Efficiency, fairness and proportionality essential when formalizing informal microinsurance markets
Speakers and participants highlighted at the FSI/MIN/IAIS Meeting on Microinsurance in Basel, 6-8 Juy, that formalisation is an important strategy in countries that have many significantly active yet informal insurers.
Insurance supervisors in some countries face serious challenges with respect to informal insurers.
- They need to identify such schemes. And they may find many large ones, as in the case of South Africa or the Philippines.
- The schemes might fall under the ambit of another supervisor that is not open to working with the insurance sector.
- The supervisor may not have the capacity to deal with them. If formalisation is the way to go, such schemes may pose a significant burden on supervisory resources especially if there are many institutions.
However, the supervisors’ mandate of policyholder protection requires that in cases where there are many institutions that are not formally covered by insurance regulations, supervisors need to develop and implement appropriate transitional arrangements. Implementing proportionate regulation and supervision is often the best. The development of a tiered regime can be a heavy burden and a long-term task. In this matter, supervisors are challenged to balance the need for adequate supervision and ultimate quality. On the other hand regulation can also imply significant burden for the insurer. Formalisation has to be carefully considered, as it is a costly and lengthy process. However, when informal schemes reach a certain size, the regulatory body may need to step in.
Formalisation will permit informal actors to upgrade and thereby provide the basis for large-scale and sustainable insurance delivery to the poor. Each jurisdiction has to define its own threshold for this. If entry requirements are lowered, supervisory capacity must be considered from the outset.
All this should happen under the premise of efficiency, fairness and proportionality. Proportionality ensures that regulation is tailored to the risks, nature and size of the microinsurance operations. Brigitte Klein, GTZ and Access to Insurance Initiative, highlighted in her closing remarks that these principles were important to move forward.
