Regulatory models to support financial

Transcription

1 Regulatory models to support financial inclusion The experience of South Africa Expanding access for the poor in East and Southern Africa 2-4 March 2009

2 1. The future of MI regulation Traditionally regulators only focused on stability What can you expect from regulation in the future? More pro-active regulation Focusing not only on stability but also market development (complimentary) Specific focus on extending services to the low-income market (bulk of market) Increasing focus on consumer protection and market conduct E.g. approaches in Colombia, South Africa and India

3 2. SA microinsurance market LSM* 1 5 (18.0m) 40.1% (7.2m) have funeral cover 2.1% (375,000) have life cover (excl. funeral insurance**) 0.41% (74,000) have credit life insurance. 2.1% (382,000) have a retail hire purchase account 1.5% (262,000) have short term insurance Formal cover: 39.1% (2.8m) have a form of formal funeral cover Informal cover: 60.9% (4.4m) have burial society membership only 39.9% (1.1m) have cover through a funeral parlour/ undertaker Key features: Large voluntary MI market dominated by funeral insurance (40% of LSM1-5 ) Mostly informal (61%) Potentially large unregistered funeral insurance market Low awareness and understanding of compulsory credit life (conservative estimate 1.75m) Much innovation, but limited success No significant penetration beyond funeral yet Source: Eighty20 calculations based on FinScope 2007 (using weightings derived from the Census 2001) * The definition of LSM used is according to the 2005 algorithm ** Does not imply that respondents in this segment do not have funeral insurance, but that they have a formal life policy

4 3. Key regulatory themes 1. Informal and illegal insurance markets: Allowing formalisation while ensuring a level playing field 2. Challenge of protecting and including the poor: unintended impact of market conduct regulation 3. Reaction on specific abuses: triggering regulatory action to compulsory insurance 4. Facilitating outreach and formalisation: The new regulatory framework

5 4. Challenge of protecting and including the poor Broker/advice reach Low income FAIS Consumer protection Tick-of-box/advice-less reach Expand access FSC Market opportunity High income Consumer protection Expand access LSM 1 LSM 10 Market conduct regulation raises cost of providing advice Allows non-advice models but require sufficient disclosure Split market into high-income advice vs. low-income tick-box (uncertainty on legal position) Conservative compliance officers and uncertainty due to conflicting interpretations impact on business models FAIS Ombud extending impact of regulation Many current low-income agents cannot qualify (Category A and revising requirements) Limited success of passive models and regulatory uncertainty about compliance with FAIS Source: Chamberlain, Bester, et al (2006) (Genesis Analytics)

6 5. Facilitating outreach and formalisation Proposed new regulatory framework Relatively high regulatory barriers MI defined as low risk allowing special dispensation on underwriting and intermediation Microinsurance product category proposed - Benefits cap $ Term: 12 months or less - Risk-only products - Life and non-life policies potentially underwritten by same entity - Simple terms and conditions Reduced entry and compliance requirements in line with lower risk Dedicated microinsurance license (including mutuals) Reduced market conduct requirements for all players Uncapped or increased commissions Improved enforcement and recourse

7 6. Suggested regulatory 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 Guideline 3: Define a microinsurance product category Guideline 4: Tailor regulation to the risk character of microinsurance Guideline 5: Allow microinsurance underwriting by multiple entities Guideline 6: Provide a path for formalisation Guideline 7: Create a flexible regime for the distribution of microinsurance Guideline 8: Facilitate the active selling of microinsurance Guideline 9: Monitor market developments and respond Guideline 10: Utilise market capacity to support supervision in low-risk areas

8 Thank you! Doubell Chamberlain The Centre for Financial Regulation and Inclusion (Cenfri) Tel: Cel:

9 South African context Middle-income country Population: 47m Inequality: Gini: 58 Poverty: 36% < $2 pd and 18% < $1 pd High insurance penetration: Premiums 16% of GDP Bank account take-up: 63% (FinScope) Transformation and empowerment as policy objectives of government Financial Sector Charter Financial inclusion policy

10 Abuse in compulsory insurance Triggering regulatory reaction Significant coverage of compulsory credit life insurance Poor value proposition and consumer abuse Limited awareness of cover Consumer s right to choose provider High charges Inability to claim on benefits Business imperative: Significant reputational damage with clients and regulator Lost opportunity to make market and create loyal customer base Industry enquiry following media exposition of abuse Force regulatory reaction and potential exclusion from new MI framework

11 Facilitating outreach and formalisation Progression of providers Same level of requirements as for formal insurer, but some risk is ceded Regulatory requirements (degree to which allowed to carry risk) underwritten entity cell owner Potential micro-insurer all risk in last instance carried by under-writing insurer all risk in last instance carried by cell captive insurer Full insurer Ltd requirements based on more ltd risk associated with prod. def. friend-ly society Graduation based on ability to carry risk Source: Chamberlain, Bester, et al (2008) (Genesis Analytics)