Ways to grow the formal microinsurance markets
Insurance provides clients with a market-based means to mitigate material risks that they face. Microinsurance must do the same for low-income consumers. Although informal community-based risk pooling mechanisms (those not registered with the insurance supervisor to provide insurance to the public) provide low-income clients with a risk mitigation option and need not necessarily be formalised if they present low risk, the approach of these guidelines is to grow the formal microinsurance market. This can be done by (i) formalising existing informal providers of insurance (referred to in these guidelines as formalisation), (ii) encouraging existing commercial insurers to reach out to lower market segments (referred to in these guidelines as outreach), or (iii) encouraging new entrants, both domestic and foreign, that are particularly focused on the low-income market.
Related Document
Emerging guidelines for microinsurance policy, regulation and supervision
The goal of the following guidelines is to assist insurance policymakers, regulators and supervisors (collectively referred to as regulators if not specifically distinguished) to design policy and regulations and supervise compliance in a manner that will facilitate the growth of a microinsurance market in their countries.
They are based on the cross country lessons emerging from the five country case studies, that were undertaken under the guidance of the Joint Working Group of the IAIS and the Microinsurance Network.
To develop microinsurance markets, regulators should pursue the following general objectives:
- Facilitate both outreach and formalisation, ensuring a level playing field for big and small players where they seek to serve the same market;
- Promote products, providers and distribution channels that will trigger the favourable introduction of low-income clients to insurance and its benefits;
- Adopt risk-based regulation, tailoring regulation to the distinctive risks posed by microinsurance products and intermediation;
- Minimise the regulatory burden on underwriting and intermediation.
The policy, regulation and supervision guidelines emerging from the cross-country analysis are:
Policy guidelines:
- Guideline 1: Take active steps to develop a microinsurance market.
- Guideline 2: Adopt a policy on microinsurance as part of the broader goal of financial inclusion.
Prudential guidelines:
- Guideline 3: Define a microinsurance product category.
- Guideline 4: Tailor regulation to the risk character of the microinsurance product category.
- Guideline 5: Allow microinsurance underwriting by multiple entities.
- Guideline 6: Provide a path for formalisation.
Market conduct guidelines:
- Guideline 7: Create a flexible regime for the distribution of microinsurance.
- Guideline 8: Facilitate the active selling of microinsurance.
Supervision and enforcement:
- Guideline 9: Monitor market developments and respond with appropriate regulatory adjustments.
- Guideline 10: Use market capacity to support supervision in low-risk areas.
