurance mandatory but
includes state subsidy.
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 requirement
The state is the primary driver in
increasing access to insurance
through a combination of direct
subsidies, regulation and public
decree.
China
India
The concessions provided to
reduce the regulatory burden
encourages insurers to move
downmarket as this is now a
potentially commercially
viable.
South Africa
Brazil
Tanzania
Philippines
Mozambique
Swaziland Zambia
Nigeria
Mongolia
Ghana
Ethiopia
Colombia Uganda
Lesotho
Nepal
Kenya
44
Note 2
Regulatory approaches to the promotion of
inclusive insurance markets
1. What is a regulatory approach?
2. Which approaches exist?
3. What triggers a particular regulatory approach?
4. What is the impact of different approaches?
45
Regulatory approaches: triggers
Approach
Triggers
Public policy
Social goals
Well developed insurance sector (distribution)
Directive
Strong development mandate
Limited supervisory capacity
High regulatory burden
Market failures
Deep insurance sector but limited distribution
Concessionary
Strong development mandate
Sufficient supervisory capacity
High regulatory burden
Informality
Limited breadth
Market failures
Nudge by design
Strong development mandate
Low regulatory burden
Fear of systemic instability
Well developed insurance sector
Weak development mandate
Limited supervisory capacity
Nudge by default
46
Note 2
Regulatory approaches to the promotion of
inclusive insurance markets
1. What is a regulatory approach?
2. Which approaches exist?
3. What triggers a particular regulatory approach?
4. What is the impact of different approaches?
47
What is the impact of regulatory approaches?
Approaches
Impacts observed
Public Policy
• Subsidies make it viable to operate where insurers would not otherwise have done so, but
persistency rates after termination of subsidies can be low
• Partial subsidies tend to be more effective, since culture of payment is developed rather
than culture of entitlement
• Triggers market provision if the state contracts private providers to deliver the services
• Can also catalyse new products, for example health top-up products where public health
insurance inadequate
• Can increase barriers to entry if state provision crowds out private investment
Directive approach
• New clients are being served that would otherwise not be served, but targeting not always
accurate and could be difficult to monitor
• Can lead to suppliers ‘discovering’ viable and sustainable market opportunities
Concessionary
approach
• Limited examples yet of successful formalisation, but observed in Philippines with
substantial support and led by large provider
• Concessions in distribution utilised before concessions in underwriting – especially mass
channels
Nudge
• Institutions that are already serving the market strengthen their outreach
• Markets do not respond to product restrictions without concessions
• No visible impact where market is under-developed
48
Questions and discussion
49
www.access-to-insurance.org
[email protected] (presenter)
[email protected] (project director)
50