An Enabling Regulatory Environment for Microinsurance

This paper argues that microinsurance operations should be supported by a regulatory framework that is conducive to protecting policyholders and developing an inclusive insurance market. The paper describes the efforts of supervisors in India, South Africa and the Philippines to overcome regulatory barriers to microinsurance expansion.Regulatory barriers to the development of microinsurance include:

• Capital, management and reporting requirements;
• Stringent licensing requirements for agents and brokers, and restrictions on the amount of commission;
• Complex policies and unsuitable products.

The paper concludes that supervisors have to find a balance that promotes inclusion, i.e. extending insurance to the low-income market while protecting their investments and confidence, without taking on undue burden. Specifically, it recommends that they adopt a risk-based capital approach, revise agent and broker licensing requirements, create a new tier of institutions and consider alternative distribution channels.