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Intermediated advice: Cornerstone of microinsurance

07 March 2018Jonathan Faurie

South Africa, as is the case with most developing countries, has a problem in that its population is often defined along the lines of the haves and the have nots. This poses a problem when we look at the situation with the lens of the financial services sector. The regulator and government hope to address this soon to encourage financial inclusion.

Addressing the situation

Financial inclusion is a subject that has been on government’s lips for a while now. And with the establishment of the Insurance Act in 2017, a door was left open for the growth of micro insurance, which hopes to fill the gap between the insured and the uninsured. 

This will be done by the establishment of a microinsurance regulatory framework and will be amended through the upcoming Policyholder Protection Rules (PPR). 

According to a release by the Financial Services Board (FSB), the microinsurance regulatory framework proposed in a National Treasury (Treasury) policy document aims to create a dedicated microinsurance license that will promote financial inclusion, encourage entrance of new providers into the market and enhance consumer protection through appropriate prudential and business conduct regulation.

Application of product standards

The policy document covered several issues. One of which was appropriate product standard. 

In terms of the new regulations that will be applied to microsinsurers, such insurers may only write certain lines of business within the long term and non-life sectors. 

According to the FSB release, it is envisaged that the policy benefits under a microinsurance policy will be capped by the Prudential Authority (under Twin Peaks) at R60 000 for life insurance and R120 000 for non-life insurance in standards to be made under the Insurance Act. 

The Treasury policy document also proposes that life and non-life policies must be designed for low income earners, with similar features as microinsurance policies. Further, they must also be offered by traditional insurers who will not be subject to the product standards. 

The FSB added that consideration was given to the fact that funeral policies are generally not complex and in many instances funeral cover is also taken up by low income earners. It is envisaged that the maximum benefit for funeral policies offered by both micro insurers and traditional insurers will be capped by the Prudential Authority (under Twin Peaks) at
R 60 000 in standards to be made under the Insurance Act. 

Variations and renewals

In terms of the proposed amendments, variation of the terms and conditions of microinsurance policies is prohibited unless under exceptional circumstances where the insurer can demonstrate that reasonable actuarial grounds exists to justify the variation or change, and that the variation will benefit the policyholder or member concerned. 

In addition to these requirements, all the requirements prescribed regarding disclosures when varying a policy as set out in the rule on disclosures will equally apply to such microinsurance policies. 

Where microinsurance policies are underwritten on a group basis it is proposed that insurers should not be able to selectively cancel, or refuse to renew, individual policies within the group. Should the insurer no longer find the level of risk acceptable, it must decline to renew the policies for the whole group or increase the premiums for the whole group. 

Exclusions

The FSB points out that the requirements and limitations relating to exclusions in the proposed product standards differ between life and non-life microinsurance policies. 

To ensure consistency and fair treatment of consumers across product offerings, the proposed amendments to the PPRs made under the Long-Term Insurance Act, propose that no exclusions should be allowed for pre-existing health conditions for funeral polices and credit life insurance policies. 

With regards to the proposed amendments to the PPRs made under the Short-Term Insurance Act, it is proposed that a microinsurance policy may not impose any exclusion other than the exclusions allowed for in the description of non-life insurance personal lines in the Financial Advisory and Intermediary Services Act Board Notice 194 of 2017. 

The role of the intermediary

A significant issue that affects the participation within the financial services industry is education, or a lack thereof. This is where the role of intermediated advice is so important. It is the backbone of the South African insurance industry and will be for years to come. 

However, we need to ask what the role of the intermediary will be when it comes to microinsurance. Some may argue that this is the space where they are most needed because we are dealing with the sector of society that is most vulnerable and needs professional advice. 

However, there is a profitability issue. Intermediated advice comes at a cost, how are insurers looking at their distribution models to contain these costs? The bulk of it cannot simply be passed onto the consumers. 

Editor's Thoughts:
Are we going to see intermediaries that will specialise on microinsurance in the future? #Innovation. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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