FinMark Trust tries to stimulate the delivery of appropriate insurance products for the poor through innovative business and distribution models, within a facilitating but protective regulatory environment. Support includes the development of a new microinsurance regulatory framework, research on cost drivers in the health financing sector to improve access to health insurance in South Africa and the setting up of a policy and regulation centre.
Internationally, FinMark Trust continues to help shape the agenda on microinsurance regulation. We are a charter sponsor of the global Access to Insurance Initiative (A2ii), along with the International Association of Insurance Supervisors (IAIS), the International Labour Organisation (ILO), Consultative Group to Assist the Poor (CGAP), the German Federal Ministry for Economic Development Cooperation (BMZ) and the United Nations Capital Development Fund (UNCDF). FinMark Trust is also represented on the IAIS Microinsurance Network Joint Working Group. As such, FinMark Trust has the opportunity to provide input to emerging international standards on inclusive policy, regulation and supervision in the insurance sphere.
FinMark Trust plays an active role in advising regulators, creating market insights and facilitating market-regulator dialogue.
Within South Africa, FinMark Trust has continued to engage with the private sector, showcasing innovation in the microinsurance area, as well as with regulators and policymakers. We continue to build on regulatory and stakeholder engagement support in SADC countries.
Microinsurance can play a significant role to mitigate risks faced by low income consumers. FinMark Trust has played a leading role in developing and supporting microinsurance markets in the region. The Trust’s experience in South Africa and SADC allowed it to make key contributions to the Application Paper of the global insurance standard setting body, the International Association of Insurance Supervisors (IAIS), in 2011. This, together with the market facilitation role FinMark plays in the region, has catalysed the development of microinsurance regulation in seven SADC countries.
FinMark Trust was also asked to synthesise learnings from the global microinsurance diagnostics done by the Access to Insurance Initiative (A2ii), the implementation arm of the IAIS, to identify the regulatory and business models that emerge from microinsurance globally for the benefit of policy makers and private sector players. Related synthesis notes have been widely disseminated and are forming the foundation for the market conduct, distribution and consumer protection Issues Paper currently being developed by the IAIS.
In the SADC region, the Trust is supporting microinsurance through the establishment of the SADC MI Forum through the Committee of Insurance, Securities and Non-Banking Financial Authorities (CISNA) and country specific support for Tanzania, Swaziland and Zambia. Country support included drafting microinsurance regulatory frameworks and the development of roadmaps. In Zambia this regulation was released by the regulator on February 2014 while the Swaziland regulation is currently being finalised. In Tanzania a microinsurance coordinator has been appointed and a roadmap drafted to catalyse market development. Also, with the increased uptake of Mobile insurance or m-insurance in the region, we commissioned studies in Zimbabwe and Tanzania to understand the current landscape of m-insurance and to enable regulators to develop appropriate policies to support innovation and protect consumers.
The Trust also commissioned thematic research in South Africa around credit life insurance and hospital cash plans to better understand the drivers in these areas of insurance, to improve value to clients and shape legislation to support access. To further inform policy makers, we commissioned an update on microinsurance in South Africa to better understand the impact of the delayed writing of the 2011 policy document into regulation.
In the past financial year, we also engaged with various private sector stakeholders in the region to inform their strategies around microinsurance product development and distribution. Discussions were held with Old Mutual, Hollard, PEP, Ackermans, Mutual & Federal and Nedbank. Microinsurance training and peer learning visits sponsored by the Trust in previous years have contributed to strategies in the current year that have increased the number of lives covered by microinsurance products.
Update on microinsurance in South Africa
In South Africa, the proposal for a microinsurance regulatory framework has been on the table since 2008 when National Treasury released a Discussion Paper on the Future of Microinsurance Regulation. This was followed by the release of a Microinsurance Policy Document in 2011, which envisaged the regulatory framework to be incorporated into a forthcoming Microinsurance Act and subordinate legislation. With implementation yet to take place more than five years since the discussion paper was first published, the question arises: are the proposed elements of the regulatory framework still relevant given changes in the market and regulatory environment?
FinMark Trust embarked on research to answer this question and found that the trends witnessed in terms of insurance usage, supply-side movements and broader regulatory developments together entrench, rather than undermine, the continued relevance of the microinsurance framework even though delays in implementation may have hampered development. Broader regulatory trends which impact on compliance cost and complexity mean that a proportionate microinsurance regime is urgently needed. The research was used as a basis for engagement with National Treasury and the Financial Services Board (FSB), who then used the project’s stakeholder workshop to communicate their plans for the implementation of microinsurance regulation to industry.
Consumer credit insurance mystery shopping
Credit life insurance is one of the most widely available insurance products to low-income consumers world-wide and is often a low-income consumer’s first encounter with insurance. In South Africa, it continues to be a contentious consumer protection topic. In 2011, the National Treasury and the FSB, with inputs by the National Credit Regulator (NCR), the Competition Commission and the Actuarial Association of South Africa, formed a task team to review the state of consumer credit in South Africa and to develop policy proposals for ensuring fair consumer outcomes. We found that although regulation requires that consumers be offered a choice of credit insurance providers, choice is overwhelmingly limited in practice; the provided consumer credit insurance offers low consumer value compared to options available on the open market; and there is limited transparency and disclosure related to pricing and other important policy details. FinMark Trust will continue to provide technical inputs to the policymakers towards the development of a regulatory framework for consumer credit insurance.
The demand for hospital cash plan insurance in South Africa
There is an ongoing debate regarding the role of health insurance products such as Hospital Cash Plans (HCPs) vis-a-vis medical schemes in South Africa. Medical schemes serve less than 20% of adults in South Africa and reach largely the upper end of the market, while, Hospital Cash Plans (HCPs) have emerged as a risk cover that helps many low income South Africans without access to medical aid to mitigate some of the income loss that results from hospitalisation. Instead of covering the cost of medical care like medical scheme insurance products, HCPs pay out a pre-defined cash amount directly to the hospitalised policy holder. Building on an earlier supply-side study, the Trust commissioned demand-side work that indicated that HCPs do not serve as a substitute for medical aid. Majority of respondents regard HCPs as a means of ensuring some income to cover priority monthly expenses such as groceries, school fees, water and electricity, in the event of hospitalisation. At the end of April 2014, National Treasury published a set of revised draft demarcation regulations that is much more facilitative than the initial proposed version. It is clear that FinMark’s work has had a direct bearing on the revisions regarding HCPs.
SADC Microinsurance Forum
FinMark Trust has been a key driver of discussions and actions aimed at enhancing microinsurance policies and regulations throughout SADC. These efforts were a primary catalyst for the establishment of the SADC Microinsurance Forum which was created by FinMark Trust under the auspices of CISNA. The ultimate objective of the Forum is to harmonise regulations across SADC to enhance access to insurance for low-income individuals. The Forum is operational and has agreed on a preliminary outline for the harmonisation framework that draws heavily on principles found in the IAIS Application Paper. The Forum has initiated a review of the current methods and capacity for enhanced data collection, management, and use with the aim of providing better quality data in advancing the growth of SADC microinsurance markets. Ultimately, findings will be presented in a report and a regional framework for enhancing capacity will be developed. Capacity building workshops for supervisors in four selected pilot countries (Mozambique, South Africa, Swaziland, and Tanzania) will follow.
The fourth Micro Insurance Forum took place on 14-15 August in Johannesburg 2014. 13 SADC Member States attended the Forum and all SADC countries with the exception of Madagascar and the DRC were present. The main objective of the MIF is to discuss a harmonisation framework as well as progress on the Data Project. Member States also provided short reports on their Micro Insurance Approach, status and key challenges at the Forums. Two issues of prominence namely the harmonisation framework and the data project are discussed at the Micro Insurance Forums.
Harmonisation Framework: With regards to the Harmonisation Framework, the Members of the Forum gave feedback on the guidelines of harmonisation as presented by Cenfri. Their comments were helpful in identifying areas where they would like more guidance (such as tied agency and risk-based AML/CFT assessments). Many of their comments also indicated that the Harmonisation Framework already addresses many of their concerns regarding certain issues. The Chair of the Forum indicated that he would like to introduce the Framework to CISNA at the November meetings, so that it can formally be part of the CISNA agenda and discussions. It is anticipated that the December meeting of the Forum will include much more discussion of feedback from the Member States, but the nature and focus of such discussion will need to be confirmed.
Data Project: The study entitled “Advancing data for the development of microinsurance markets in SADC” has been commissioned and preliminary findings were presented to the MI Forum. Four of the SADC countries have been chosen for this study. These are South Africa, Mozambique, Tanzania and Swaziland.
M-insurance in Zimbabwe and Tanzania
Mobile technology offers an opportunity to cover large numbers of low income people but it can pose greater risk when such schemes fail. For example, EcoLife in Zimbabwe managed to cover 20% of the adult population in seven months. When the partnership failed, 1.2 million people lost their coverage. Therefore, appropriate policies are needed to encourage innovation while protecting consumers. FinMark Trust commissioned a study to assess the Zimbabwean example and provide learnings and guidance for regulators and policy makers to effectively address the risks inherent in m-insurance while still supporting access through this convenient cost-effective channel. A further case study of Tanzania has been drafted to shape the country learnings from Zimbabwe into policies that can be more broadly applied to the region.