1. 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

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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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.

12. 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

13. 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

14. Microinsurance markets are made!

15. Thank you for your attention!