MR Microinsurance_2012_03_29.indd - International Labour ...

590 Infrastructure and environment for microinsurance
atic and even counterproductive from a market development and financial inclusion
perspective, and result in a lower level of consumer welfare, e.g. if consumers’
informal options are inferior to those available in the market. This argues for
careful balancing of regulatory responses with the actual risks observed in the
market and perhaps a more incremental and “learning-by-doing” approach to
the design of a regime. It also suggests that there can be a role for well-designed
responses that address the root causes of consumer protection problems by other
than purely regulatory means.
Enlightened supervisors and industry associations in a number of countries
have recognized this by putting in place industry codes of conduct designed to
rein in short-term profit-maximizing business strategies and ensure that consumers
receive appropriate products and fair treatment, so they can develop
trust in formal products and providers. To this end, the microfinance industry
has carried out various initiatives to develop codes and standards for responsible
behaviour, including the Smart Campaign, which is organized around seven
client protection principles that roughly correspond to the principles proposed
in this chapter. 21 The Campaign is now developing more detailed guidance for
different microfinance services including microinsurance. The Microinsurance
Network has also formed a consumer protection task force to perform more
in-depth work of this type.
One key challenge with self-regulatory approaches is whether rewards and
sanctions will be sufficient to motivate operators to achieve high levels of compliance.
In the microfinance sector, the Campaign works on the premise that
the combination of the development core values of most players in the sector,
moral suasion and reinforcement by funders such as social investors will produce
acceptable levels of behaviour and continuing improvement. Experience
from other self-regulatory initiatives suggests that commitment and supervision
on the part of the relevant regulatory authorities can also be a powerful success
factor.
26.4.2 Complementary role of consumer awareness and education initiatives
While low levels of formal education and familiarity with formal finance can
also be a barrier to effective implementation of consumer protection in the
micro insurance sector, the economically active poor are very aware of risk.
Events such as the temporary sickness of a wage earner or loss of a cow can be
21 See description of the principles and tools for providers, associations and other stakeholders at
www.smartcampaign.org. The Campaign benefited from efforts by MFIs and networks to develop
codes of conduct and work such as that carried out by the SEEP Network, which earlier articulated
the goal of ensuring service provision that is ethical, dignified, transparent and equitable (see SEEP,
2010).