MR Microinsurance_2012_03_29.indd - International Labour ...

Protecting consumers while promoting microinsurance
26.2 Towards a consumer protection framework for microinsurance
This section explores in greater depth the options for workable regulation to
improve transparency, fair treatment and recourse in microinsurance markets.
26.2.1 Transparency
Disclosure of key prices, terms and conditions to policyholders is the foundation
of transparency and a bedrock principle of consumer protection, whether in
developed or less developed markets.
The wording, language and format of disclosures need to be in a form that
consumers with limited formal financial experience and literacy can readily comprehend.
It is becoming more common in developed markets to require that a
“Key Facts” document, following a prescribed format and summarizing the most
critical information pertaining to the policy, be attached to the contract. This
approach could also be valuable in early-stage microinsurance markets, with the
basic parameters of the insurance contract (i.e. type of contract, term, sum
insured, premium and premium frequency, renewal conditions, how to make a
claim) being set out in large print and simple terms on the front page. Indeed,
although they reduce flexibility and the potential to tailor policies to the specific
risk profile of individual clients, for the most part simplicity and standardization
themselves contribute to protecting less experienced consumers. For example,
one page could be sufficient to describe and satisfy the contractual requirements
of a simplified product with standard terms. Other forms of communication –
such as the interactive games developed for health product options and prices (see
Chapter 14) – could also prove effective with these client segments in addition.
Consumers also need to receive disclosures at the right points in the process.
At a minimum, they should receive complete pre-sale information on the
significant product features, their own rights and responsibilities, and the
obligations of the provider, including aggregator, agent and others as relevant.
At the point of purchase, they should also receive a written copy of the contract
or policy, although there may be cases where verbal disclosure would offer
sufficient transparency for simple products. China has recently gone further by
introducing requirements for certain product/distribution combinations, with
new policyholders acknowledging in writing that they understand the contract
provisions; the insurer must then contact the policyholder soon after purchase
to verify this.
As illustrated by the Kenya example, supervisors can benefit from up-front
consumer research (either directly commissioned or carried out by independent
third parties) to identify common areas of confusion and potential deceptiveness,
and test proposed wordings and formats with low-income consumers. Insurers or
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