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Creating Regulatory Frameworks for MicroinsuranceCreating Regulatory Frameworks for Microinsurance
Mainstreaming the Margins: Social Security
Annual Policy Conference on
Greater Inclusion: Possibilities and Prospects New Delhi, India
17 January 2007
Arup ChatterjeePrincipal Administrator
International Association of Insurance Supervisors
Basel, Switzerland
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
2
17 January 2007Arup Chatterjee
International Association of Insurance International Association of Insurance SupervisorsSupervisors
• 1994: IAIS was created
• 1998: Secretariat in Basel
• Objectives– Cooperate to contribute to
improved supervision of the insurance industry for benefit and protection of policyholders
– Promote the development of well-regulated insurance markets
– Contribute to global financial stability
IAIS is recognised as the international standard setter for insurance regulation
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
3
17 January 2007Arup Chatterjee
IAIS’s strengthsIAIS’s strengths
• Depth & breadth of membership
• Members from more than 100 countries
• Members regulate more than 90% of the world’s insurance markets
• More than 100 Observers
17 January 2007Arup Chatterjee
Framework for Insurance SupervisionFramework for Insurance Supervision
the insurance sector and insurance supervision
basic conditions for the effective functioning of
financial governance market conduct
supervisory assessment and intervention
the insurance supervisory authority
preconditions
regulatoryrequirements
supervisory action
LEVEL 1
LEVEL 2
LEVEL 3
the insurance sector and insurance supervision
basic conditions for the effective functioning of
financial governance market conduct
supervisory assessment and intervention
the insurance supervisory authority
preconditions
regulatoryrequirements
supervisory
LEVEL 1
LEVEL 2
LEVEL 3 Common SolvencyStructure and Standards
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
5
17 January 2007Arup Chatterjee
Developmental Role of Supervisors
“Yes … but what steps are required to adapt regulations for promoting microinsurance?“
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
6
17 January 2007Arup Chatterjee
IAIS-CGAP Joint Working Group on IAIS-CGAP Joint Working Group on MicroinsuranceMicroinsurance
- Established in February 2006- Issues Paper on the regulation and supervision of
microinsurance (likely adoption in February 2007)- Develops a common understanding of microinsurance- Recognizes that microinsurance activities should not be held to a lower supervisory standards- Focus on prudential, governance, market conduct and operational issues- Identifies areas where IAIS Insurance Core Principles can be customized to the supervision of microinsurance
- Further work on developing guidance on regulation and supervision of microinsurance
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
7
17 January 2007Arup Chatterjee
Inclusive Financial Systems + Poverty
AlleviationThe Situation• Coverage of formal
insurance services in emerging markets low- India: premiums 3.38 % of
GDP- Compared to 15 EU
countries with approx. 8 %
• Millennium Development Goal 1 “ Eradicate extreme poverty and hunger” – Microfinance Indicators = “percentage of households with access to
quality financial services, including credit, savings and insurance
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
8
17 January 2007Arup Chatterjee
Actors
Policymakers aim at easing public budgets while seeking to provide safety-nets for low-income segments
Donors promote private sector development, microfinance and increasingly microinsurance by fostering innovations and the application of good practices
Insurance providers struggle to innovate, grow, expand and formalize
Supervisors have an important role to expand the frontier of formal insurance services for low-income households and promote innovation
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
9
17 January 2007Arup Chatterjee
Scenarios in MicroinsuranceA- Funeral and health insurance based on associations, mutuals or friendly societies
often under a different regulatory authority or unregulated; operating outside of the insurance laws and beyond insurance supervision
growth can be problematic for customer protection (weak controls by members, managing large schemes is a complex task)
Oversight of insurance supervisors required!
B - Microfinance institutions develop credit life insurance products
mostly unregulated NGOs customers demand more products Unregulated growth and expansion
problematic Formalization or linkage with insurer required!
C - Commercial insurers develop products for poor customers and struggle with certain regulatory provisions
Regulatory adaptations required!
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
10
17 January 2007Arup Chatterjee
Regulatory Frameworks for Microinsurance
Barriers: - High capital requirements- Agent/ broker licencing and
training requirements for agents
- Composite insurers/ products not encouraged
- Operators outside ambit of insurance laws
- Cost of regulatory compliance
- Taxation
New approaches:
1) Agent regulations for microinsurance in India
2) New tier of Microinsurance Institutions = Mutual Benefit Associations in the Philippines
3) Taxation relief for life-group microinsurance in Brazil
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
11
17 January 2007Arup Chatterjee
Early learning
“Regulation of
microinsurance” is a complex
task, with many different
issues and actors involved
“Regulation” does not
necessarily mean an
entirely separate
regulatory framework
Regulation of microinsurance aims foremost at sound development of insurance market and consumer protection
Lessons from microfinance
•Experimentation in product offerings is one factor that allowed microcredit to grow into a sustainable industry
• Don’t regulate what you cannot supervise (cost aspect)
• Microfinance (microinsurance) is a line of business and not tied to ONE institutional type
•Careful design of a regulatory framework takes time and resources
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
12
17 January 2007Arup Chatterjee
Challenges in Regulating Microinsurance
- Striking right balance of extending insurance to the low-income people while protecting their investments and confidence - without putting an undue burden on supervisors
- Semi- or informal schemes can do harm coupled with consumer protection concerns, especially for low-income people
- Doing away with responsibility crossings between different supervisors of microinsurance schemes in the same jurisdiction
- Defining a threshold beyond which informal schemes have to obtain license (clear division between regulated and non-regulated institutions)
- Encouraging innovations (products, delivery models) and adopt new approaches (such as risk based supervision)
- Developing regulatory solutions that fit the great variety of country contexts in terms of different institutional solutions (tiers) and organisational solutions (e.g. products, delivery channels)
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
13
17 January 2007Arup Chatterjee
What can supervisors do?
1° …seek political mandate from their authorities (political AND financial
support)
2° …establish dialogue with their formal and informal industry partners
(open mind)
3°…strengthen their capacities in terms of microinsurance (complex task)
4° …can study the potentials and risks in their particular jurisdiction
(no template solutions)
5° …can learn from other supervisors (south-south dialogue)
6°… can facilitate capacity building for operators and policymakers
7°… allow for and encourage innovation
Creating Enabling Frameworks for MicroinsuranceSession on Greater Inclusion: Possibilities and ProspectsSession on Greater Inclusion: Possibilities and Prospects
Annual Policy Conference on Greater Inclusion: Possibilities and ProspectsAnnual Policy Conference on Greater Inclusion: Possibilities and Prospects
14
17 January 2007Arup Chatterjee
www.iaisweb.org
International Association of Insurance Supervisors (IAIS) International Association of Insurance Supervisors (IAIS)
Questions and Answers