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Managing risk while facilitating innovation: The case of mobile insurance in Tanzania
Mobile insurance (m-insurance) can play an important role in enhancing access to insurance, especially in regions where distribution and reach pose challenges to serving the market. Due to the significant penetration of mobile phones, airtime vendors, and mobile money agents, m-insurance initiatives have the potential to reach scale almost overnight. As with all innovations, however, new risks are introduced as m-insurance "sprinters" reach scale.
A recent case study on m-insurance in Zimbabwe highlighted the need for regulators, supervisors, and policymakers to recognise the risks associated with the rapid growth of m-insurance initiatives. The study developed recommendations and proposed a risk framework that could be used to assess m-insurance schemes, taking into account the key risks that are likely to arise as m-insurance market develops.
Credit life insurance in South Africa: the customer's perspective
Credit life insurance may be the first type of insurance that many low-income consumers encounter. As such, it can offer an opportunity for introducing consumers to the concept of insurance and, if it offers value to them, can lead to uptake of other insurance products in future– a phenomenon that can be termed positive market discovery. However, credit life insurance can also lead to consumer protection concerns if consumers are not aware that they have insurance, or if the fact that a captive market is created leads to exorbitant pricing. Such practices may lead to disillusioned customers, thereby disincentivising uptake of other insurance products.
South African legislation, through the National Credit Act of 2005, mitigates the potential negative implications of credit life insurance by requiring that consumers be allowed a choice of insurance provider when required to take out mandatory insurance, and that financiers should inform applicants of such right and may not charge any surcharge or fee on the insurance offering. It is however not clear to what extent consumers are aware of and exercise this right in practice.
Regaining momentum? Update on microinsurance in South Africa
In South Africa, the proposal for a microinsurance regulatory framework has been on the table since 2008, when National Treasury released a Discussion Paper on the Future of Microinsurance Regulation. The Discussion Paper initiated a consultative process with the National Treasury, Financial Services Board and the insurance industry – supported by FinMark Trust and Cenfri – that was finalized in 2011 with the release of the South Africa Microinsurance Regulatory Framework. The 2011 policy document entrenched and refined the proposed regulatory framework that was envisaged to be incorporated into a forthcoming Microinsurance Act and subordinate legislation. However, in 2013 the decision was made to no longer pursue standalone microinsurance legislation, but rather to incorporate microinsurance provisions under the new financial sector regulatory structure to be implemented in South Africa under the so-called “Twin Peaks” framework, with a number of interim measures to start giving effect to microinsurance from 2014 onwards.
With implementation yet to take place more than five years since the discussion paper was first published, the question arises: are the proposed elements of the regulatory framework still relevant given changes in the market and regulatory environment?
Regulating m-insurance in Zimbabwe: managing risk while facilitating innovation
M-insurance is insurance sold through and/or with a mobile network operator (MNO) and has gained significant attention in recent years due to its rapid growth in African and Asian markets and its potential to grow inclusive insurance markets. According to CGAP's brief on the emerging global landscape of mobile microinsurance, over 70 m-insurance schemes have been launched globally across 15 countries, with one initiative winning an award from the insurance supervisor for its innovation and value to the consumer.
However, not all schemes have had the same success. In Zimbabwe, the dramatic failure of EcoLife resulted in 20% of the adult population losing cover over night and highlighted the critical need to balance the sometimes competing financial policy objectives of financial inclusion (of which m-insurance could be a powerful driver), financial stability, integrity, and consumer protection (also known as 'ISIP').
ILO's Microinsurance Innovation Facility Special Annual Report (2013)
The ILO’s Microinsurance Innovation Facility recently released there 2013 Special Annual Report to mark the end of 6 years of the ILO’s Microinsurance Innovation Facility. In this time the microinsurance industry has grown dramatically to cover around half a billion people with an increasingly wide range of products. Microinsurance has been increasingly taken up by mainstream insurers, with 33 of the world’s 50 largest insurance companies offering microinsurance in 2011, up from just seven in 2005. More and more, governments view microinsurance as an important mechanism to achieve policy objectives.
Throughout the developments of the last 6 years, two fundamental questions have faced the industry – Is microinsurance viable for providers? And does it provide value to clients? The 2013 Special Annual Report makes the case that there is evidence of both. In addition, it includes the Facility's new 5-year Quality at Scale programme (2014-2018) that aims to reduce the vulnerability of an additional 100 million low-income persons.
Cenfri and the ILO’s Microinsurance Innovation Facility share the common goal of increasing the availability of better insurance products to a greater number of low-income households on the African continent. As such they partnered to conduct research to achieve the goal. The following are the Cenfri authored or co-authored studies completed in partnership with the ILO’s Microinsurance Innovation Facility in 2013:
Mobile Phones and Microinsurance
Insurers are using mobile phones to address two main challenges facing the microinsurance sector: increasing efficiency and reaching scale. Mobile phones and microinsurance (ILO’s Microinsurance Innovation Facility Microinsurance Paper #26) looks at the mobile phone beyond just a self-enrolment device, but as infrastructure for delivering insurance. By leveraging mobile phone infrastructure insurers have made processes more efficient across the insurance value chain; reducing turnaround times for enrollment, premium collection, claims processing; lowering costs; and bridging geographical distances.
In addition, it reviews partnerships with MNOs and the need to balance incentives to attract and retain clients, with providing evolving value to the end-client. Mobile network operators (MNOs) provide a distribution channel with immense potential to provide insurance to the vast pool of mobile phone subscribers, the majority of whom do not have insurance, but the opportunity needs to be managed carefully.
Scale: Thinking big
Achieving scale is a significant success factor for microinsurance schemes, as low premiums with high costs require substantial volumes to make an initiative sustainable; however to achieve scale is difficult. In an effort to identify lessons that support practitioners, the ILO’s Microinsurance Innovation Facility commissioned Cenfri to review microinsurance initiatives that have achieved scale to identify and understand their trends and drivers in scale.
Scale: Thinking big (Microinsurance Paper #30) analysed 95 Initiatives that achieved scale and evaluated 8 case studies in detail to understand what drives scale. The study revealed that most initiatives that achieved scale in microinsurance did not build up to scale over time. Rather they sought out and maintained access to large target groups either through mandatory sales, partnerships (including access to voluntary groups, branding and product design) as well as agency.
CISNA MI Forum: Official launch of report on Regulating for Inclusive Insurance Markets in SADC
The report on Regulating for Inclusive Insurance Markets in SADC was officially launched at the SADC Committee of Insurance, Securities and Non-Banking Financial Authorities (CISNA) Microinsurance Forum in Johannesburg, South Africa on 6 December, 2013. This report supports the implementation of commitments made by Member States of the Southern African Development Community (SADC) to align the regulation of their financial sectors with international standards. These commitments are contained in the Protocol on Finance and Investment (FIP) which was adopted by the SADC Summit in 2006 and subsequently ratified (and thus came into force) on 16 April 2010. The report entails an assessment of the degree to which regulatory approaches accommodate financial sector development and financial inclusion as guided by the IAIS Application Paper on Regulation and Supervision Supporting Inclusive Insurance Markets.
FinMark Trust partnered with the CISNA secretariat to support this project. Its interest is to support the regional integration process in the area of inclusive financial services (insurance in this case) and to ensure that regulatory harmonisation is tailored to the domestic priorities and constraints of member countries.
9th International Microinsurance Conference
At the 9th International Microinsurance Conference hosted by the Munich Re Foundation and the Microinsurance Network in Jakarta, Indonesia Cenfri presented the following work on behalf of the FinMark Trust and the ILO's Microinsurance Innovation Facility
- Herman Smit presented the Business Case for Retailers from Cenfri's work with FinMark Trust at the parallel session on Distribution: Selling microinsurance profitably. Please click here to download the presentation (PDF, 1.65MB)
- Mia Thom presented Scale: Thinking Big from Cenfri's work the ILO's Microinsurance Innovation Facility at the parallel session on Drivers of Scale. Please click here to download the presentation (PDF, 0.8MB)
- Jeremy Leach presented Understanding the Impact of m-insurance Failures from BFA/Cenfri's work with FinMark Trust at the parallel session on Failures. Please click here to download the presentation (PDF, 0.9MB); and Exploring new frontiers: the potential of micro-insurance investments from BFA/Cenfri's work with the Microinsurance Network at the parrallel session on Impact Investment. Please click here to download the presentation (PDF, 0.3MB)
1st Consultative Forum Jakarta, Indonesia (2013): Microinsurance business models, risks and regulatory implications
It has now been five years since the findings from the original five A2ii microinsurance diagnostics in Colombia, India, the Philippines, South Africa and Uganda were synthesised and key themes extracted and disseminated through a series of focus notes. The process elicited insights into how regulation affected the evolution of these microinsurance markets and provided a guide for policy-makers, regulators and supervisors looking to support the development of microinsurance in their jurisdiction.
Since then, diagnostic studies have been rolled out in more than 10 further countries, prompting the A2ii to embark on a new round of cross-country synthesis to extract key overarching themes. This cross-country synthesis is conducted by Cenfri on behalf of FinMark Trust and with co-funding from GIZ. It comprises two outputs:
- Identifying evolving microinsurance business models and their regulatory implications.
- Analysing the overall regulatory approaches to catalyse microinsurance market development, considering what triggers each specific approach so as to inform regulators and supervisors in the decision of what the most appropriate approach would be in their context.
The findings from the first output were presented by Stefanie Zinsmeyer of the A2ii at the first Consultative Forum faciliated by Véronique Faber and hosted by the Microinsurance Network and the International Association of Insurance Supervisors (IAIS) in Jakarta, Indonesia on Tuesday November 12, 2013.
The findings are also used as input to the forthcoming IAIS Issues Paper on Market Conduct, Distribution and Consumer Protection in Inclusive Insurance Markets.
Main findings from focus group discussions (FGDs) in Mozambique
Cenfri recently released a summary of the main findings from the focus group discussions (FGDs) in Mozambique conducted and authored by the International Capital Corporation (ICC) of Mozambique. The FGDs form part of the demand-side analysis inputs into the forthcoming Access to Insurance Diagnostic in Mozambique commissioned by the United Nations Capital Development Fund (UNCDF) and Gesellschaftfür Internationale Zusammenarbeit (GIZ) in Mozambique and funded in partnership with the FinMark Trust.
At the core of the diagnostics is the demand-side analysis which uses a combination of qualitative and quantitative survey techniques to understand the low-income market's experience of risk, the severity of different risks and their interaction with insurance where conducive. FGDs are used to draw out qualiative insights that provide a deeper undertanding of perceptions and the motivation behind behavior. This provides a key input into the diagnostic which aims to identify the barriers to and opportunities for insurance market development, on the basis of which regulatory and market-related recommendations are then made for future development.
Cenfri Learning Journey (2012)
Cenfri and the ILO's Microinsurance Innovation Facility have partnered to achieve the common goal of increasing the availability of better insurance products to a greater number of low-income households on the African continent. As an output to the partnership, Cenfri documents emerging lessons learned from its microinsurance activities. In an effort to share these emerging lessons with the wider microinsurance community, Cenfri in collaboration with the ILO's Microinsurance Innovation Facility has drafted a learning journey that chronicles Cenfri's research activites in 2012.
The document has the following structure:
- Section 1 explores Cenfri's approach to research
- Section 2 identifies common barriers to microinsurance market development emerging from the diagnostics conducted in China, Mozambique and Tanzania
- Section 3 reviews the emerging lessons from a study tour reviewing microinsurance business model innovations in Latin America by a South African insurer and retailer
- Section 4 provides insights from the review of the low-cost insurance product standards developed by the industry in South Africa to promote activity in the low-income market
- Section 5 looks ahead to the activities planned by the ILO's Microinsurance Innovation Facility and Cenfri for 2013
The nature of informality in the South African funeral services market - implications for policymakers and regulators
Funeral insurance is the most prevalent form of insurance in South Africa with just less than 90% of all risk cover being attributed to this form of insurance, more than a quarter of which is informal.
Cenfri recently released a study on the nature of informality in the South African funeral services market. The study was funded by the International Development Research Centre, Ottawa, Canada and set out to understand what the implications of the new South Africa Microinsurance Policy Framework will be on the funeral assistance business.
The study aims to provide empirical evidence to address new questions arising from interventions set forth by the government:
- What is the nature of informality in funeral service market?
- What are the drivers of informality which translate to barriers to formalisation?
- What would be the implications of the proposed formalisation on the industry based on how insurance provision by funeral service providers works in practice?
- What insights can regulators take into account when finalising the microinsurance regulatory framework and the approach to formalisation?
ILO's Microinsurance Innovation Facility Annual Report (2012)
As one of the ILO’s Microinsurance Innovation Facility’s official partners Cenfri is pleased to announce the release of the Microinsurance Innovation Facility's 2012 Annual Report.
The ILO's Microinsurance Innovation Facility and Cenfri have partnered to achieve the common objective of increasing the availability of better insurance products to a greater number of low-income households on the African continent. The Facility's Annual Report contributes to this by documenting the learnings from existing microinsurance activities, which will help to understand the success factors necessary for the development of valuable microinsurance products
The Microinsurance Innovation Facility's 2012 annual report is organized as follows:
- Part 1 summarizes the Facility’s 2012 accomplishments and thoughts on their next phase of operation, beginning in 2014
- Part 2 describes microinsurance development and the experiences of the Facility’s partners across the world
- Part 3 presents lessons and new findings in microinsurance that were generated by the Facility’s partners
- The Annexes list:
- Facility’s innovation grantees and strategic partners (Annex I)
- knowledge products (Annex II)
- capacity-building activities (Annex III)