MR Microinsurance_2012_03_29.indd - International Labour ...

564 Infrastructure and environment for microinsurance
ject to corporate governance, accounting and public disclosure standards that are
adequate to ensure compliance with the applicable insurance regulations.
Provide a path for formalization
When a significant informal insurance market has developed, many complex questions
arise as to how it can be integrated into the formal sector. Besides informal
insurance provided by MCCOs, some countries also have numerous unlicensed
insurers, such as funeral parlours, hospitals and MFIs, which provide cover in
response to a real need for risk management in low-income communities. Informal
providers can meet a social and economic need, but may be the source of consumer
abuse and operations may fail due to inadequate risk management. Formalizing
these operations is in the public interest. However, the limited resources available to
insurance supervisors usually make this objective difficult to achieve. In these circumstances,
it is necessary to define a clear path whereby informal providers can
gradually and realistically meet regulatory requirements, as illustrated in Box 25.5.
Supervisors will have to approach their involvement with informal schemes as
a facilitator to support their transition to the formal sector. This would include
the application of the principles of proportionality and materiality to ascertain
the extent of informal insurance provision and the obstacles to the formalization
of informal providers. For example, where informal schemes do not guarantee
benefits, there is no need to bring them under insurance supervision. A process
of formalization should be complemented by awareness campaigns, amnesties or
grace periods, capacity-building support to train owners and managers, and
opportunities for consolidation among informal schemes and/or partnerships
between informal operators and formal underwriters.
One practical way forward is a tiered minimum capital and solvency structure,
whereby previously informal insurers are also allowed to underwrite microinsurance
on a selective basis as they graduate to the minimum capital requirements
of a full insurer over time at a prescribed rate. In addition, good
coordination for the formalizing of informal providers with other government
agencies, for example law enforcement and revenue authorities, is required to
ensure compliance with the formal framework.
25.5 Recognizing alternative distribution channels
The market opportunity represented by the uninsured has motivated a diverse assortment
of financial and non-financial institutions to increase the availability of insurance
services at the bottom of the pyramid in a competitive manner (see Chapter 22).
Serving this market requires the management of high volumes of small transactions,
and therefore companies with robust technology platforms such as telecommunications
are well positioned to play a key role – if the regulatory framework permits.