Confidential v1
The Regulator’s Dilemma Ensuring Take-off of m-Insurance whilst Managing Risk
Jeremy Leach Director: BFA 3rd African Insurance Distribution and Bancassurance Conference 13 May 2013 In association with:
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Structure
• Introduction: The Regulator‟s Dilemma
• m-Insurance: an exceptional case?
• The EcoLife story
• How can we address the Regulator‟s
Dilemma for m-Insurance?
• Conclusion
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The regulators’ dilemma: some
progress has been made
Questions:
How to allow space for innovation and experimentation, e.g. new form insurers, without undermining the system?
How to handle international pressures e.g. IOSCO, FATF, IAIS recommendations without damaging local priorities?
How to manage the trade-off between financial stability and societal stability?
Source: Porteous, 2006, The Regulators Dilemma. www.finmarktrust.org.za
Financial sector is one of the most heavily regulated; and yet regulator’s are challenged with new risks and questions
And yet questions remain about how to implement these effectively
Response
G20 Principles for Innovative Financial inclusion Principle 3: Innovation: Promote technological and institutional innovation as a means to expand financial system access and usage, including addressing infrastructure weaknesses (2010)
IAIS Application Paper on Regulation and Supervision Supporting Inclusive Insurance Markets (2012)
South African ‘Red Book ‘ Financial Sector Policy paper includes financial inclusion (2011) I-SIP (financial Inclusion, financial Stability, financial Integrity, consumer financial Protection - tool piloted by BFA for CGAP (2012)
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Structure
• Introduction: The Regulator‟s Dilemma
• m-Insurance: an exceptional case?
• The EcoLife story
• How can we address the Regulator‟s
Dilemma for m-Insurance?
• Conclusion
The three dominant models of m-Insurance: MNO driven
models can offer huge scale if you get the approach and
the timing right
Loyalty – Embedded Airtime deduction Mobile Money
MicroEnsure – Tigo Mobile, Ghana / Tanzania / Rwanda
& Others
Zong – Adamjee Life, Pakistan
& MTN Zambia - African
Life
MTN – Hollard Vodacom-m pesa
For further information, see Leach, COVER August 2010
High cost (for MNO), high scale
Greater cost effectiveness, higher
cover
High cost (for consumer), high scale
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M-insurance potentially offers a
strong value proposition for
expanding micro-insurance
• Massive scale –The potential for distribution is second to none – in
Kenya there are 6,000 agents but M-Pesa alone has 60,000 and
growing.
• Lower distribution costs - Potentially “free” form of distribution
possible through menu on SIM / cell phone or embedded models as
insurers leverage
• Lower cost of collections – as insurers leverage MNO infrastructure
and the subscribers mobile phone to collect premiums.
• Improved persistency (reduced churn) – persistency is potentially
improved through mobile based communication such as sms
reminders.
• Sharing of policy administration to reduce cost – various
administrative tasks are split between the insurer and the MNO.
Mobile platforms offer potentially cheaper method of serving clients
• Empowering consumers, enabling them to manage their insurance
cost effectively.
See also GSMA m-insurance report
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m-Insurance development started off slowly;
many struggled as were insurer led
India: Bharti
Telcassurance
India: Idea – Birla
& Reliance
South Africa: My
Funeral Card "Take it
Eezi“
India: BSNL
Thailand:
TrueMove
1997
2006
2007
2008
Thailand: DTAC
Lifecare
Namibia:
TrustCo
Kenya: Orient Safari
Bima
South Africa:
Cover2go
2008
2008
2008
2006
Philippines:
Aksitext
2006
India: Airtel - Bharti –
AXA
2009
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..but is now heating up dramatically… 60%
of the initiatives launched are in Africa
2010
Kenya: Britak
Accident
Kenya: BimaBamba
Motor Insurance
12 Models launched
in 2012:
Bangladesh: Robi
Bima Life Insurance
Ghana: Airtel+ Star
Micro Insurance
Kenya: YuCover
Pakistan: Easypaisa
Khushaal
South Africa:
Vodacom Funeral
Cover
Tanzania:
MicroEnsure + TIGO
2012 2013 2011
Zimbabwe: Ecolife –
TrustCo
Kenya: M-Bima
Jijenge Savings
Kenya: Kilimo Salama
Pakistan: Zong
Ghana:
MTN Mi-
Life
Ghana: TIGO Family
Care Insurance
6 so far for 2013:
Papua New Guinea:
Pacific MMI Ins. Ltd &
Nationwide
MicroBank
Tanzania: Liberty-
Mobicash
SriLanka: BIMA-
Dialog
Kenya: MobiSure
Mauritius: BIMA Emtel
Tanzania:
MicroEnsure + TIGO -
“Get well with Tigo”
2010
2010
2011
2011
And Vodacom SA obtains life and short term insurance licenses 2012
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Yet some challenges exist. The traditional market
development approach to assessing risk in
financial markets considers issues when they
become systemic…
1. Pioneer
2. Breakout
3. Consolidation
4. Maturity
Sufficient Piloting?
No
. of
con
sum
ers
Potential for widespread abuse?
Systemic & prudential issues?
Competition & efficiency issues?
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.. whilst m-Insurance’s ability for vertical take off
challenges the approach of tightening up the
rules as the market develops
1. Pioneer
2. Breakout
3. Consolidation
4. Maturity
No
. of
con
sum
ers
Ecolife Zimbabwe reached ~20% (1,2m) of the adult population in 7 months
M-insurance can have a vertical take off
Tigo Ghana reached 1m adults in less than 12months
Thus the old concerns around the “Rush to Regulate” (CGAP) may not be so relevant and argues for more ex-ante regulation
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Structure
• Introduction: The Regulator‟s Dilemma
• m-Insurance: an exceptional case?
• The EcoLife story
• How can we address the Regulator‟s
Dilemma for m-Insurance?
• Conclusion
‘Intermediation’, marketing and payer of premium – Econet Wireless (registered agent) which has ~65% market share Technology Service Partner (TSP) – Trustco (Namibia) Risk carrier – First Mutual Life, the dominant life insurer Administration - split between the parties
EcoLife Zimbabwe brought together a range of players
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The rise and fall of EcoLife
• Timelines – 7 October 2010 – “free” embedded life insurance product launched by Econet,
Trustco and First Mutual Life for Econet subscribers on an opt in basis
– 31 March 2011 – Trustco announces there are 1.6 million clients.
• NB EcoNet / FML claims there were only 1,2m.
– 30 May 2011 – Econet ceases to offer Ecolife product following unilateral cancellation by Trustco after they claim non payment of royalties, impacting ~20% of the adult population
– 6 June 2011 – Econet issues press statement assuring clients that the product will be revived
– 25 July 2011 – High Court of Zimbabwe issues interim order stating Econet in breach of contractual obligations.
• Econet immediately submits an appeal to the Supreme Court
– 19 May 2012 – “Trustco seeks to have Econet directors jailed for 90 days over Ecolife” for contempt of court –allegedly as Econet were planning to establish their own system.
– 16 November 2012 - FML proposes compensation to Ecolife policy holders following intervention by IPEC.
• Present day – EcoNet is appealing the High Court ruling and various rumblings about new initiatives
being launched.
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EcoLife is a complicated story but
teases out some key lessons
• The complex value chain made it hard for the regulator to have oversight of the parties
– This is exacerbated by the power imbalance between MNOs and insurers and regulators
– Need for greater regulatory coordination across insurance and telecoms regulators (and Central Bank for mobile money models) Need for greater regulatory coordination across insurance and telecoms regulators (and Central Bank for mobile money models)
• The insurer needs to take responsibility for the value chain, including the technology service partner, even if they use a licensed agent.
• The regulator needs to have the tools to effectively penalise (maximum fines were not meaningful) and hold the parties to account – from the MNO to the technical service provider
• Need for regulators to have a tool to assess client value and address concerns around exclusions.
• Need for clearer consumer protection and recourse – clients unclear who to contact
Whilst the impact on the market remains unclear, as 20% of the adult population were covered, this is clearly a systemically important insurance initiative (SIII)
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Structure
• Introduction: The Regulator‟s Dilemma
• m-Insurance: an exceptional case?
• The EcoLife story
• How can we address the Regulator‟s
Dilemma for m-Insurance?
• Conclusion
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The Namibian regulator raised serious concerns about the value of an m-insurance loyalty programme due to the number of exclusions which led to extremely low loss ratios Source: Interview with Adriaanus Vugs, General Manager: Research, Policy and Statistics, NAMFISA
Growing concerns around some m-Insurance
models poses questions around their
sustainability and a potential regulatory backlash
See also Leach, May 2013 forthcoming, M-Insurance: ensure take off while doing no harm. Cover
What could be the implications of these concerns being raised at the IAIS tri-annual meetings and annual conferences?
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Raising the question of whether there is the
potential to learn from the banking sector and
develop a ‘living will’ to address the concerns ex
ante?
We need to be guided by the fact that “Financial inclusion contributes to financial stability…Less than fully effective inclusion can and has led to financial sector instability”
IAIS Consultation Document
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A Living Will for m-Insurance could
address some of the regulatory
concerns upfront
Living wills for ‘too big too fail’ insurance initiatives could be blueprints for how they
could be dismantled in the event of a collapse: – Require insurers to map out what would happen should the product fail or cease
– Could be “built” into the product design
The insurer and MNO could jointly agree to the following: – If the embedded / loyalty insurance cover is cancelled an alternative voluntary (paid) insurance
be made available.
– Allow for appropriate payment mechanisms (e.g. airtime, mobile money, cash, debit orders etc).
– The MNO must continue to ensure the call centre can address queries and complaints for 6 months following the end of the cover.
– In addition, to voluntarily provide separate reporting on the m-insurance business to ensure adequate oversight – due to the likely scale of these models and to track any worrying trends which may threaten the sustainability of the scheme.
Adapted from Leach, 2013, Enabling Effective Distribution to the Emerging Consumer in National Insurance Commission, 2013, Promoting Microinsurance in Ghana: Microinsurance as a Means of Insurance Sector Development
20 Confidential v1
Structure
• Introduction: The Regulator‟s Dilemma
• m-Insurance: an exceptional case?
• The EcoLife story
• How can we address the Regulator‟s
Dilemma for m-Insurance?
• Conclusion
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Conclusion
• The MNO is exceptional in terms of scale, capacity and balance sheet – it is hard for the insurer or regulator to manage. Therefore it could be seen as a “systemically important insurance initiative” - SIII
• Value to the client requires balancing a number of things including the trade off between cost and scale. – This should consider the cost of travel to pay premiums
physically versus cost of sms or using mobile platform to transact
• „Loopholes‟ in product approval process could be strengthened by greater joint supervision
• The need for balance of power between ALL parties in the value chain – especially when managing MNOs
• Creating a “living will” would require stronger regulatory capacity but would culminate in greater accountability
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Could we imagine the following press
releases in the months to come?
“GSMA, the global trade association for
mobile operators voluntarily commits to a
code of conduct for m-Insurance”
“Living wills for m-Insurance are launched
in 5 countries”
“Mobile Operators and insurers take the
lead in ensuring client value and financial
capability in m-Insurance”
“Leading CEOs of the mobile and insurance
industry agree to basic reporting criteria for
all m-Insurance initiatives”
Jeremy Leach Director: BFA
In association with:
