MR Microinsurance_2012_03_29.indd - International Labour ...
MR Microinsurance_2012_03_29.indd - International Labour ... 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.
Access to insurance and fi nancial sector regulation 569 stand diff erent aspects of insurance benefi ts can lead to improper choice of contracts. A related concern is that insurers, recognizing consumers’ limitations, may be tempted to design products or disclosure in ways that take advantage of customers (Hansen and Kysar, 1999). Th e mantra “treating customers fairly” (TCF) is refl ected in the statutes of most fi nancial market regulations and should be a key strand of the consumer protection agenda for microinsurance. TCF is aimed at helping customers understand the features, benefi ts, risks and costs of fi nancial products. It is designed to minimize the sale of unsuitable products by encouraging best practice before, during and after a sale. Th e Financial Services Authority (FSA) in the United Kingdom has outlined six TCF outcomes that it intends to achieve (see Box 25.7), which are relevant to other jurisdictions as well. Policymakers and regulators should consider establishing consumer protection regulation that requires transparency in pricing and services; identifi es the parties ultimately responsible for upholding the protection (including protection against fraud relating to funds entrusted to the service provider or its agent); identifi es the supervisory authority; and ensures that eff ective means of dispute resolution and redress are in place. Th e key diffi culty in designing these regulations is in achieving the appropriate balance of costs and benefi ts. Box 25.7 Th e six TCF consumer outcomes Th e UK Financial Services Authority (FSA) has outlined six core consumer out- out- out- comes that it wishes to see as a result of the TCF initiative. Th ese are: – Outcome 1 – Consumers can be confi dent that they are dealing with fi rms where the fair treatment of customers is central to the corporate culture. – Outcome 2 – Products and services marketed and sold in the retail market are designed to meet the needs of identifi ed consumer groups and are targeted accordingly. – Outcome 3 – Consumers are provided with clear information and kept appro- appro- appro- priately informed before, during and after the point of sale. – Outcome 4 – Where consumers receive advice, the advice is suitable and takes account of their circumstances. – Outcome 5 – Consumers are provided with products that perform as fi rms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect. – Outcome 6 – Consumers do not face unreasonable post-sale barriers imposed by fi rms to change product, switch provider, submit a claim or make a complaint. Source: FSA UK, 2007.
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Access to insurance and fi nancial sector regulation<br />
569<br />
stand diff erent aspects of insurance benefi ts can lead to improper choice of contracts.<br />
A related concern is that insurers, recognizing consumers’ limitations, may<br />
be tempted to design products or disclosure in ways that take advantage of customers<br />
(Hansen and Kysar, 1999).<br />
Th e mantra “treating customers fairly” (TCF) is refl ected in the statutes of<br />
most fi nancial market regulations and should be a key strand of the consumer<br />
protection agenda for microinsurance. TCF is aimed at helping customers<br />
understand the features, benefi ts, risks and costs of fi nancial products. It is<br />
designed to minimize the sale of unsuitable products by encouraging best practice<br />
before, during and after a sale. Th e Financial Services Authority (FSA) in the<br />
United Kingdom has outlined six TCF outcomes that it intends to achieve (see<br />
Box 25.7), which are relevant to other jurisdictions as well.<br />
Policymakers and regulators should consider establishing consumer protection<br />
regulation that requires transparency in pricing and services; identifi es the<br />
parties ultimately responsible for upholding the protection (including protection<br />
against fraud relating to funds entrusted to the service provider or its agent);<br />
identifi es the supervisory authority; and ensures that eff ective means of dispute<br />
resolution and redress are in place. Th e key diffi culty in designing these regulations<br />
is in achieving the appropriate balance of costs and benefi ts.<br />
Box 25.7 Th e six TCF consumer outcomes<br />
Th e UK Financial Services Authority (FSA) has outlined six core consumer out- out- out-<br />
comes that it wishes to see as a result of the TCF initiative. Th ese are:<br />
– Outcome 1 – Consumers can be confi dent that they are dealing with fi rms<br />
where the fair treatment of customers is central to the corporate culture.<br />
– Outcome 2 – Products and services marketed and sold in the retail market are<br />
designed to meet the needs of identifi ed consumer groups and are targeted<br />
accordingly.<br />
– Outcome 3 – Consumers are provided with clear information and kept appro- appro- appro-<br />
priately informed before, during and after the point of sale.<br />
– Outcome 4 – Where consumers receive advice, the advice is suitable and takes<br />
account of their circumstances.<br />
– Outcome 5 – Consumers are provided with products that perform as fi rms<br />
have led them to expect, and the associated service is of an acceptable standard<br />
and as they have been led to expect.<br />
– Outcome 6 – Consumers do not face unreasonable post-sale barriers imposed by<br />
fi rms to change product, switch provider, submit a claim or make a complaint.<br />
Source: FSA UK, 2007.