Financial Services Board Emerging business models: technology innovations and their regulatory implications JACKY HUMA 41 st AIO CONFERENCE 2 JUNE 2014, Kigali Page 1

Financial Services Board Outline I.Trends from a regional perspective  Overview of technologies in mobile insurance (m- insurance)  Highlights of the m-insurance business in Africa  Examples of ‘sprinter’ schemes  Situation in South Africa II.Regulatory challenges  Overview of challenges  Consumer protection risks  What can go wrong in technical innovations?  How to regulate m-insurance? III.Conclusion Page 2

Financial Services Board I - The m-insurance business in Africa – a regional perspective Insurance that relies on the mobile phone becoming a dominant technology as opposed to others technologies (Point of Sale, Internet sales etc.)  MNOs and special intermediaries driving this  "Freemium" products on the rise  Involvement of mobile phone in insurance value chain allows insurers to  Leverage on large customer bases  Piggy back on a trusted brand  Use mobile for various services (enrolment, payments, claims settlement)  Achieve massive scale  1 million clients of schemes in Ghana and Tanzania, 80% of which had never had insurance coverage before Page 3

Financial Services Board African ‘sprinter’ schemes The potential for scale of m-insurance brings significant opportunity to increase financial inclusion as demonstrated by the m-insurance ‘sprinters’: 1.EcoLife Zimbabwe reached 20% of the adult population in 7 months 2.Tigo Ghana reached almost 1m lives in 12 months 3.Leo Namibia reached 15% of the adult population 4.Airtel Zambia reached an estimated 2m at launch 5.Robi Bangladesh has reportedly hit 4m clients 6.MTN Nigeria sign up 100,000 clients a month in Nigeria Source: Leach 2014 Page 4

Financial Services Board Situation in South Africa ● Vodacom MPesa Funeral Cover (paid through airtime) ● Cover2Go accidental death & funeral cover – Metropolitan Life Insurance ● Take It Eezi My Funeral Card – Hollard Life (Paid through Cash) ● Clicks offers a ‘free’ funeral insurance product (Loyalty) – Regent Life Page 5

Financial Services Board II - Challenges for insurance supervisors With regard to mobile phone based channels, insurance supervisors need to be concerned with:  defining the relationships/responsibilities of multiple parties:  disclosure requirements: the client needs to -: know that they have insurance; know who the insurer is; know their obligations under the product; know how to access the services under the product; know when the insurance ceases.  Regulatory coordination necessary between Telecommunication Regulator Banking/Payments Regulators Insurance Regulator Page 6

Financial Services Board Challenges for insurance supervisors: consumer protection risks Nine concrete consumer protection risks associated to m-insurance business: ●prudential risk ●aggregator risk ●sales risk ●policy awareness risk ●payment risk ●post sales risk ●data risk ●regulatory backlash risk ●systemic risk Source: A2ii Synthesis and Leach/FinMark Trust (upcoming 2014) Page 7

Financial Services Board What can go wrong? Lessons learned from an m-insurance failure  Yet Ecolife Zimbabwe shows risks m-insurance brings  EcoLife launched in October 2010 as a partnership between First Mutual Life, Econet and Trustco, an (unlicensed) technical service provider.  Scheme was cancelled in 2011 due to a dispute between Econet and Trustco over royalties, the scheme was cancelled with following impact: ●20% of the adult population (1,6m) lost their cover overnight ●62% not notified about discontinuation of EcoLife ●63% Ruled out use of similar products in future ●42% Dissatisfied with insurance ●30% Better ways to protect against future problems than insurance Source: Leach 2014 Page 8

Financial Services Board What can go wrong? Lessons learned from an m-insurance failure  At this level of exponential growth, some m-insurance schemes can have market wide impact and may require more regulation  For m-insurance, the business risk framework needs to be extended to include data risk, systemic risk and regulatory backlash risk. How best can regulators manage the potential risks arising from m- insurance products? Page 9

Financial Services Board III - Conclusions for industry 1.Know your partner very well 2.Be persistent to sell value for money insurance products 3.Learn from pitfalls of other schemes and identify them early 4.Take care of the precious consumer 5.Start with a predefined exit strategy 6.Contribute to a real success in the insurance sector Page 10

Financial Services Board III - Conclusions for regulators 1.Understand the business 2.Collaborate 3.Make sure that consumer recourse options are available 4.Monitor differently 5.Consider the business exit and intervene early Page 11

Financial Services Board Page 12 THANK YOU