Strengthening consumer protection in the South African microinsurance market
Katherine Gibson, FinMark Trust, October 2012
This case study, conducsted by FinMark Trust for the Microinsurance Network’s Consumer Protection Task Force, reflects on regulatory developments in the South African microinsurance market intended to better protect lower income consumers of insurance and extracts learning in this regard that can inform other jurisdictions embarking on a similar path.
The study provides a snapshot of the existing microinsurance market in South Africa, taking into account the degree of financial inclusion, typical products and which entities provide them, and the regulatory landscape. The author explains common practices in the South African microinsurance market that have undermined consumer protection, as well as the success of steps taken by the regulator to address these.
The study will also explain South Africa’s policymaking process to date, consider the envisaged policy response to protecting microinsurance consumers going forward, and benchmarks the existing and proposed regulation against the consumer protection standards. Lastly, the author concludes by summarising lessons learnt by the National Treasury over the policy making process.
Microinsurance in Pakistan: A diagnostic study on demand and supply
Securities and Exchange Commission of Pakistan, FIRST Initiative/World Bank, October 2012
The study is a country diagnostic of the microinsurance landscape in Pakistan. It identifies the demand for and provision of microinsurance services in Pakistan, analyses the gaps, identifies best practices, methods and guidelines in microinsurance, and develops a comprehensive regulatory framework that would safeguard the interests of all stakeholders.
The development of microinsurance in Pakistan needs to be considered within the context of overall insurance market development and the regulatory environment. It is difficult to grow the microinsurance market without a viable non-life insurance sector or a strong retail insurance focus in the life sector. While certain achievements within the regulatory framework have already been made, there is also an urgent need to improve the overall regulation and technical capacity of the insurance sector before the microinsurance segment can be developed in a sustainable manner.
Weathering the storm: The demand for and impact of microinsurance
Morsink; Karlijn, University of Twente, September 2012
Uninsured risk has welfare implications which go well beyond the consequences for short-term consumption and is a cause of persistent poverty of low-income households in developing countries. To cope with shocks, poor households rely on a diversity of strategies but these are often not enough to adequately allocate risk or protect income. These strategies may themselves have costs if they reduce opportunities for future economic growth.
Microinsurance has the potential to assist poor people in developing countries to cope with risk and its consequent shocks. Despite this need for insurance, even if affordable microinsurance is offered, the level of demand is low. And it is unknown if microinsurance, despite its potential, really reduces the use of costly existing strategies. Therefore, the dissertation conducted by Karlijn Morsink from the Institute for Innovation and Governance - University of Twente focuses on why do low-income households demand microinsurance and does it impact poverty reduction.
This empirical study is conducted through data collected from focus groups and a sample of households from rural Filipino communities. Specific attention is paid to the effect of trust, build through peers from local networks with insurance pay-outs, on the demand for microinsurance. The impact of the insurance on the use of existing strategies with varying costs for future economic growth, is studied.
Results show that trust plays an important role in explaining the level of demand and that having microinsurance indeed reduces the impact of a shock on future economic growth., These results lead to a discussion of a variety of practical and policy implications.
The landscape of microinsurance in Latin America and the Caribbean: A briefing note
Michael McCord, Clémence Tatin-Jaleran, Molly Ingram, Microinsurance Centre, October 2012
Over the past decade, it has been widely recognized that insurance provides the low-income population with important benefits which can help prevent individuals and families from falling back into extreme poverty when they faced with a financial loss.
Much of the knowledge about microinsurance comes from case studies of countries or organisations. While these works can be informative on an entity level, they generate little information about the microinsurance industry as a whole. This makes it difficult to identify gaps in products or coverage as well as trends. Understanding trends can help various parties leverage their activities to address gaps, jump on positive changes, change plans related to areas that are not performing, and learn from trends that are linked to regulatory or macroeconomic factors. Traditional insurance markets in developed countries commonly track trends to generate market information.
To date, there have only been two large regional quantitative macro-level landscape studies that identified microinsurance trends. The current study is the first quantitative landscape study focusing exclusively on Latin America and the Caribbean.
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Research paper on agricultural decisions after relaxing credit and risk constraints
Karlan; Dean, Robert Osei, Isaac Osei Akoto, Christopher Udry, Research Paper n°23, International Labour Organization, October 2012
The investment decisions of small scale farmers in developing countries are conditioned by their financial environment. Binding credit market constraints and incomplete insurance can reduce investment in activities with high expected profits. The authors conducted several experiments in northern Ghana in which farmers were randomly assigned to receive cash grants or opportunities to purchase rainfall index insurance, or a combination of the two. Demand for index insurance is strong, and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture.
The salient constraint to farmer investment is uninsured risk: when provided with insurance against the primary catastrophic risk they face, farmers are able to find resources to increase expenditure on their farms. Demand for insurance in subsequent years is strongly increasing in a farmer’s own receipt of insurance payouts, and with the receipt of payouts by others in the farmer’s social network. Both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance, and with imperfect trust that promised payouts will be delivered.
Improving working conditions in informal sector economies: Exploring the application of value chain finance strategies-microinsurance and microleasing
Chowdhary; Sonali, The Seep Network and Bill & Melinda GAtes Foundation, Technical note, May 2012
The Value Initiative, a global urban value chain action-research program (a joint project of the SEEP Network and the Bill & Melinda Gates Foundation) addresses the issue of improving working conditions in informal sector economies by answering one of its core action research question: How can you apply market development and private sector development principles to address working conditions challenges faced by the urban poor? This paper demonstrates how financial products, or interventions (here, micro-leasing and microinsurance), can improve value chain productivity, lead to improvement in physical and social working conditions, and complement economic interventions.
The paper focuses on two different case study interventions: The Value Initiative Project in Indonesia which reduced the impact of poor physical working conditions for urban tofu and tempeh workers through micro-leasing; and then Value Initiative in India, which introduced microinsurance to improve social working conditions for urban jewelry artisans. Both cases offer lessons in linking private-sector financial services that are often intended to increase productivity in a value chain context, but have also resulted in a significant reduction of occupational hazards and an increase in the overall well being of workers employed in the informal sector.
Microinsurance product development for microfinance providers
McCord; Michael, Microfinance Centre, MicroInsurance Cente, International Fund for Agricultural Development (IFAD), September 2012
This document is intended to aid delivery channels, microfinance providers in particular, in working with insurance companies to develop successful microinsurance products for the low-income market. A systematic new-product development process is crucial to the success of microinsurance products.
The process outlined in this manual will help microinsurance developers create successful microinsurance products. ‘Success’ means meeting the needs of the three major parties in the microinsurance relationship: low-income policyholders, the insurer and delivery channels.
Process mapping for microinsurance operations: A toolkit for understanding and improving business process and client value
Steinmann; Roland, Microfinance Centre, MicroInsurance Cente, International Food and Agricultural Development (IFAD), September 2012
This manual is intended as an aid to microinsurance institutions. It presents a technique called ‘process mapping’ that can support institutions in self-analysis by assisting them in understanding, developing and improving business processes.
The manual describes how a process map can be drawn, analysed and adapted for the microinsurance sector. It offers practical guidance about which processes to concentrate on, and guides the reader through the task of improving these processes, first on paper and then in practice.
The Kenyan microinsurance policy framework paper
Insurance Regulatory Authority (IRA) and Kenya Vision 2030, June 2012
The Microinsurance Policy Paper maps out the Insurance Regulatory Authority’s (IRA) future path in the regulation and supervision of microinsurance in Kenya. It spells out the strategic approach chosen, and the principles and key elements underlying this process.
The Paper makes policy recommendations that lay the foundations for the drafting of a legal and regulatory framework aimed at enabling the microfinance market to develop in a sound and customer-oriented environment. Microinsurance is considered to have considerable potential for helping low-income households to manage their financial risks, for assisting insurers and intermediaries to expand their markets and for providing governments with a way to rely on privately-driven insurance in place of state funding schemes.
Microinsurance is an emerging trend in the Kenyan market and as such its regulation has not been provided for in the existing insurance law. It is provided by a variety of institutions, and should be delivered in an appropriate way to low-income households, with products designed by commercial insurance and fully funded by premiums.