MR Microinsurance_2012_03_29.indd - International Labour ...

Access to insurance and financial sector regulation
cation and payment system infrastructure, gathering and providing data on the
frequency and severity of losses, and paying careful attention to proportionality.
All of these approaches can contribute to the development of a relevant public
policy on inclusive insurance, as undertaken by several countries in recent years.
For example, as described in Box 25.2, Brazil has made a public commitment to
microinsurance. Through stakeholder dialogue, the authorities have demonstrated
leadership in pursuit of microinsurance policies to establish and promote fair competition
and initiate market development. In doing so, they have attempted to
improve their understanding of the existing and potential market for insurance.
Define a microinsurance product category with lower risk
In most microinsurance markets: (1) products tend to entail lower risk than
conventional insurance products, as well as lower benefits, with few exclusions;
(2) policy terms tend to be short, often one year or less; (3) the risk events covered
are relatively predictable and the financial impact of each event relatively small;
and (4) the terms of the policy tend to be simple, so they are easy for the market
to understand and avoid complex underwriting processes. Microinsurance is
often sold on a group basis and does not require individual underwriting. Regulatory
burdens that inhibit the growth of microinsurance, but cannot be reduced
across the board, can normally be addressed by defining a product category based
on these characteristics, which will systematically lower risk, reducing prudential
and marketing conduct regulations.
The rationale for defining a product category for microinsurance is to allow
differential treatment. As described in Chapter 1, definitions can be related to
various factors including the product, the target group and even the provider or
distribution channel, and they can be either qualitative or quantitative (see Table
25.2). Qualitative definitions are usually appropriate for broader financial sector
policy statements. A quantitative definition of the cover, based on premium
amount or sum assured, for example, may be necessary to delineate a microinsurance
business line. When defining the product category, the scope should be as
wide as possible in terms of perils covered as well as maximum benefit levels.
However, quantitative definitions can be problematic for insurers and supervisors
to administer. If it cannot be avoided, a quantitative definition needs to
align the resulting business profiles with the expected proportionate regulation
and supervision.
It is also important to consider how the definition will affect insurance providers,
as illustrated by the experience in Peru (see Box 25.3). The product definition
should encourage insurance penetration into the low-income market while
maintaining operational integration with the insurance industry. It also needs to
provide an easy mechanism to adjust benefit levels in tune with inflation and
market changes.
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