Access to Insurance Initiative A global programme for sound regulatory and supervisory frameworks Improving access to insurance for the low- income population in Jamaica FINDINGS 4th July 2014 Donna Swiderek, Andrea Camargo, Sekayi Campbell, Martina Wiedmaier- Pfister Financial Services Commission (FSC) Kingston, Jamaica

Financial Sector Regulators 2 Bank of Jamaica (BOJ) - Oversees banks, building societies and cambios Financial Services Commission (FSC) – oversees insurance companies Department of Cooperatives and Friendly Societies (DCFS) - Includes overseeing of credit unions, but that is moving to BOJ. JCCUL is a quasi regulator for credit unions Agricultural Credit Board - Oversees PC Bank, but that is moving to DCFS Ministry of Finance –Has put forward a bill to initiate the regulation of MFI’s GENERAL CONSIDERATIONS

Socio-Economic and Economic Indicators Population living below the poverty line (STATIN)19.6% Jamaicans living abroad1 million (approx) Remittances (2012)US$ 2.1 billion (13.8% of GDP) Tough Economic Times: High debt ratio of 130% High crime, inflation and unemployment Slow GDP growth. Rapidly devaluing currency. IMF agreement has a strategy in place with tough measures 5 year wage freeze in effect for the public sector 3 GENERAL CONSIDERATIONS

4 Insurance products targeted to the population who has been unserved and underserved by insurance products. The focus is the low-income population. Criteria used in order to determine target market in microinsurance: Insurance distributed through institutions providing financial services to population generally excluded from traditional financial services (credit unions, friendly societies providing financial services, cooperatives, MFIs). Insurance offered to members of certain groups or associations. Amongst them groups of: fishermen, small scale farmers, taxi drivers, domestic workers, employers in certain activities where the target market is generally employed. Micro entrepreneurs (less than 10 employees); small to medium entrepreneurs (50 to 150 employees); small hotels (less than 150 employees) which do not offer benefits to their staff. Defining the Target Market (for current risk carriers)

Total potential microinsurance market: WorkersTotal population Unserved366,137475,978 Underserved1,169,3561,520,163 Jamaican Diaspora1,000,000 Total2,535,4942,996,142 5 * Developed using Labour Force data from STATIN

KEY FINDINGS: DEMAND SIDE

Focus Group Discussions Carried out by: MONA School of Business and Management, University of the West Indies Between November 22 and December 5, a total of 16 FGDs were held across all 14 Jamaican parishes participants - Average weekly wage: 10,000 JMD 7 FINDINGS – DEMAND

8 Risks of Greatest ConcernCoping Mechanisms Loss of income due to weather event Accidental death or injury (especially on the job) Sick and unable to work Weather events Death (funeral costs) Fire Family (in country and abroad) Strong Savings culture FINDINGS – DEMAND

Perceptions of Insurance Overall perception is positive – negativity comes from unpaid motor vehicle claims wait times, claims documentation required and health system experience. Concerns around policy value – people need to understand insurance, its benefits and make it a priority Low awareness of consumer protection mechanisms Financial literacy needs improvement – There’s a low understanding of the impact of interest and long term value of money 9 FINDINGS – DEMAND

Perceptions of Insurance Affordability and tangibility are major concerns – “insurance is a luxury” Affordability of participants in FGD’s: 2000 JMD per month Amount FGD participants are currently paying for insurance: 3500 JMD per month (excluding motor vehicle) 10

KEY FINDINGS: SUPPLY SIDE

12 FINDINGS – SUPPLY SIDE RISK CARRIERS The industry as a whole is experiencing an overall combined ratio of 124% and high industry expense ratio of 50%. Product development is mostly stagnant few steps are taken to design products based on client needs. Regulations require documents that are difficult for the target market to obtain or are at times avoided by the target market (i.e.)TRN. The total industry’s gross premium growth of 6-14% (for 2010 to 2012) exceeded the country’s GDP growth of -1.5% to 1.7%, indicating that the economic environment has not negatively impacted gross premiums received.

13 FINDINGS – SUPPLY SIDE RISK CARRIERS – Microinsurance landscape Three insurance companies are offering products that could be considered as microinsurance with one company designing products specifically for the target market. Partnerships with global insurance companies are helping guide Jamaica’s microinsurance market. The industry is learning about microinsurance. Initiatives have been developed in the past with varying degrees of success.

Estimated Microinsurance coverage in Jamaica 14 Microinsurance coverage in Jamaica (policies/certificates) 1,735,902 Utility bill (Accident) 240,000 Credit Union Life/Credit Life products 1,227,172 Agriculture (coconut) 880 Credit union General products through JCIA 3,850 Mandatory Motor Vehicle 55,000 Life/Health with Savings 19,000 Group Policies Life/Health 100,000 Government programs (NI Gold) 90,000 - owned by 1.3 million people -80% of these are included with membership or customer loyalty so no direct premium is paid - provide very limited coverage for the risk event.

Geography and Social Security Jamaica is prone to catastrophic risks (hurricanes, earthquakes and floods) and agriculture protection initiatives have not been successful. A market is available for crop and livelihood protection. Learnings are needed around sustainable models. Even with Pensions, social security and the extra healthcare (NIS) provided to supplement the public healthcare, gaps in coverage exist for the target market A market exists for private services. 15 suggests

Distribution – current and potential Microinsurance channels Current: Only brokers, agents and sales representatives can sell insurance Group policy holders are channels for insurance. (i.e.) Associations, Credit unions, Cooperatives, Employers, Bill payment companies, Friendly Societies Mobile Money (new guidelines have been issued by the BOJ). Partnerships with government departments Group policy channels could distribute microinsurance The post office (facilitates payments for pensions) Remittance outlets (Jamaican Diaspora transactions) Impending CARICOM revision - To reach scale and sustainability in microinsurance expanding the market outside of Jamaica may be essential 16

KEY FINDINGS: PUBLIC POLICY AND MICROINSURANCE

Insurance is a Government priority to manage risks (catastrophes, accidents and retirement) Some government entities are aiming to design and implement insurance strategies for certain segments of the population ==> opening channels to the microinsurance market. The adoption of a national financial inclusion strategy is on the agenda and financial education is a priority for the Jamaican Government, and in particular for FSC. Opportunity for microinsurance through Public Private Partnerships (i.e.) cash transfer programs, Ministry of Foreign Affairs linkage to the Jamaican Diaspora Budget and quality constraints have been impeding the government’s assurance of quality universal health care so microinsurance could play a complementary role in healthcare. 18 FINDINGS – PUBLIC SECTOR

KEY FINDINGS : SUPERVISION

Little dialogue occurs between entities that oversee the activities of providers – both underwriters and delivery channels. Minimal industry consolidated data exists Bulletins and guidelines are key regulatory tools used out of necessity due to long wait times of changing regulations and acts  does not promote transparency Supervision requires adaptation to the MI market 20 FINDINGS – SUPERVISION

Weak regulatory requirements in regards to how the insurer treats the policyholder The Insurance Act is not applicable when certain entities (friendly societies, cooperatives and building societies) offer insurance products to their members that are under certain thresholds established in their own regulation. 21 FINDINGS – SUPERVISION

KEY FINDINGS : REGULATION

Key regulatory obstacles: Only brokers, agents and sales representatives are allowed to sell insurance. Distribution Long-term insurance companies can only offer life insurance; general insurance companies can only offer non life; Accident can be offered by either. Can restrict opportunities for bundled products. Product Demarcation No regulations allow the use of non banking agents. BOJ is currently studying the possibility to allow NBA’s. BOJ has issued Mobile banking guidelines. Transactional platforms Non-life insurance products do not require prior approval from the FSC, whereas life insurance products do. Registration of Products 23 FINDINGS – REGULATION

Key regulatory incentives: Industry is not taking advantage of this possibility Digital signature is allowed Risk carriers from CARICOM countries are not considered to be “foreign companies” so they may find it easier to operate in Jamaica and offer microinsurance products. Opportunity for risk carriers from the CARICOM This broad recognition could facilitate the penetration of life microinsurance products (3rd party contracts) Insurable interest in the life of another person 24 FINDINGS – REGULATION

25 FINDINGS – REGULATION 1.Non-admitted insurance companies can offer insurance products when equivalent protection is not provided by registered insurers. Therefore, non- admitted insurance companies could end up offering microinsurance products. However, it is not clear how the regulation on market conduct is applicable to these entities and how they are supervised. 2.Cooperatives, friendly societies and building societies can offer insurance like products to their members that are under certain thresholds, in these cases the Insurance Act is not applicable and it seems doubtful that any market conduct rules will apply. 3.Overuse of group insurance without clear rules protecting consumers. 4.Product approval is not required for non-life insurance and compliance with regulation aiming to protect consumers is only analyzed ex-post. The top 7 regulatory provisions that have a negative impact on microinsurance consumers:

26 FINDINGS – REGULATION 5. Uncertainty about the application of cooling-off periods in non-life insurance. 6. There are shortcomings in respect of access and awareness of complaints-handling and dispute resolution mechanisms. 7. There is a wide range of legal and administrative instruments that compose the regulatory framework of the insurance activity, however these instruments are not easily accessible and there is room for contradiction between them. The instruments are also not adapted to the specific situation of the low-income segment. This lack of clarity and certainty affects not only the industry, but also consumers. A provision that it is positive for microinsurance: Pursuant to the Insurance Act, insurance companies must ensure that policies provide fair value to policyholders.

Questions?

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