MR Microinsurance_2012_03_29.indd - International Labour ...

26 Protecting consumers while promoting
microinsurance
Rodney Lester and Katharine McKee
The authors wish to thank various reviewers for their comments and guidance, including, Doubell Chamberlain
(Cenfri), Arup Chatterjee (ADB), Tim Lyman (CGAP), Thomas Mahl (Munich Re), Beth Rhyne
(Accion) and Martina Wiedmaier-Pfister (GIZ). Funding for this chapter was provided by CGAP.
Ultimately, microinsurance markets will not develop unless they demonstrably
meet the particular needs of the economically active poor. 1 Recent empirical
research from China, India and Kenya also suggests that trust and the perceived
credibility of the product and the institution(s) involved in building long-term
demand are important (for example Dercon et al., 2011, Cai et al., 2009; Cole et
al., 2010). The existence of appropriate consumer protection measures can both
help build trust in microinsurance products and providers, and encourage sound
market development.
While a considerable amount of work has been done to develop a relatively
standardized regulatory framework for consumer protection in mainstream retail
insurance markets, 2 the microinsurance market may have specific characteristics
that suggest a need for a more tailored approach. Typical consumers might be less
able to assess how well a specific insurance policy fits their needs, or they might
be more vulnerable to pressure sales or mis-selling. For example, recent empirical
work in India finds that “consumers demonstrating lower levels of sophistication
are more likely to be offered the wrong product” (Anagol, 2011).
At the same time, the low-income insurance market is still well below its
potential size in many developing countries, and many regulatory authorities
now have explicit mandates for financial inclusion as well as prudential supervision.
Given the potential benefits of insurance cover for low-income consumers
that are currently underserved, policymakers will want to avoid unintentionally
“protecting consumers out of the market” by adopting rules that make serving
these new markets unviable. In addition, rapid innovation in products, channels
and business models is necessary to bring down costs, meet consumer needs better
1 The primary focus of this chapter is on the interaction between the individual economically active
poor consumer and the insurance market, rather than cover for the indigent or other social insurance
provided by government to a defined population.
2 International Association of Insurance Supervisors (IAIS) has set up a sub-committee to consider this
topic, although it is has been addressed at a high level by the IAIS Assessment Methodology since
2000. Both the Organization for Economic Co-operation and Development (OECD) and Financial
Stability Board (FSB) have also set up consultative committees under a post-financial-crisis mandate
from the G-20, and the World Bank has issued a set of good practices (based on work in Eastern
Europe) for public comment
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