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Thursday, May 1, 2008
Discussion paper released

National Treasury has released a discussion paper on The Future of Micro-insurance Regulation in South Africa. The deadline for public comments is 31st July 31, 2008.

FinMark Trust believes that if the recommendations in the paper are successfully implemented they could play a valuable role is supporting the delivery of appropriate micro-insurance products to the lower-income market. Proposals to reform the micro-insurance regulatory environment could make it easier for insurers to service this market.
“The Treasury discussion paper seeks to find a balance between increasing access to insurance to lower-income people and protecting these consumers, who have not been significantly exposed to insurance other than funeral products,” says Doubell Chamberlain, consultant to FinMark Trust and Centre for Financial Regulation and Inclusion (Cenfri) director.
The discussion paper commits the National Treasury to supporting financial inclusion and seeks to reconcile financial inclusion and consumer protection. While it suggests the introduction of new legislation, including the possibility of a Micro-Insurance Act, Chamberlain notes that most of the recommendations focus on reducing regulatory costs and improving enforcement and recourse in the micro-insurance market.
“This could play a vital role in enabling product providers to provide appropriate yet affordable products to the lower-income group,” he says.
Micro-insurance is any insurance product targeted at, or accessible to, low-income households. If appropriately designed and intermediated such products can play an important role in reducing vulnerability for the poor.  
Micro-insurance is not new to South Africa. There is a vibrant voluntary market around funeral products that includes both formal and informal products. And the Financial Sector Charter has mapped the way for expanding insurance and other financial services to the poor.
“This has been a catalyst for innovation, even though this is a new and difficult market to serve, requiring different mindsets and models,” says Chamberlain. “In addition, regulatory costs and uncertainties are threatening already marginal markets.”
The discussion paper recommendations rest on a definition of micro-insurance that seeks to ensure lower underwriting and market-conduct risks. Key characteristics of the definition include a term of no longer than 12 months and benefits not exceeding R50 000.
“If these conditions are met, the proposed micro-insurance definition may extend across traditional long-term and short-term insurance categories,” says Chamberlain.
Following a risk-based approach, the proposed lower-risk micro-insurance definition allows for reduced regulation. Insurers offering only low-risk micro-insurance products will benefit from reduced capital and compliance requirements, based on the lower insurance risk inherent to the micro-insurance product.
Intermediaries selling micro-insurance will benefit from simplified market conduct regulation and uncapped commissions.
The proposed new micro-insurance license will also be available to a wider set of institutions, and not limited to public companies. South Africa has a burgeoning co-operative and mutual environment, and international experience suggests that these entities may play a critical role in extending insurance to the poor.
The discussion paper recognises this by opening the proposed micro-insurance license to mutual and co-operative entities. To enter the insurance space, such insurers would have to comply with minimum levels of insurance and governance.
“With these recommendations, Treasury has shown its commitment to facilitating financial inclusion and taken clear steps to address the most pressing concerns observed in the industry.”
A copy of the discussion document is available at: www.treasury.gov.za

Copyright © Insurance Times and Investments® Vol:21.4 1st May, 2008
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