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South Africa: Poor May Get Insurance Under New Proposals
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Business Day (Johannesburg)
5 May 2008
Posted to the web 5 May 2008
Regis Nyamakanga
Johannesburg
PROPOSALS to reform micro-insurance regulation could make it easier for insurers to serve low-income households, Doubell Chamberlain of FinMark Trust and director of the Centre for Financial Regulation and Inclusion said last week.
But while the proposed law deals with regulatory issues and recourse in the micro-insurance market, Blue Financial Services' divisional director for international insurance, Greg Niemand, said the draft law should not lose sight of savings and investment products that alleviate poverty and mitigate against potential losses.
"This dual approach should include the opportunity for low income earners to save or pool a portion of their disposable income in order create a reserve," he said.
"Secondly, all exposure to risk is capped at R50 000 -- this is not practical, as the cost of a funeral cannot compare to the cost of losing your property.
"There should be separate limitation for different products, such as funeral at R25000, life cover at R100000, property damage up to R100000 and savings at R100 per month.
"This will not compromise the poor, create complexity or affect the regulation of the industry," Niemand said.
The treasury had proposed the regulations to strike a balance between increasing access to insurance to lower-income people, and protecting them against unscrupulous product providers.
Micro-insurance is not new to SA, with funeral products being a good example.
Chamberlain said: "This has been a catalyst for innovation, even though this is a new and difficult market to serve, requiring different mindsets and models.
"Regulatory costs and uncertainties are threatening already marginal markets.
"The recommendations rest on a definition of micro-insurance that seeks to ensure lower underwriting and market-conduct risks. Key characteristics of the definition include a term of no longer than 12 months and benefits not exceeding R50000," he said.
"If these conditions are met, the proposed micro-insurance definition may extend across traditional long-term and short-term insurance categories."
Following a risk-based approach, the proposed lower-risk micro-insurance definition allows for reduced regulation. Insurers offering only low-risk micro-insurance products will benefit from reduced capital and compliance requirements, based on the lower insurance risk inherent to the micro-insurance product, he said.
"The proposed new micro- insurance licence will be available to a wider set of institutions, and not limited to public companies.
"SA has a burgeoning co- operative and mutual environment, and international experience suggests that these entities may play a critical role in extending insurance to the poor," Chamberlain said.
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According to Niemand, micro-insurance is underused worldwide because of a lack of consumer education, which leads to low demand. More work should be done to develop this market, he said.
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