MR Microinsurance_2012_03_29.indd - International Labour ...

568 Infrastructure and environment for microinsurance
supervisors must initiate steps to improve their understanding of the complexities
that underpin new financial products and distribution systems, including the
underlying assumptions, their functioning, the best practices and the supervision
issues. A comprehensive vision for market development based on dialogue and
policy coordination between policymakers, supervisors and industry players is
the key to identifying the risks associated with new products and delivery channels,
and producing proportionate responses.
Facilitate active selling of microinsurance
One-on-one sales processes provide clients with access to good information, but
are expensive and can easily make low-premium products unsustainable. Some
countries have set a maximum commission payable to agents and brokers for
services rendered in the intermediation of insurance policies. A capped commission
on a small premium will lead to a miniscule actual payout to the intermediary
and will not increase their incentive to sell insurance. To avoid regulations
limiting the cost of intermediation, supervisors could instead make it mandatory
for providers to disclose commission levels.
The objective is to avoid market conduct regulation that can make the sales
process too costly. In many environments, the traditional agent/broker model
that relies on dedicated sales professionals will be too expensive for microinsurance.
Regulators therefore need to stipulate the minimum levels of market conduct
regulation for microinsurance without compromising on consumer protection.
25.6 Access to insurance and consumer protection
Consumer protection regulation is a cornerstone of any financial regulatory
architecture and aims to monitor insurers’ dealings with their customers. Besides
investment in consumer education and raising awareness, consumer protection
involves putting in place supervision mechanisms to promote market transparency,
restrict specific behaviour, and enforce compliance with rules (see Chapter
26). This typically involves the monitoring of advertising, marketing, pricing
and underwriting, policy cancellation and non-renewal, and the settlement of
claims.
The primary motivation for consumer protection regulation in insurance is
the idea that consumers are imperfectly informed about a product’s characteristics.
3 Asymmetrical information gives rise to the potential for insurers or their
agents to misrepresent or manipulate information. Failure to properly under-
3 For example, premium depends upon individual/group risk characteristics, which may include previous
loss experience, demographics, and financial history or lifestyle choices. Cover features include
investment strategies and calculation of returns, the definition of insured events or cover amounts for
specific events.