Encouraging access to insurance in Jamaica Synthesis of country lessons regarding business models, regulatory change and stakeholder country processes Martina Wiedmaier-Pfister, Policy Specialist 4th July 2014 – Stakeholder Workshop

Topics Business models identified by cross-country synthesis The drivers of business model development Consumer protection challenges Success factors of a stakeholder process 2

Business models Name Description of model Examples 1. Individual sales One on one sales through fulltime insurance agents or brokers, including outbound call centres; can be supported by in-bound call centres; no client aggregator involved SINAF Seguros, Grupo Villa (Brazil), Metropolitan REI (South Africa) 2. Embedded Insurance policy conditional upon or directly linked to another service, such as credit, savings or mobile telephony, with which it is jointly marketed Credit life; MNO loyalty schemes TIGO BIMA (Tanzania) 3. Compulsory Insurance required by regulation. Third party motor vehicle insurance Social health insurance 4. Cross-selling Insurance sold to existing clients of non-insurance entities; active sales persons involved Bancassurance; retailer sales; Casas Bahia; Codensa Mapfre 3

Business models (cont.) Name Description of model Examples 5. Group decision Members of a group become policyholders by virtue of group rather than individual decision; collective negotiation; universal or opt-in Labour unions China village model; Association of Tanzanian Bus Drivers 6. Self-help Group of persons pool own risks Philippines MBAs; funeral associations and cooperatives 7. Public provision Government purchases insurance on behalf of class of citizens; premium subsidy + commercial underwriting Health insurance in India; disaster risk in rural China 8. Passive aggregators Individual purchases insurance without sales person Internet sales; PEP stores Hollard; pawnshops Philippines 4

Business models (cont.) Name Description of model Examples 9. Derived demand Pre-paying for a service to be rendered in the future by the provider/insurer Health insurance provided by health service providers; funeral assistance 5

The Drivers of Business Model Development Cost – primarily distribution Trust – to sell a credence product Loyalty – to reduce churn Leverage - from existing client base Need – by low-income households or firm $50 5% Profit $2.5 Net claims 70% $35 Net premium $5 5% $0.25 Profit Minimise costs Total expenses Net claims 15% 55% $2.75 $7.5 20% $1 Expenses 10% $5 Commission 20% $1 Commission Traditional insurance vs. Microinsurance

The consumer protection challenge - IAIS Consumer protection needs are higher with non-traditional distributors, new products, and small profit margins. “Consumer protection needs are higher when low-income clients are served with insurance. Protection mechanisms need to be tailored to the specific situation of these clients. Proportionate supervisory approaches are required to facilitate innovation, balanced with protection. When applying the proportionality principle the same level of protection needs to be guaranteed for all customers.” IAIS Application Paper on Regulation and Supervision of Inclusive Insurance Markets, 2012

Consumer protection risk categories in MI Risk category Description Prudential risk Insurer not able to keep its promises & deliver benefits - can relate to deficient entry requirements; inadequate risk management practices; scale of the underwriter; defective product design Aggregator risk Where insurer accesses the aggregated client base of a non-insurance third party to sell its products through that platform – reduced value to client due to inappropriate product; disproportionate costs due to the distribution/partner structure; legal relationship between insurer and aggregator and client not clear Sales risk Sales person will misrepresent the product to the client or sell a product that the client does not need - the skills, training and accountability of the salesperson is relevant here. 8

Consumer protection risk categories in MI Risk category Description Policy awareness risk Insured are not aware they are insured - public policy initiatives and embedded products have increased policy awareness risk Payment risk Premium will not reach the insurer or collecting a premium will be very costly – prior (contractual) relationship between intermediary & client relevant; payment options and instruments available to client; geographic proximity Post sales risk Insurer does not honour commitments after accepting the policy and receiving the premium - delays in processing claims; paying the wrong party (risks other than prudential risks) Data risk Underwriter’s operational systems don’t provide correct, complete and up to date data on which the business is managed or that confidential client data is lost or not kept confidential 9

Consumer protection risk matrix Prudential risk Aggregator risk Sales risk Policy Awareness risk Payments risk Post sales risk Data risk Individual sales x Embedded Compulsory Cross-selling Group Self-help Public provision Passive aggregators Derived demand 10

Consumer protection challenges – industry Offering the right product is effective protection. In innovative distribution models, insurers have to factor in their reduced bargaining power. Where a third party is the “face” of the insurance, insurers may need to put in additional controls. Aggregator models need clear contracts and outline what is expected from each party. Adequate agent training requirements may mean lighter but effective training. To consider the incentives of embedded sales as there may be misaligned incentives. Post-sales services should be effective and accessible.

Consumer protection challenges – supervisor Improving access via a dedicated regulatory framework which incentivizes the industry, while striking a balance with protection, can be done in the area of pilots – that should be registered informal providers – that should be formalized market conduct regulation – that are adjusted to the type of business and client coordination between various regulators – to include the variety of distribution channels regulatory and supervisors capacity – proactive, engaging in consumer education, and making critical sector data transparent. 12

Success factors of a stakeholder process 1 – The supervisor can act as a driving force. Bringing together the various public and private stakeholders, and advancing capacities at all levels. 2 – Industry capacity is imperative in areas such as market research and product development. Industry learning processes are critical in the areas of new products and workable business partnerships. 3 – Time and resources. Don’t rush. Consider what you need to invest. Be visionary about the market growth, protection provided and even, future tax generation of this industry. 4 – Client value should be ranked higher than scale. Sheer numbers don’t make a market truly inclusive. 11

Microinsurance markets are made!

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