MR Microinsurance_2012_03_29.indd - International Labour ...

Protecting consumers while promoting microinsurance
Distribution
A globalized and linked insurance supervisory community is adopting increasingly
standardized approaches to the regulation and supervision of intermediaries.
Special situations that arise in the mainstream markets (e.g. bancassurance, distribution
of high-volume mandatory insurance through retailers, direct distribution,
tied selling of warranty insurance) tend to be covered by separate laws or
regulations. Special microinsurance regulations issued to have usually place significant
emphasis on intermediaries. Mainstream approaches to regulating distribution
and intermediaries are unlikely to be universally appropriate for microinsurance
given the smaller monetary values, the need to minimize costs, the need
to capitalize on consumers’ trust of the intermediary, and the still evolving set of
marketing mixes. It is likely that regulators will want to leave the door open to
considering a range of potential intermediaries and the laws governing those
intermediaries should allow them to be treated as insurance agents.
Currently, a central topic in insurance consumer protection discussions is the
role and remuneration of agents, brokers and financial advisors. 11 While aggregators
are prevalent, some regulators also allow for tied (i.e., exclusive) agents to sell
and service microinsurance. In some cases, these agents are approved under the
main insurance law. In other cases (e.g. India, the Philippines), the law provides
for microinsurance agents with lower formal qualifications requirements; they
may nevertheless have a wider range of responsibilities than conventional agents,
including premium collection. 12 Many fail after a period. 13
This is another difficult trade-off in the access-protection balancing act.
Agent failure can severely damage confidence, as policyholders typically lose all
premiums paid up to the time the agent ceases to operate due to heavy early-
termination penalties (Collins et al., 2009). The likelihood of failure may be
higher if microinsurance commission levels are restricted, as is sometimes the
case as part of the consumer protection regime (see Anagol (2011) for the distorting
effect of commissions). To address this problem, any entity offering microinsurance
through tied agents should demonstrate as part of its licensing that it
has systems that will ensure that another agent will immediately take over a
collect ion/servicing book if an agent withdraws, or alternatively have means to
develop a direct link with the policyholder, including the use of SMS and call
centres. This would also need to be monitored by the supervisor, for example,
through a simple statutory return and on-site inspections. In addition, insurers
11 A number of countries including Australia, Denmark, Finland, The Netherlands and the United
Kingdom and either have, or are planning to banned some or all commissions for independent financial
advisors and brokers.
12 A strong analogy can be drawn with the old-style industrial insurance “collectors”.
13 As a rule of thumb, in mainstream markets approximately 15 per cent of initial agency recruits survive
to their fourth year as full-time operators.
583