EASAAviAdence  from  Five  Country  Case  Studies  

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MICROINSURANCE     role  of  policy,  regulation  and  supervision  in  the  development  of   microinsurance  markets  in  Colombia,  India,  the  Philippines,  South   Africa  and  Uganda.  
  CLIENT:   Archimedes Investment Limited, British Virgin Islands

      Final  Submission:  May  2009    


      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Microinsurance  has  become  an  aspect  of  insurance  that  needs  to  be   examined  carefully    by  any  player  in  the  insurance  market.  This  includes   both  the  insurer  and  the  broker.  In  this  regard  we  have  included  studies   that  cover  a  5  country  ambit,  as  well  as  a  closer  examination  of  the  broker   market  .  In  particular  ,  the  role  of  the  intermediary  in  South  Africa,  which   principles  and  comments  should  also  apply  to  a  large  degree    and  be  helpful   to  intermediaries  in  the  Microinsurance    space  elsewhere.  We  have  also   included  in  more  detail  the  Indian  Case  Study  component  of  the  5  Country     Microinsurance    synthesis.     Background*    


It   is   estimated   that   only   80   million   out   of   the   world’s   2.5   billion   poor   are   now   covered   by   some   form   of   micro   insurance.   Most   still   remain   without   access  to  this  critical  financial  service.  The  products  on  offer  broadly  fit  the   following   categories:   Credit   Life,   Term   Life   /   Funeral   Insurance,   Livestock,   Property   Insurance,   Index   Based   Crop   Insurance,   Package   Policy   and   Health   Insurance.       Market  definition  and  Market  size*     For   conventional   micro-­‐insurance   products   that   are   already   being   distributed   by   existing   underwriters,   it   may   prove   to   be   a   challenge   to   propose  alternative  placement  arrangements  such  as    reinsuring  into  a  cell   or   even   Hollard.   The   constraints   could   be   a   combination   of   regulatory   conditions  in  each  territory  (where  local  insurers  are  not  expected  to  place   offshore   reinsurance   for   classes   that   are   perceived   to   be   within   their  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

underwriting   limits   like   credit   life)   and   /   or   reluctance   to   reinsure   out   on   profitable  business.       However,   there   are   immediate   reinsurance   opportunities   in   the   case   of   highly   specialised   micro-­‐insurance   products   such   as   health   and   weather   index  insurance,  for  which  the  traditional  reinsurance  programmes  do  not   provide  capacity  and  for  which  the  local  insurers  will  tend  to  have  neither   the  expertise  nor  the  appetite  to  retain  the  full  risk.         The   following   details   the   possible   market   size   per   product   and   per   territory   (excluding  credit  life):   Country     Uganda         Health  Insurance                    Weather  Index  Insurance   250,000       100,000  

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(at   this   time   Ghana   has   NHIS   and   government   is     not       keen   on   private   alternatives   –   but   this  could  change)   Tanzania   Kenya         300,000   500,000                                150,000   150,000     50,000   250,000     (There   exists   a   state-­‐owned   Nigerian    Agricultural  Insurance   Corporation   and   it   is   not   very   clear   if   any   other   firm   can   do  

South  Africa     Rwanda                    Nigeria        

100,000   500,000  


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agricultural  insurance.)   Philippines   India       350,000       150,000  


                     1,000,000     (unlikely  that  health      insurance   would  be  ceded)  









Key  Trends  (PESTIR)*     Firstly,  there  has  been  a  general  trend  of  policymakers  wanting  to  see  access   to   finance   and   related   services   enabled   in   markets   at   the   ‘bottom   of   the   pyramid’   which   consists   of   the   poor   majority   that   have   traditionally   been  

neglected   by   financial   services,   amongst   other   things.   It   is   in   light   of   this   thinking   that   there   has   been   a   rapid   development   of   micro-­‐finance   institutions,   especially   in   Nigeria.   There   are   also   ongoing   reviews   of   appropriate  regulatory  frameworks  in  order  to  support  this  development.       Secondly,   with   the   current   global   economic   downturn   following   the   global   credit   crisis,   governments   will   be   increasingly   interested   in   products   that   support  the  poor.  In  the  case  of  a  product  such  as  weather  index  insurance,  it   supports   small-­‐scale   farmers   by   providing   protection   against   certain   natural   hazards   and   also   mitigates   the   risks   for   lenders   so   that   they   are   able   to   continue   to   extend   credit   lines   in   the   sector.   In   this   way   it   contributes   improved   agricultural   productivity   which   in   turn   reduces   the   problem   of   food   inflation   and   improves   food   security.   In   cases   such   as   Botswana,   the   government   is   willing   to   back   these   private-­‐sector   initiatives   aimed   at   providing  effective  solutions  for  small-­‐scale  farmers  there.  

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  Customer  Need*  

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The  consumer  need  is  undoubtedly  significant.  In  order  to  be  effective  for  the   poor,  the  products  should  be  simple,  affordable,  easy  to  administer  and  with   payouts  being  virtually  automatic  in  order  to  avoid  expensive  loss  verification   procedures.       It  is  expected  that,  with  weather  index  insurance,  lenders  should  be  more   willing  to  provide  loans  to  this  category  of  farmers  that  are  perceived  to  be   high  risk  because  of  the  risk  of  droughts  to  which  they  are  exposed.         Differentiation*     There  is  a  huge  opportunity  to  be  involved  in  research  and  development  on   new  and  innovative  and  specialised  micro-­‐insurance  products.  Weather  index  

insurance   is   a   very   recent   development.   Although   credit   life   is   becoming   a   commodity  product,  for  which  many  other  insurers  can  claim  to  have  capacity   and   on   which   competition   could   become   focused   on   pricing,   a   greater   potential   to   increase   margins   could   involve   adaptations   or   bundling   of   it   with   other  complex  lines  of  agricultural  risks  such  as  weather  index.     Competition*     For  generic  products  such  as  credit  life,  the  traditional  insurance  companies   have  capacity  for  such  products  and  hence  there  is  competition  on  those.       For  highly  specialised  products  such  as  weather  index  insurance,  there  is  still   limited   real   competition.   Nevertheless,   the   micro-­‐insurance   business   environment  is  becoming  more  competitive.          

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      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Weather  Index  insurance  rates  depend  on  the  type  of  crop  (different  crops   are  more  or  less  affected  by  water  variability)  and  on  the  weather  station   which   represents   the   chance   of   an   event   triggering.   Market   research   indicates   a   rate   of   5%   for   weather   index   insurance.   The   policies   tend   to   tailor   the   trigger   point   to   match   the   required   price.   Since   the   loss   experience   from   these   products   tend   to   be   either   “all   or   nothing”   there   tends  to  be  resistance  for  rates  over  5%  as  after  a  few  years  of  no  losses  the   farmers  or  lenders  start  to  place  pressure  for  lower  cost  loans.       The   microinsurance     health   policies   underwritten   in   India   has   a   premium   of   Rs   275   for   a   Rs   20,000   cover   on   a   floating   basis.   This   low   cost   is   largely   due  


to   the   high   population   density   and   severe   competition   between   healthcare   providers.   Critical     is   a   low   cost   but   effective   TPA   mechanism   which   in   India   costs   Rs   100   per   policy   per   year.   In   Africa,   it   is   expected   that   this   TPA   could   be  $3.5  -­‐  $5  per  policy  and  hence  a  premium  of  $15  -­‐  $  20  per  family  per   year  is  likely  to  be  targeted.     Exposure  values*   Weather  Index  –  sum  insured  per  acre  is  anywhere  between  $100  to  $1,500   depending  upon  the  crop  and  the  costs  of  the  inputs.  Average  is  closer  to   $450.    Swiss  Re  has  previously  offered  to  take  100%  of  the  risk.     Health  insurance  –  annual  premium  spend  is  $15  -­‐  $20  per  family.  In  India,   the   sum   insured   is   around   $500.   It   is   also   assumed   that   roughly   5%   of   a   population  will  be  hospitalised  in  a  year.  

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      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Credit  Life  –  average  loan  sizes  are  $500  with  a  premium  rate  of  5%       Whilst   reinsurers   have   not   been   approached   on   the   above   lines   (bar   discussions   with   Swiss   Re   on   weather   index   insurance),   we   are   comfortable   that  reinsurance  will  be  available.      Loss  Ratios*     The  business  is  maintained  on  the  following  basis:  For  each  $1  of  premium   paid,   $0.70   goes   to   claims,   $0.20   is   administration   fees,   $0.05   are   fees   to   others   and   $0.05   is   the   insurer   portion   to   cover   cost   of   capital   and   profit   margins.  In  the  certain  territories  in  Africa,  there  would  also  be  a  need  to   provide  for  premium  tax.  


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REGULATORY  CHALLENGES  AND  KEY  RISKS*     Reinsurance  to  a  cell  structure   It   is   recognised   that   each   country   has   differing   requirements   in   terms   of   what   risk   can   be   ceded   offshore,   particularly   risks   that   can   be   seen   as   “domesticated   risks”   (eg   motor   and   credit   life).     Whilst   in   most   African   counties   there   are   no   compulsory   requirements   on   reinsurance,   in   India,   however,   insurers   must   make   10%   obligatory   cessions   to   GIC.     There   is   also   a   concern   that   some   countries   such   as   India   have   requirements   for   rated   paper   (India   requires   BBB   for   life   insurers)   which   will   challenge   Hollard   which  does  not  have  a  rating.     We  are  therefore  looking  to  mitigate  this  through  (a)  our  relationship  with   Africa   Re   in   Africa   who   are   seen   as   a   “local”   reinsurer   so   this   should   be  

overcome   to   a   large   extent   in   Africa   (although   each   class   of   business   would   need  to  be  assessed).    Other  insurers  such  as  Swiss  Re  are  being  engaged   with   outside   of   Africa   particularly   to   address   the   concerns   about   rated   paper;   and   (b)   the   nature   of   the   risks   where   domestic   insurers   have   limited   capacity   or   risk   appetite   for   weather   index   or   health.     We   do   note   that   credit  life  may  prove  more  of  a  challenge.     As   the   reinsurance   requirements   will   vary   by   country   and   by   class   of   business,  we  are  therefore  using  a  rough  estimation  that  the  amount  ceded   will  start  at  50%  in  year  1,  40%  in  year  2  and  30%  in  year  3.     Foreign  exchange  risk*    

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• The   potential   for   foreign   exchange   risk   remains   high   in   the   current   economic   cycle.     Whilst   it   is   extremely   difficult   to   measure   foreign   exchange  rate  risk,  we  are  building  in  some  margin  in  the  model.     • Further,   being   a   South   African   company   in   Africa   takes   out   some   of   the   risk  that  a  European  or  Western  insurer  would  have  as  we  are  somewhat   aligned  to  the  African  and  emerging  market  currencies;   • The   business   should   end   up   in   a   PCC   offshore   (potentially   Mauritius)   in   hard  currency  which  will  mitigate  some  of  the  risk;   • Finally,   we   would   also   consider   this   as   being   in   line   with   our   international   strategy   so   would   aim   to   mitigate   currency   risks   at   a   group   level   rather   than   at   partner   level.     Investment   committee   are   currently   investigating   this  further.     WHAT  WE  ARE  LOOKING  FOR   • World  class  administrator   WHAT  HOLLARD  NEEDS  AND    BRINGS   • Support   of   international   aspirations  

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• Have  in-­‐house  pricing  and   underwriting  skills   • Strong   distribution   skills,   including  

so   Hollard   can   support   roll-­‐out.     Eg   HGR   sees   as   a   complementary   business.   international   group  

consumer  education  and  marketing;   • Hollard   • World  class  team  at  low  cost,  due  to   their  motivation  to  address  the   poor;   • Capital  to  support  rapid  roll  out     • Strong  international  networks  and   credibility  which  opens  doors  

demanding   support   on   micro-­‐ insurance   (esp   Botswana   ,  

Mozambique,   Namibia   as   well   as   Jubilee  and  ADIC)     • Hollard  can  support  the  structuring,   business  support  and  risk  carrier   requirements  needed  to  increase   efficiency.  

  *Extracts   and   comments   from   a   Microinsurance   Business   Case   prepared   for         Hollard  by  its  New  Business  Team  .  



      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

It  is  instructive  and  useful    to  look  at  the  work  and  papers  done  by  others  on   Microinsurance  by  way  of  contextualizing  a  vast  subject.  An  excellent  starting   point  is  the    IAIS  Paper:         “Making  insurance  markets  work  for  the  poor:  A  synthesis  of  five  country  case   studies  on  the  role  of  regulation  in  the  development  of  microinsurance     markets.  “  By    Hennie  Bester,  Doubell  Chamberlain  and    Christine  Hougaard       I  quote  verbatim  from  the  paper  as  follows:     “The  objectives  of  this  project  were  to  map  the  experience  in  a  sample  of  five   developing  countries  (Colombia,  India,  the  Philippines,  South  Africa  and  Uganda)   where  microinsurance  products  have  evolved  and  to  consider  the  influence  that   policy,  regulation  and  supervision  have  had  on  the  development  of  these  markets.  

This  evidence  was  used  to  extract  cross-­‐country  lessons  that  seek  to  offer  guidance     to  policymakers,  regulators  and  supervisors  who  are  looking  to  support  the   development  of  microinsurance  in  their  jurisdiction.  It  must  be  emphasised  that   these  findings  do  not  provide  an  easy  recipe  for  developing  microinsurance  but   only  identify  some  of  the  key  issues  that  need  to  be  considered.  In  fact,  the   findings  emphasise  the  need  for  a  comprehensive  approach  that  is  informed  by,   and  tailored  to,  domestic  conditions  and      adjusted  continuously  as  the   environment  evolves.       Executive  summary     In  times  of  crisis,  poor  people  are  often  the  most  at  risk  and  least  able  to  protect   themselves.  Calamities  such  as  the  sudden  death  of  a  family  member,  illness  or   injury,  and  loss  of  income    or  property  can  increase  the  vulnerability  of  poor   people  and  perpetuate  poverty.  Insurance  can  mitigate  the  losses  from  such  risks.  

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However,  despite  the  growing  importance  and  rapid  expansion  of  insurance  

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services  geared  to  low-­‐income  households  (microinsurance),  many  poor  people   remain  without  adequate  protection.     This  report  presents  an  overview  of  the  role  of  policy,  regulation  and  supervision  in   the  development  of  microinsurance  markets  in  Colombia,  India,  the  Philippines,   South  Africa  and  Uganda.  This  evidence  is  then  used  to  extract  cross-­‐country   lessons  for  policymakers,  regulators  and  supervisors  looking  to  support  the   development  of  microinsurance  in  their  jurisdictions.       Salient  features  of  microinsurance  markets  in  the  sample  countries     The  microinsurance  markets  in  the  five  sample  countries  share  a  number  of  key   features.   These  are  important  for  understanding  the  evolution  of  microinsurance  markets:  


      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Low  uptake  of  insurance  and  microinsurance:  Total  insurance  use  is  extremely   low  in  the  sample  countries.  With  the  exception  of  South  Africa,  insurance   penetration  is  consistently  below  5%  of  Gross  Domestic  Product  (GDP).  Within  this,   the  take-­‐up  of  microinsurance  among  adults  is  even  more  constrained:  only  in   South  Africa  and  Colombia  do  more  than  10%  of  adults  have  microinsurance  –  and   much  of  this  provided  by  informal  insurers.     Large  proportion  of  the  population  falls  into  low-­‐income  categories:  A  large   proportion  of  the  population  live  on  less  than  $25  a  day.  This  ranges  from  19%  in   Colombia  to  96%  in  Uganda.  The  number  of  ultra-­‐poor  people,  those  living  on  less   than  $1  a  day,  is  also  significant.  The  low  level  of  income  has  two  immediate   implications.  Firstly,  it  suggests  that  microinsurance  is  not  a  peripheral  topic  but  is   the  appropriate  insurance  category  for  a  substantial  proportion  of  the  population.   Secondly,  it  implies  a  limited  disposable  income  for  insurance  products  and  a  high   opportunity  cost  of  doing  so.  

 Eros  Corporate  Tower   Nehru  Place.  it  is  still  significant.  The  overwhelming  majority  of  voluntary  products  are   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  ranging  from  20%  of  microinsurance  policyholders  in  India  to  52%  in   Colombia.  The  growth  of  microcredit  is  therefore   an  important  driver  of  microinsurance  growth.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  it  tends  to  be   funeral  insurance  policies  (South  Africa  and  Colombia)  or  policies  bundled  with   other  products  and  services.  Regus.   Even  in  the  countries  where  credit  life  does  not  make  up  most  of  the   microinsurance  market.  India   High  levels  of  informality:  In  all  of  the  countries  except  Uganda  the  informal   sector  is  estimated  to  account  for  a  sizable  amount  of  the  total  microinsurance   market.         15th  Floor.  New  Delhi  –  110  019.     Large  reliance  on  compulsory  credit-­‐based  insurance:  Formal  microinsurance  is   largely  comprised  of  compulsory  credit  life  policies  sold  on  the  back  of  microcredit.     Voluntary  sales  bundled  with  other  products  or  services  and/or  through   mutual/cooperative  channels:  Where  there  is  voluntary  take-­‐up.

 low  impact).         15th  Floor.  New  Delhi  –  110  019.     Demand-­‐side  factors:  understanding  the  insurance  decision   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  India   microfinance  institution  (MFI)  networks.  retailer  networks  (in  the  case  of  South   Africa)  or  even  utility  companies  (in  the  case  of  Colombia).  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  includes  limited  benefits.  simplified  products  typically  underwritten  on  a  group  basis  and  the   coverage  of  limited  risk  events  (typically  high  frequency.  These   include  factors  relating  to  the  demand  side.     Microinsurance  definitions  vary  but  share  low-­‐risk  features:  The  bulk  of   microinsurance  products  offered  in  the  sample  countries  share  features  that  help   to  limit  the  risk  (prudential   and  market  conduct)  of  these  products.  supply  side  and  regulatory   environment  as  well  as  to  the  overall  macroeconomic  context  and  infrastructure.sold  via  client  aggregators  such  as  cooperatives/mutual  associations.  short-­‐term   contracts.   Various  factors  affect  the  development  of  the  microinsurance  market.

 an  individual  will  only  buy  insurance  if  the  perceived   value  of  the  insurance  product  exceeds  the  perceived  opportunity  cost  of   purchasing  it.  is  impacted  by       (1)  the  fact  that  low-­‐income  people  place  a  disproportionally  high  value  on  current   consumption.  Regus.  in  turn.  India   consistent  patterns  of    ehaviour  in  the  individual  client’s  decision  to  buy  insurance   or  not.  Unless  compelled.  This  opportunity  cost  is  much   higher  for  a  low  income  consumer.  given  their  budget  constraints.  suggest  fairly         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  The  insurance  decision  can  thus  be  analysed  in  terms  of  the  various   factors  that  determine  perceived  cost  and  perceived  value.  but  also  by   what  the  person  needs  to  sacrifice  to  buy  insurance.  New  Delhi  –  110  019.Responses  in  focus  groups  conducted  as  part  of  each  country  study.  rather  than  future  benefits  (they   have  a  high  discount  rate).  Perceived  value.       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  as  well  as  the   salient  features  of  the  microinsurance  market  described  above.     Perceived  cost  is  determined  not  only  by  the  level  of  the  premium.

 and       (3)  the  probability  of  the  risk  event  occurring  (with  high  frequency  and/or         15th  Floor.  No  discovery  will  take  place   if  the  client  is  unaware  that  they  are  covered  by  insurance.  Regus.(2)  the  level  of  trust  in  the  institution  to  successfully  deliver  on  claims.  New  Delhi  –  110  019.  i.e.  that  the  consumers  are  introduced   to  the  product  in  a  way  that  allows  them  to  understand  its  potential  value  and   that  they  must  be  able  to  institute  a  successful  claim.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  experience  in  the  sample  countries  suggests  that  the  likelihood  of   positive  discovery  among  low-­‐income  clients  depends  on  the  distribution  channel   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     Supply-­‐side  factors:  making  microinsurance  markets    a  market  for  voluntary   microinsurance  where  none  exists  needs  business  models   That    facilitate  positive  market  discovery.  and  the  discovery  will   be  negative  if  a  claim  is  rejected  for  reasons  that  were  not  explained  at  the  time  of   purchase.  Eros  Corporate  Tower   Nehru  Place.  India   probability  risks  such  as  health  and  life  likely  to  receive  priority  in  the  minds  of   consumers).

 Regus.  India   1.       2.  Compulsion:  Compulsory  insurance  in  the  form  of  credit  insurance  on  the  back   of  loans  is  the  single  biggest  category  of  microinsurance  across  the  sample   countries.     3.  Reinvention:  In  the  absence  of  formal  insurance  provision.  but   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Five  distinctive  (though  not   exhaustive)  channels  were  identified:           15th  Floor.  or  simply  because   they  are  unable  to  afford  it.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .or  business  model  used  to  deliver  microinsurance.  thereby  effectively  reinventing   insurance.  low-­‐income  communities  develop  informal  risk   pooling  mechanisms  to  cope  with  risk  events.  Derived  demand:  This  happens  when  the  client  does  not  set  out  to  buy   insurance.  New  Delhi  –  110  019.  and  may  not  even  be  aware  of  the  existence  of  insurance  products.  Eros  Corporate  Tower   Nehru  Place.

 New  Delhi  –  110  019.           15th  Floor.g.  Passive  aggregators:  Such  models  leverage  existing  client  bases  (e.  Regus.  India   4.  2  and  3.  The  country  experience  is  that  the  bulk  of  microinsurance  is  sold  through   channels  1.  but   few  regulators  consider  the  consumer  protection  concerns  arising  from  the  captive   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  regulatory  models  often  favour  channel  5.  Regulation  may   (sometimes  unintentionally)  also  facilitate  channel  1  by  allowing  compulsion.  typically   face-­‐to-­‐face  with  the  client.  such  distribution  may  be  too  expensive  for  low-­‐premium   products.  but  it  can  also  be  done  through  out-­‐bound  call   centres.  retailers   as  aggregators)  or  reach  out  through  low-­‐cost  passive  sales  strategies.  however.     5.  Individual  agent-­‐based  outbound  sales:  The  traditional  model  where  an   individual  agent  sells  insurance  that  is  not  attached  to  another  product.  In   practice.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  making  this  model  unattractive  for  providers.is  induced  to  buy  a  product  based  on  his  or  her  demand  for  another  product  or   service  such  as  a  funeral  service.  Products   need  to  be  simplified  to  be  sold  through  such  channels.  However.  Eros  Corporate  Tower   Nehru  Place.

 regulatory  and  supervisory  framework     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  regulation  and  supervision  on  market  development     The  experience  of  the  sample  countries  shows  that  policy.  Regus.     Impact  of  policy.  India   market  for  a  new  product  –  they  rely  on  prior  discovery  through  another  channel   before  they  can  achieve  success.client  base  and  limited  competition.  but  evidence  suggests  that  these  agents  are  unable  to  create  a         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  regulation  (including   regulation  not  specific  to  insurance)  and  supervision  impacts  on  microinsurance   development  in  various  ways:         General  features  of  the  policy.  Channel  4  holds  great  potential  for  market   development.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

          15th  Floor.     Regulatory  uncertainty  undermines  microinsurance  development.     Financial  inclusion  policy  and  regulation   Financial  inclusion  policy  and  regulation  can  push  microinsurance  development   but  long  term  market  growth  and  scale  depends  on  the  financial  viability  of  selling   the  products  in  the  given  market.  the  need  for  a  dedicated   microinsurance  dispensation  is  reduced.  If  the  overall  regulatory  burden  is  low.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  India   The  overall  regulatory  burden  determines  the  need  for  a  dedicated  microinsurance   dispensation.Pro-­‐active  and  inclusionary  regulatory  approaches  generally  are  more  supportive   of  microinsurance  development  than  reactive  and  exclusionary  approaches.  New  Delhi  –  110  019.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     Regulators  and  supervisors  need  a  clear  mandate  to  support  development.

  formalisation  and  growth  while  still  maintaining  prudential  standards.  The  result  may  often  be  to  fuel  the  informal  sector.  prudential  barriers  are  not  successful  as  the  supervisor  does   not  have  the  capacity  to  enforce  the  regulations  on  all  potential  market   participants.  India   Unnecessarily  high  regulatory  barriers  undermine  the  entry  and  formalisation  of   potentially  legitimate  providers.  Regus.  New  Delhi  –  110  019.  As  a  strategy  to  compensate  for  limited   supervisory  capacity.  Eros  Corporate  Tower   Nehru  Place.Prudential  regulation           15th  Floor.  entities  writing  the  same  kind  of  risk   should  face  a  similar  regulatory  burden.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Following  a  risk-­‐based  approach.     Unlevel  playing  fields  introduce  a  bias  against  provision  by  potentially  legitimate   players.     Tiering  and  graduation  have  been  used  in  the  sample  countries  to  facilitate  entry.     Unnecessary  restrictions  on  institutional  types  may  exclude  legitimate  providers.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 This  approach  effectively  requires  the  regulator  to  be  able  to  ‘pick   winners’.   Where  the  regulator  has  implemented  measures  to  improve  governance   structures  rather  than  excluding  such  institutions.     Sound  corporate  governance  allows  regulators  and  supervisors  to  leverage   nontraditional  institutional  types.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  Regus.  making  it   difficult  for  new  business  models  with  different  legal  identities  to  enter  the   market.  excluding  such  institutional  types  may   impede  development.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   (and  intermediation)  to  specific  and  predetermined  institutional  types.  a  whole  new  category  of   entities  were  able  to  support  market  development.  which  it  often  does  not  have  the  capacity  to  do.Where  regulators  follow  an  exclusionary  approach  they  may  limit  underwriting         15th  Floor.  Weak  governance  for  a  particular  category  of   institution  (such  as  cooperatives)  means  that  a  much  higher  regulatory  effort  is   required  to  ensure  compliance.  However.

    Impact  of  macro-­‐economic  conditions  and  infrastructure     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     Product  regulation     Weak  insurance  definitions  result  in  regulatory  avoidance  and  arbitrage.  New  Delhi  –  110  019.  India   several  of  the  sample  countries  weaknesses  and  gaps  in  insurance  definitions  have   been  exploited  to  avoid  regulation.  Regus.  non-­‐life  and  health  elements.  illustrating  the  need  for  clear  definitions  of   insurance  business.Demarcation  shapes  provider  models.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Strict  demarcation  increases  the  cost  of   offering  a  product  that  combines  life.  Eros  Corporate  Tower   Nehru  Place.  In         15th  Floor.     Low-­‐risk  features  of  microinsurance  products  have  allowed  regulators  to  structure   regulatory  definitions  suited  to  the  risk.

 New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.     Privatisation/liberalisation  may  increase  competition  and  have  been  associated   with  the  development  of  insurance  markets  in  the  sample  countries.  but  may  still  have  a   significant  impact  on  microinsurance  development  and  need  to  be  taken  into   account:     Economic  growth  stimulates  insurance  take-­‐up  by  increasing  available  income.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .           15th  Floor.     High  levels  of  inflation  may  undermine  the  insurance  value  proposition  if  not   managed.These  factors  are  often  beyond  the  control  of  the  authorities.  but  may  subsequently  lead  to  improved   regulation  and  increased  competition.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   Financial  crises  can  destroy  trust  in  insurance  products  if  they  destroy  policyholder   value  or  insurance  providers  go  bust.

 Regus.Strong  physical.  are  based  on  the  analysis  of  the  experience  of  the  sample  countries.  regulators  and   supervisors  looking  to  support  the  development  of  microinsurance  in  their   jurisdictions.     Policy  guidelines     Guideline  1:  Take  active  steps  to  develop  a  microinsurance  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  for  consideration  by  policymakers.  India   The  following  guidelines.  low-­‐income  clients  may  have  limited   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     Emerging  guidelines           15th  Floor.  At  the  same  time.  Low-­‐premium  products  are  often  regarded  as   unprofitable  by  insurers.  social  and  commercial  infrastructure  aid  microinsurance   development.       Most  microinsurance  markets  develop  by  extending  insurance  to  client  groups  not   currently  served  by  formal  insurers.

 Regus.     Guideline  2:  Adopt  a  policy  on  microinsurance  as  part  of  the  broader  goal  of   financial    inclusion.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .      Public  policy  expresses  the  intent  of  government.  For  this  reason.  India   important  to  confer  a  market  development  mandate  on  regulators  over  and  above   their  normal  supervisory  mandate.  It  also  allows   space  for  market  experimentation  while  monitoring  risk  and  responding  with   appropriate  policy  statements  and  regulatory    adjustments.  and  implies  that  regulators  will  consider   both  formal  and  informal  providers  and  formalisation  challenges.  To  overcome  these  challenges   microinsurance  markets  have  to  be  triggered  or  made.  may  have  a  high  internal  discount  rate  and  often  exhibit   an  inherent  distrust  of  formal  insurers.  Explicit  policy  objectives  on   microinsurance  market  development  provide  market  players  with  the  necessary   security  and  guidance  to  invest  with  confidence  in  market  areas  where  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  This  mandate  requires  an  understanding  of   both  the  existing  and  potential  market.  it  is         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.knowledge  of  insurance.  New  Delhi  –  110  019.

     Microinsurance  products  require  small  premiums  to  be  affordable  to  low-­‐income   clients.  appropriate         15th  Floor.  India   to  the  circumstances  of  the  country  and  preceded  by  broad-­‐ranging  consultations.  Achieving  this  may  necessitate  a  reduced   compliance  burden  (both  prudential  and  market  conduct)  in  jurisdictions  with  a   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   The  policy  must  be  aligned  with  other  government  policy  objectives.   The  policy  should  facilitate  both  outreach  by  registered  insurers  and  formalisation   of  informal  insurers.  as   is  often  the  case  with  microinsurance.  Eros  Corporate  Tower   Nehru  Place.     Prudential  guidelines     Guideline  3:  Define  a  microinsurance  product  category.  Regus.regulatory  framework  may  still  be  uncertain  or  in  the  process  of  development.  Profitable  microinsurance  operations  therefore  depend  on  least-­‐cost   underwriting  and  distribution.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   It  should  be  located  within  government’s  broader  approach  to  financial  inclusion.  New  Delhi  –  110  019.

 The  income  level   of  the  prospective  policyholder  is  not  considered  a  viable  element  of  a   microinsurance  definition  as  the  verification  of  income  is  too  expensive  and  often   of  suspect  integrity.  Eros  Corporate  Tower   Nehru  Place.high  regulatory  burden.  This  requires  the  regulatory  definition  of  a   microinsurance  product  category  that  entails  systematically  lower  risk.  Generally.  India   can  be  achieved  through  limits  on  benefit  values.  prudential  and  market   conduct  requirements  can  be  tailored  accordingly  to  allow  for  lower-­‐cost   underwriting  and  distribution  targeted  at  the  low-­‐income  market  (while   maintaining  sufficient  standards  to  protect  clients  and  maintain  trust).  as  well  as  the  simplification  of  policy  terms.  only  be   justified  on  the  basis  of  reduced  risk.  This         15th  Floor.  however.     Once  a  product  category  has  been  defined  to  lower  risk.  policy  contract  duration  and  the   risk  events  covered.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .     Guideline  4:  Tailor  regulation  to  the  risk  character  of  the  microinsurance  product   category.  Such  a  reduced  compliance  burden  can.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  Regus.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   levels  the  playing  field     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.this  can  either  be  done  through  exemptions    from  certain  requirements.   Allowing  various  institutional  forms  to  register  as  microinsurance  providers.  however.  Regus.     Guideline  5:  Allow  microinsurance  underwriting  by  multiple  entities.   Existing  regulation.  or  may  even  explicitly  exclude  them.  The  option  implemented  must  be  based  on  a  detailed   assessment  of  the  local  market  and  regulatory  environment  to  ensure  the   development  of  risk-­‐proportionate  rules.  or  by         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  India   creating  a  reduced-­‐burden  (in  terms  of  entry  and  other  requirements)  regulatory   tier  for  microinsurance.    often  makes  it  too  onerous  for  these  community-­‐ based  mutuals  to  register  as  formal  insurers.  New  Delhi  –  110  019.       Member-­‐based  mutual-­‐type  institutions  tend  to  fare  better  than  traditional   insurers  in  offering  microinsurance  in  countries  where  this  is  part  of  the  social  life.   should  they  meet  the  same  regulatory  and  corporate  governance  requirements.

        Market  conduct  guidelines     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  limited  supervisory  resources  usually  make  this  difficult  to  achieve.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .           15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  Regus.  India    Unlicensed  insurance  providers  usually  emerge  in  response  to  real  needs  for  risk   mitigation  within  low-­‐income  communities.  and  serve  a  valuable  social  and   economic  function.  the  supervisor  must  be  careful  not  to   overreach  its  capacity  or  make  idle  threats.Guideline  6:  Provide  a  path  for  formalisation.   Throughout  the  formalisation  process.  thereby  undermining  its  credibility.  The   best  way  forward  is  to  define  a  clear  evolution  path  whereby  informal  institutions   can  gradually  and  realistically  meet  the  minimum  regulatory  requirements.  Therefore  formalisation  is  in  the  public  interest.  Yet  they  may  lead  to  consumer  abuse  and  may  fail  due  to   inadequate  risk  management.   However.

 future  funeral  services.  Eros  Corporate  Tower   Nehru  Place.  mobile  phones  or  other  financial  services  such  as   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Increasingly  new         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  particularly  with  another  product  or  service.Guideline  7:  Create  a  flexible  regime  for  the  distribution  of  microinsurance.  India   technologies  are  being  employed  in  this  quest.       Experience  shows  that  voluntary  microinsurance  uptake  is  highest  when  it  is   actively  sold.  such  as  loans  or  credit   goods.      Low-­‐cost.  Substantial  benefit  can  therefore  be  obtained  by  allowing  these   channels  to  grow  and  intermediate  microinsurance.  labour  unions.  New  Delhi  –  110  019.  Appropriate  measures  to   control  market  conduct  risk  need  to  be  in  place.     Guideline  8:  Facilitate  the  active  selling  of  microinsurance.  geographically  accessible  distribution  through  trusted  channels  is   essential  for  successful          microinsurance  development.  Not  all  of  these   intermediaries  fit  comfortably  into  the  traditional  broker/agent  regulatory   definitions.  church  groups  or  public  utilities.  as  well  as  alternative  channels  such   as  retailers.  Regus.

 Eros  Corporate  Tower   Nehru  Place.  The  supervisor’s  task  is  therefore   a  balancing  act:  to  regulate  and  enforce  in  such  a  way  as  not  to  make  conditions   overly  onerous  on  market  players.   The  imperative  is  therefore  to  avoid  market  conduct  regulation  that  can   make  the  individual  sales  process  too  costly.  India   already  thin-­‐margin.  Regus.  while  at  the  same  time  responding  to  abuse   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.banking  services.     Supervision  and  enforcement     Guideline  9:  Monitor  market  developments  and  respond  with  appropriate   regulatory  adjustments.  however.  simplifying  terms  and  conditions.  New  Delhi  –  110  019.  One-­‐on-­‐one  sales  are.      and  by  avoiding  price  controls  on  the  intermediation  process.  expensive  and  can  easily  push         15th  Floor.      While  effective  enforcement  of  regulation  is  needed.  This  is  best  done  by  standardising   microinsurance  products.  the  microinsurance    market   at  the  same  time  needs  the  space  for  innovation.  ensuring  adequate   disclosure.  low-­‐premium  microinsurance  products  into  unprofitability.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

  therefore.  Eros  Corporate  Tower   Nehru  Place.  For  example.  New  Delhi  –  110  019.  This  may  take  several  forms  and  should  be  designed  around  the   specific  conditions  and  entities  in  the      market.  it  is  important  that         15th  Floor.  Directing  capacity  to  high  risk   areas  while  monitoring  unregulated  areas  for  changes  in  risk  profile  may.  the  supervision  of   certain  market  players  (such  as  primary  cooperatives)  may  be  delegated  to   entities  such  as  secondary/umbrella  cooperatives      providing  services  to  primary   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  be  the  only  option  available  within  resource  constraints.  supervisory  approaches   that  draw  on  the  capacity  of  market  participants  and  other  entities  may  enhance   supervision.through  careful      market  monitoring.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  For  this  purpose.  The  reality  of   limited  capacity  may  also  mean  that    some  areas  of  the  market  may  remain   completely  unregulated.       Guideline  10:  Use  market  capacity  to  support  supervision  in  low-­‐risk  areas.       In  an  environment  of  constrained  supervisory  capacity.  India   minimum  levels  of  information  must  be  submitted  to  the  supervisor.  Regus.

 most  poor   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  poor  people  are  often  the  most  at  risk  and  the  least  able  to   protect  themselves.  Calamities  such  as  the  sudden  death  of  a  family  member.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .cooperatives.   illness  or  injury.  Eros  Corporate  Tower   Nehru  Place.  Financial  markets  –  and  insurance  services  in   particular  –  can  mitigate  the  losses  resulting  from  such  risks.  India   poor  people  and  perpetuate  poverty.  Regus.   however.  The  supervision  of  tied  agents  may  also  be      delegated  to  insurers  to   ensure  that  agents  are  appropriately  trained  and  behave  in  an   appropriate  manner.  and          loss  of  income  or  property  can  increase  the  vulnerability  of         15th  Floor.  Introduction     In  times  of  crisis.  are  out  of  reach  for  millions  of  poor  people  and  disadvantaged  groups.         1.  New  Delhi  –  110  019.  These  services.   insurance  services  geared  to  low-­‐income  households6).   Despite  the  growing  importance  and  rapid  expansion  of    microinsurance  (i.e.

 domestic  conditions  and  adjusted  continuously  as  the   environment  evolves.  Eros  Corporate  Tower   Nehru  Place.  India   This  report  presents  an  overview  of  the  findings  of  a  five-­‐country  case  study  on  the   role  of  regulation  in  the  development  of  microinsurance  markets.  From  this  evidence.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India.  the    Philippines.  where  microinsurance   products  have  evolved  and  to  consider  the  influence  of  policy.  South  Africa  and  Uganda.   Colombia.  The  objectives  of   this  project  are  to  map  the  experience  in  a  sample  of  five  developing  countries.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  findings  emphasise  the  need  for  a  comprehensive  approach   informed  by.  New  Delhi  –  110  019.  cross-­‐ country  lessons  are  extracted  that  offer  guidance  to  policymakers.people  are  still  without  adequate  protection.  It  must  be  emphasised  that  these  findings  do  not  provide  an  easy   recipe  for  developing  microinsurance  but  only  identify  some  of  the  key   issues.           15th  Floor.  regulators  and   supervisors  who  are  looking  to  support  the  development  of  microinsurance  in  their   jurisdictions.  regulation  and   supervision  on  the  development  of  these  markets.  and  tailored  to.  Regus.  In  fact.

 FinMark  Trust  was  contracted   to  design  and  manage  the  project.bmz.  Section  3  summarises  the   microinsurance  experience  of  the    five  countries.org)  along  with  funding  and  technical  support  from  the   South  Africa-­‐based  FinMark  Trust    (www.The  project  is  majority  funded  by  the  Canadian  International  Development   Research  Centre  (www.    Together  with  representatives  of  the  IAIS.  the   Microinsurance  Centre  and  the  ICMIF.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.idrc.org.gatesfoundation.  and  Section  6   concludes  with  the  emerging  guidelines  arising  from  the  cross-­‐country   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.za)7  and  the  German   GTZ8  (www.gtz.  Section  5  proposes  an   approach  to  carving  out  a  microinsurance  space  within  regulation.finmarktrust.  Regus.  Eros  Corporate  Tower   Nehru  Place.     This  document  is  organised  in  five  sections:  Section  2  sets  out  the  analytical   framework    applied  in  the  rest  of  the  study.  India   (www.ca)  and  the  Bill  &  Melinda  Gates  Foundation         15th  Floor.  Section  4  looks  at  the  drivers  of   microinsurance  market  development  in  the  countries.  the  funders  are  represented  on  an  advisory   committee  overseeing  the  study.de/en/).de)  and  BMZ9      (www.

 These  lenses.  Analytical  framework           15th  Floor.           2.  We   start  with  a  description  of  the  analytical  framework.  Regus.  The  emerging  guidelines  are  intended  as  informative  implementation   tools  for  developing  country  policymakers.       2.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  Financial  inclusion  framework     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   This  study  applies  a  number  of  lenses  to  the  evolution  of  microinsurance  markets   in  the  five  countries.  collectively  referred  to  as  the  analytical   framework.1.  regulators  and  supervisors.lessons.  in  turn  inform  the  synthesis  of  drivers  and  cross-­‐cutting  findings.

 Eros  Corporate  Tower   Nehru  Place.  The  overall  level  of  inclusion  achieved  is  determined  by   a  variety  of  factors  affecting  the  individual  directly  (demand-­‐side  factors)  as  well   as  the  institutions  providing  the  services  (supply-­‐side  factors).  Access  frontier     The  access  frontier  (Porteous.  New  Delhi  –  110  019.  Regus.  Ultimately.   more  inclusive  financial  systems  are  the  desired  outcome  of  the  emerging   guidelines  proposed  in  this  report.  It  also  seeks  to  identify  those   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   insurance  market.  2005)  seeks  to  map  the  current  and  potential   market  for  financial  products  and  providers.2.The  five  country  studies  explored  the  drivers  of  financial  inclusion  within  the         15th  Floor.  in  particular  considering  the  impact  of  regulation.     Financial  inclusion  is  achieved  when  consumers  across  the  income  spectrum  in  a   country  can  access  and  sustainably  use  financial  services  that  are  affordable  and   appropriate  to  their  needs.       2.

 for  example.   microinsurance  should  mitigate  the  most  material  risks  of  a  poor   client  in  a  way  that  is  affordable  and  appropriate  to  the  low-­‐income  market.  This  is  achieved  by  more  predictable         15th  Floor.  Why  is  it  important  to  develop   microinsurance  markets?  The  ultimate  goal  of  microinsurance  is  to  enable  the   poor  to  mitigate  their  material  risks  through  the  insurance  market  in  order  to   reduce  vulnerability.  microinsurance  may  also  stimulate  the   provision  of  other  services  that  are  important  to  the  poor.segments  of  the  population  which  will  remain  beyond  the  reach  of  the  market  and   therefore  fall  within  the  scope  of  government  social  welfare.  funeral  services  or  health  services.3.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  thereby  increasing  their  welfare.  Regus.   In  the  process  of  mitigating  their  risk.  credit   services.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.       2.  To  be  successful.  Goal  of  microinsurance       The  country  studies  in  this  report  focus  on  the  role  the  insurance  market  can  play   in  reducing  the  vulnerability  of  poor  people.  Eros  Corporate  Tower   Nehru  Place.

 Microinsurance  enhances  the  welfare  of  the   poor  by  addressing  material  risks  as  well  as      supporting  the  delivery  of  critical   services.  low  income  insurance  products  should  also  be  affordable  and   appropriate  to  the  needs  of  the  poor.  of  insurance  products  is  not   sufficient  to  achieve  the  goal  of  reduced  vulnerability  and  improved  welfare.  Eros  Corporate  Tower   Nehru  Place.  which  in      turn  ensure  viability  of  the  provision  of  such   services  to  the  low-­‐income  market.  If  it  is   difficult  or  impossible  for  a  low-­‐income  client  to  make  a  legitimate  claim  on  their   insurance  policy  it  will  not  reduce  vulnerability  and  renders  the  product  of   little  value.  Providers  and  intermediaries  should  also  treat  consumers  fairly.income  flows  to  providers.     The  country  evidence  shows  that  microinsurance  take-­‐up  is  often  not  the  result  of   voluntary    strategies  by  the  poor  to  mitigate  their  material  risks.  or  even  take-­‐up.  New  Delhi  –  110  019.         15th  Floor.  Rather.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   It  must  be  noted  that  the  availability.  To   deliver  value.  This  requires  sufficient  awareness  of  the   availability  and  value  of  insurance  among  the          poor  as  well  as  the  ability  to  claim   on  policies.  it  is  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.

 this  means  that  the   risk  insured  under  a  microinsurance  policy  is  managed  based  on  insurance   principles  and  funded  by  premiums”.4.  and  benefits   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  Importantly.  microinsurance  may  still  deliver  significant  value  to  the  client   but  care  is  needed  to  ensure  fair  treatment  of  the  low-­‐income  consumer.outcome  of  compulsion  by  credit  providers  seeking  to  cover  their  own  exposure  to   default.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   Conceptual  definition:  Microinsurance  is  defined  by  the  IAIS  (2007b)  as  “insurance   that  is  accessed  by  the  low-­‐income  population.  but  run  in  accordance  with  generally  accepted  insurance  practices  (which   should    include  the  Insurance  Core  Principles).  Eros  Corporate  Tower   Nehru  Place.     It  therefore  excludes  social  welfare  as  well  as  emergency  assistance  by     governments.     2.  Definition  of  microinsurance             15th  Floor.  “as  this  is  not  funded  by  premiums  relating  to  the  risk.  provided  by  a  variety  of  different   entities.  In  this  case.

        15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Benefits  may  include  one  or  more  sums  of  money.  2007b).  This  market  often  needs  distinctive  methods  of  distribution  and  distinctly   structured  products.  including  an  annuity.  India   This  definition  encompasses  three  concepts  that  require  further  explanation  in  the   context  of  this  study:  “insurance.  “accessible  to/accessed  by”.  social  welfare  in  that  it  is  funded  by  premiums  relating  to  the  risk.  and  in   that  benefits  are  paid  out  of  a  pool  of  funds  that  is  managed  on  insurance  and  risk   principles  (IAIS.  services   or  other  benefits.     Insurance:  Generally.  in  return   for  a  premium.  the  “low-­‐income   population”.  Regus.  insurance  denotes  a  contract  whereby  an  insurer.  Eros  Corporate  Tower   Nehru  Place.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Microinsurance  forms  part  of  the  broader   insurance  market.  distinguished  by  its  particular  low-­‐income  market  segment   focus.  New  Delhi  –  110  019.  undertakes  to  provide  policy  benefits.  for   example.  It  is  distinguished  from.are  not  paid  out  of  a  pool  of    funds  that  is  managed  based  on  insurance  and  risk   principles”.

 India   the  low-­‐income  population.g.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  affordability)  of  an  insurance  mechanism  and  will  remain   the  dependent  on  the  social  security  system.  $1  or  $2   adjusted  for  purchasing  power  parity).  Microinsurance  is  not  strictly  limited  to  those  living   under  the  national  poverty  line  or  the  comparative  measures  (e.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   Furthermore.g.  therefore.Accessible  to:  Microinsurance  products  need  to  be  accessible  and  appropriate  to         15th  Floor.  Regus.       The  low-­‐income  population:  This  study  does  not  propose  a  specific  income  cut-­‐off   for  the  microinsurance  target  market.e.  The  target  market  should  be  defined  within   the  local  country  context.  require  low-­‐premium  products.  i.  that  the  low-­‐income  population  be  in  a  position  to   sustainably  use  such  products  (including  claiming).  New  Delhi  –  110  019.  low-­‐income  levels  generally  mean  that  even  the  middle-­‐income  class   (not  classified  as  poor  under  the  national  poverty  line)  in  a  particular  country  will   have  relatively  low  income  levels  and.  Many  of  these  households  may  actually  be   beyond  the  reach  (e.  Eros  Corporate  Tower   Nehru  Place.

 conditions  and  processes.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  or   the  client.  Eros  Corporate  Tower   Nehru  Place.  Regus.  India   Operational  definition:  Definitions  based  on  the  income  levels  of  the  purchaser.  As  result.         15th  Floor.  thereby  ensuring  that  it  is  mostly  (but   not  exclusively)  targeted  at  the  poor.  or  insurance  for  motorcycles  or  cellphones.g.  funeral   insurance.  and     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  especially  channels  accessible  to  the  poor.  which  are  important  to  the   low-­‐income  market  for  business  purposes)     Distribution  channels.  the  practical   definitions  applied  by  the  market  or  regulator  mostly  define  microinsurance   policies  by  setting  benefit  or  premium  limits.  Other  functional  criteria  used  to  define   microinsurance  (virtually  always  in  combination  with  a  benefit  cap)  include  the   following:     Product  categories  that  particularly  reflect  the  needs  of  the  poor  (e.   Simplicity  of  terms.  are  difficult  and  costly  to  implement  in  practice.

 Eros  Corporate  Tower   Nehru  Place.  India   activities  differ  and  they  are  regulated  by  different  regulators  and    supervisors  or   not  at  all.Contract  characteristics.5.  for  example  limiting  exclusions  that  may  be  difficult  for   clients  to  understand  or  allowing  clients  to  catch  up  on  occasionally  missed   premiums  without  lapsing  the  policy     More  details  on  the  definitions  applied  in  the  sample  countries  are  in  Section  3.  Unlike  the  transaction   banking  value  chain.  The  insurance  value  chain   Delivering  an  insurance  product  to  a  client  comprises  a  number  of  activities   collectively  referred  to  as  the  insurance  value  chain.  The  risks  attached  to  the  various         15th  Floor.       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.       2.  the  various  activities  comprising  the  insurance  value  chain  are  typically   performed  by  more  than  one  legal  entity.  New  Delhi  –  110  019.  where  the  activities  are  often  performed  by  the  same  legal   entity.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.

 The  distinction  between  formal  and  informal           15th  Floor.  Key  issues   to  consider  include  the  reasons  for  informality  and  what  the  appropriate  policy   and  regulatory  response  should  be.     Informal:  Informal  financial  services  refer  to  everything  that  is  not  formal  as   defined  above  and  includes  a  wide  range  of  providers.g.  reference  is  made  to  informal  and  formal  (or  regulated   and  unregulated)  markets.  India   Throughout  this  document.6.  In   some  cases  informal  markets    may  also  include  formal  legal  entities  (e.  funeral   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  New  Delhi  –  110  019.  At  its  simplest  this  includes   completely  informal  societies  that  are  often  of  a  community  and  mutual  nature.  products.  Eros  Corporate  Tower   Nehru  Place.  It  is  therefore  important  to  clarify  what  is   implied  by  informality:     Formal:  Formal  financial  products  and  services  are  defined  as  products  or  services   provided  by  financial  service  providers  that  are  registered  with  a  public  authority   to  provide  such    services.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  providers  or  distribution  channels.2.

  The  informal  financial  sector  can  play  a  crucial  role  in  financial  sector   development.  India   Specific  providers  or  products  may  be  exempted  from  insurance  regulation  or  may   simply  be  operating  in  the  absence  of  regulation.  The  existence  of  large  informal  markets  is  a  key  indication  of   demand  for  insurance  products  not  met  by  the  formal  market  as  well  as  potential   barriers  to  formalisation  and  market  development.         15th  Floor.  New  Delhi  –  110  019.  Informal  institutions  often  fill   the  vacuum  created  in  the  process  of  formalisation  by  acting  as  distribution   mechanisms  or  by  providing  the  service  themselves.  When  a  particular  section  of  the   formal  market  is  regulated  in  theory  but  not  supervised  in  practice.  it  may  actually   present  similar  risk  and  challenges  to  the  informal  sector.  Informal  insurance  is  not  necessarily  illegal.     The  scale  and  number  of  informal  insurance  providers  provides  a  reality  check  on   the  challenges  for  supervisors  and  regulation  that  attempts  to  formalise  these   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.parlours)  providing  insurance  without  being  regulated  for  the  purposes  of  doing   so.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 the  objective  is  to  facilitate  the  development  of  the   formal  sector  and  encourage  formalisation  while  at  the  same  time  preserving  the   critical  services  the  informal  sector  is  providing.     The  Insurance  Core  Principles  (ICPs  –  IAIS.  India   From  an  inclusion  perspective.  and  to  have  the  tools   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  In  this  section  we  note  the  definitions  and   concepts  that  are  applied  in  the  discussion  of  risk.  the  supervision  of  this  sector  may  simply  fall  beyond  the   logistical  or  resource  capacity  of  the  supervisor.  In  many  cases.     2.  New  Delhi  –  110  019.         15th  Floor.  in  particular  through  reinsurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.markets.  2003)  hold  that  “the  supervisory   authority  requires  insurers  to  recognise  the  range  of  risks  that  they  face  and  to   assess  and  manage  them  effectively”  (ICP  18)  and  to  “evaluate  and  manage  the   risks  that  they  underwrite.  Regus.  Categories  of  risk     The  definition  and  analysis  of  risk  and  its  various  drivers  is  central  to  the  analysis   and  proposals  in  this  document.7.

 Regus.  New  Delhi  –  110  019.  Insurance  provides  benefits  on  a  defined  risk  event  in   return  for  premiums  that  are  paid  in  advance.  A  contractual  commitment  to   provide  benefits  creates  the  risk  that  the  insurer’s  liabilities  in  respect  of  expected   future  claims  at  some  point  in  time  may  exceed  the  assets  they  have  available  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  market  conduct  risk    and  supervisory  risk:     Prudential  risk  refers  to  the  risk  that  the  insurer  is  unable  to  meet  its  obligations   under  an  insurance  contract.  it  is  the   responsibility  of  the  board  (via  good  corporate  governance  practices)  to  ensure   that  risk  is  adequately  managed.  and  by  developing  prudential   requirements  to  contain  these  risks.     The  risk  of  insurance  business  stems  from  a  variety  of  reasons.  In  the  final  instance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   management  controls  and  monitoring  systems.  To  simplify  the   discussion  in  this  document  we  distinguish  three  (interdependent)  categories  of   risks:  prudential  risk.  ICP  18  states  that  the   insurance  supervisor  plays  a  critical  role  by  reviewing  the  insurer’s  risk         15th  Floor.to  establish  an  adequate  level  of  premiums”  (ICP  19).  Eros  Corporate  Tower   Nehru  Place.

 credit  risk.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   frequency  and  impact.  this  is  the  risk  that  clients   are  sold  products  they  do  not  understand.  The  product-­‐driven  nature  of  underwriting  risk  is  a   key  feature  of  risk  that  we  return  to  later  in  this  document.  and   the  complexity  of  the  product.  the  benefit  value.     Market  conduct  risk    refers  to  the  risk  that  the  client  is  not  treated  fairly  and/or   does  not  receive  a  payout  on  a  valid  claim.  2004).  Eros  Corporate  Tower   Nehru  Place.  Prudential  risk  is  in  the   first  instance  determined  by  the  nature  .  Key  insurance  product  features   that  affect  risk  are:    the  nature  of  the  risk  event  covered  and  its  expected         15th  Floor.meet  those  claims.  New  Delhi  –  110  019.  Regus.  the  duration  of  the  product  contract.  are  not  appropriate  to  their  needs.  These  categories  as  are  in  line  with  the   solvency  methodologies  outlined  in  IAA  (2004)  and  IAIS  (2007a)  of  the  insurance   products  in  an  insurance  portfolio  (underwriting  risk  determined  by  the  likelihood   and  size  of  exposure)  and  secondly  by  how  the  insurer  is  managing  and   providing  for  its  obligations  under  these  policies.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  operational  risk  and  liquidity  risk  (IAA.   market  risk.  Effectively.  This  is  driven  by  a  number  of  more  specific  risks  categorised  by   the  International  Actuarial  Association  (IAA)  as  underwriting  risk.

 standalone/embedded  nature  of  the  product.     Supervisory  risk  refers  to  the  risk  that  the  supervisor  is  unable  to  sufficiently   supervise  (due  to  limited  capacity)  specific  components  of  the  market.  In  some  insurance  literature.  This  is  not  included  in  the   definition  of  market  conduct  applied  in  this  document.  The  result   of  this  is  that  an  insurer  or  insurance  product  with  low  technical/underwriting  risk   may  actually  turn  out  to  have  a  high  risk  to  the  system  because  it  is  not   appropriately  supervised.  level  of  cover  provided).  Regus.  Eros  Corporate  Tower   Nehru  Place.  market  conduct   risk  may  also  refer  to  the  risk  arising  from  the  insufficient  disclosure  of  financial   information  by  the  insurer  to  investors  and  supervisors.  nature  of  the  claims  process)  and  the  nature  of  the  client  (level  of   sophistication  and  financial  literacy).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .and/or  that  they    will  not  be  able  to  claim  on.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   including:  the  nature  of  the  product  (product  complexity.  New  Delhi  –  110  019.  the  level  of  disclosure  or   advice.   the  nature  of  the  intermediation  process  (compulsory/voluntary  nature  of  the   purchase.  This  risk  is  driven  by  various  factors         15th  Floor.

1.  the   political  economy.2.  Likewise.  Many  insurance  markets  initially  developed  in  an   unregulated  environment.  Regus.  and  the   demographic  profile  of  the  country  (gender.8.  such  as  the  macroeconomic  environment.8.  The  first  pitfall  to  guard  against  is  therefore  to  think   that  markets  develop  as  a  result  of  regulation.  a  country  undergoing  financial   liberalisation  or  recovering  from  a  financial  sector  crisis  or  recession  will  face   different  policy  challenges  with  its  insurance  regulatory  framework  than  other   countries.  India   2.  New  Delhi  –  110  019.  or   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  income  levels  and   the  distribution  of  income).  a  country  where  the  majority  of  the  population  is  poor.  Eros  Corporate  Tower   Nehru  Place.  Largely  they  do  not.  Regulatory  vs  non-­‐regulatory  drivers  of  market  development     This  report  is  about  the  impact  of  regulation  on  the  development  of   microinsurance  markets.  Policy.  the  general  and  financial  sector  infrastructure.  For  example.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  regulation  and  supervision           15th  Floor.  age.  The  insurance   sector  is  affected  by  external  factors  in  the  financial  sector  and  by  the  economic   and  country  context  more  broadly.

2.  New  Delhi  –  110  019.  India   cases.  Whereas  this  distinction  is  quite  clear  in  certain         15th  Floor.  Purpose  of  insurance  regulation   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  approach  in  this   study  is  to  identify  the  non-­‐  market  conduct  concerns  may  impact  on  prudential   risk  in  that  the  reputational  damage  may.  Regus.8.     The  first  challenge  is  to  distinguish  between  the  regulatory  and  non-­‐regulatory   drivers  of  market  development.where  the  financial  sector  and  other  infrastructure  are  poorly  developed.  will  face   different  circumstances  and  goals  than  other  countries.g.  lead  to  an  insurer  becoming   insolvent  but  it  is  still  quite  distinct  from  it.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   ..  causality  is  often  a  matter  of  degree  and  even  opinion.  As  far  as  possible  we  identify  all  the  potential  impacts  of   regulation.       2.  Regulatory  drivers  of  market   development  at  a  high  level  to  provide  the  general  context  for      tracing  the  impact   of  regulation.  e.  even  though  in  many  cases  regulatory  drivers  may  have  been   overridden  by  other  market  factors.  Eros  Corporate  Tower   Nehru  Place.

 corporate  governance  requirements.  but  is  the  means   to  ensure  the  existence  and  development  of  a  well-­‐functioning  market.  including   the  poor.  In  seeking  to  achieve  the  goal  of  a  well-­‐functioning  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  this  is  often  the  one  that  has  been  pursued  for  the  longest   time.  Among  the   regulatory  objectives.         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  fit  and  proper   requirements  and  other  aspects  of  the  regulatory  framework.  New  Delhi  –  110  019.  Regus.  regulators  and  supervisors  pursue  a  number  of  more  specific   objectives  including:     Stability  of  the  sector:       This  objective  is  sought  by  ensuring  the  soundness  of  operators  and  may  resonate   in  capital  requirements.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  well-­‐ functioning  market  includes  serving  the  broadest  possible  client  base.   policymakers.  India   It  is  important  to  note  that  regulation  is  not  an  end-­‐goal  in  itself.

 India   While  this  is  also  an  implicit  goal  in  the  stability  objective.  the  due  process  to  be  followed.  such  regulation  may  overlap    with   both  stability  and  market  conduct  regulation.  the   commissions  that  can  be  charged  and  the  requirements  placed  on  intermediaries).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  this  objective  most   often  resonates  in  market  conduct/intermediation  regulation  (both  in  terms  of  the   intermediation  channels  permitted.Consumer  protection:             15th  Floor.  Regus.     Improving  market  efficiency:       This  may  entail  preventing  anti-­‐competitive  behaviour  and  overcoming   information  asymmetries.     Market  development:       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  In  its  application.  Eros  Corporate  Tower   Nehru  Place.

 New  Delhi  –  110  019.  where  the    supervisor.(or  financial  inclusion  more  specifically)  is  sometimes  included  as  an  explicit  policy   or  regulatory/supervisory  objective  –  for  example  in  India.  India   may  require  the  relaxation  of  regulations  imposed  for  stability  purposes.  this         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.     Given  the  ultimate  goal.  is  also  explicitly     tasked  with  a  development  mandate.  none  of  these  individual  objectives  should  be  pursued  at   the  cost  of  a  well-­‐functioning  market.  Regus.  Therefore   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Some  objectives  may  also  conflict.  include  the  prevention  and  control  of  financial  crime  as   required  by  international  standards  imposed  by  the  Financial  Action  Task  Force  or   the  economic  empowerment  of  previously  disadvantaged  citizens  as  in  South   Africa.  For   example:  when  an  authority  has  the  explicit  mandate  to  develop  the  market.   the  Insurance  Regulatory  and  Development  Authority  (IRDA).     Other  strategic  objectives:       This  can.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  for  example.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  often  mutually  enhance  each  another.the  market  development  objective  may  clash  with  the  way  the  stability  objective         15th  Floor.  can  comprise  a   dedicated  policy  framework).  but  can  also  be  the  stated  intention  of  government.  a  government  uses  three  categories  of  public  policy   instruments  to  influence  markets:       Policy:  The  term  “policy”  denotes  the  declared  intention  of  a  government  on  how   it  wishes  to  order  the  financial  sector  and  the  objectives  that  it  wishes  to  achieve.8.   The  trade-­‐offs  between  various  government  objectives  (for  example  consumer   protection  and  financial  inclusion)  is  therefore  managed  within  the  policy  domain.  India   was  pursued.  Various  objectives.  Regus.       2.   Such  policy  can  be  contained  in  a  specific  policy  document  (i.  Eros  Corporate  Tower   Nehru  Place.  however.3.  Public  policy  instruments     To  achieve  its  stated  objective.e.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.

 Eros  Corporate  Tower   Nehru  Place.more  broadly/generally  contained  in  speeches.  India   sufficient.e.  the  statutes  of  a  country  are  termed  legislation.  the  general  policy  stance).  to  achieve  government  objectives  without  regulation  following   from  the  policy.  This  may  be  the  case  particularly  when  government  wants  the   market  to  achieve  the  stated  goals.  In  the   event  of  conflicts.  in  the  preamble  to  legislation  and   in  other  documents  (i.     Regulation:  Technically  speaking.  Such  instruments  are  more  flexible.  yet  still  have  the  force  of  law.  In  some  jurisdictions.  legislation  will  take  precedence.  Regus.  New  Delhi  –  110  019.  policy  is  the   canvas  against  which  regulation  is  then  developed.  Legislation  represents  a  relatively  rigid  public  policy  tool  that  is   normally  difficult  and  time  consuming  to  pass  and  difficult  to  amend.   subordinate  legislation  is  referred  to  as  regulations.  Policy  may  sometimes  be         15th  Floor.  however.  subordinate  legislation  may  be  issued  by  the  executive  authority  or   regulator.  in  itself.  In  most  instances.   They  are  passed  by  the  national  legislative  authority  (be  it  parliament  or   congress).  In  addition   to  legislation.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 but  can  be  converted  into  legally  binding  regulations  if  required.  This  in  turn  includes  the  development  of  regulatory   requirements.  with  the  power  to  impose  the  penalties  allowed  for  if  not  adhered   to.When  referring  to  regulation.  India   binding  legal  powers  (legislation  as  well  as  subordinate  legislation)  that  together   comprise  the  regulatory  body  or  regulatory  framework  pertaining  to  insurance.  Generally.  New  Delhi  –  110  019.     Supervision:  Supervision  describes  the  functions  whereby  the  state  seeks  to  ensure   compliance  with  regulation.  Eros  Corporate  Tower   Nehru  Place.   Regulation  furthermore  includes  the  action  of  regulating  the  insurance  industry  to   achieve  the  policy  goals.  the  policymaker  will  be  the  national  government  or  the  ministry   with  jurisdiction  over  the  insurance  industry.  on  behalf  of  the  state.  Such   guidance  can  be  in  the  form  of  memoranda  or  circulars.  Regus.  of  the  implementation  of  regulation  by   private  entities.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  this  document  bestows  a  broader  meaning  on  the   term  than  subordinate  legislation.  The  regulator  may  issue  guidance  in  relation  to  regulation.  The  supervisor’s  role  can  be  defined  as  the  oversight   and  compliance.  namely:  the  various  legal  instruments  with         15th  Floor.  the  regulator  will  be  the  ministry   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  It  does  not  have  the  force   of  law.

 Insurance  regulatory  scheme     Different  categories  of  regulation  are  used  to  influence  the  behaviour  of   participants  in  the  insurance  value  chain.  The  report  uses  this   scheme  to  analyse  the  impact  of  policy  and  regulation  on  the  development  of   microinsurance  markets  in  the  sample  countries.4.  can  therefore  simultaneously  be  the  regulator.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  In  many  jurisdictions    the  supervisor.  New  Delhi  –  110  019.   as  defined  here.  and  the  supervisor  will  be  a  statutory  body  for  implementing  such   regulation.g.  which  is  captured  in  Figure  4.  These  are  collectively  referred  to  as  the   insurance  regulatory  scheme.     Figure  4:  The  insurance  regulatory  scheme   Source:  Authors   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   subsidiary  rules.  Regus.issuing  the  legislation  pertaining  to  insurance  or  a  statutory  body  issuing         15th  Floor.  e.  an  insurance  commission  or  financial  services  board.     2.8.  Eros  Corporate  Tower   Nehru  Place.   superintendence  or  authority  more  broadly.

 but  simply  to  adopt   financial  inclusion  policies  with  the  explicit  aim  that  financial  institutions  would   pursue  inclusion  on  a  voluntary  basis.  and  usage  of.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  setting   minimum  entry  requirements  such  as  minimum  levels  of  capital  and  requiring   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Sometimes  a   government  may  choose  not  to  regulate  financial  inclusion.  Eros  Corporate  Tower   Nehru  Place.  for  example  compulsory  or  consensual  quotas   targeting  defined  population  segments.  India   with  the  objective  of  extending  access  to.  extending  the  reach  of  the  formal  payment  system.  Although  these  do  not  have  the  force  of  law.  New  Delhi  –  110  019.  formal  financial  services   by  people  who  are  either  excluded  from  or  who  do  not  use  formal  financial   services  (provided  by  registered/licensed  and  supervised  financial  institutions).Financial  inclusion  policy/regulation  refers  to  policy  or  regulation  promulgated         15th  Floor.     Prudential  regulation  seeks  to  ensure  that  insurers  are  able  to  meet  their   contractual  obligations  to  their  clients.  This  is  done  by.  tax   incentives.  for  example.  Regus.  etc.  financial  literacy  provisions.   Such  regulation  takes  various  forms.   they  directly  influence  the  conduct  of  providers.

 fit  and  proper  requirements   for  agents  and  brokers  and  other  intermediaries.   Product  regulation  can  be  distinguished  from  prudential  and  market  conduct   regulation  in  that  it  does  not  relate  to  the  insurer  or  the  sales/intermediation   process.  of  insurance  products.  etc.  Regulation  of  this  kind  could  include         15th  Floor.  New  Delhi  –  110  019.  regulation  of  the  payment   of  commission.  India   requirements  as  to  who  can  intermediate  insurance.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  regulation  of  the  selling  process.  but  to  the  product.  Eros  Corporate  Tower   Nehru  Place.  statutory  requirements  that  make  the  take-­‐up  of  certain  types  of   insurance  compulsory  (for  example  credit  life  insurance  may  be  declared   compulsory  when  taking  out  a  non-­‐collateralised  loan).   including  disclosure  requirements  and  giving  of  advice.compliance  with  a  set  of  prudential  regulations  governing  the  functioning  of  the   insurer.     Market  conduct  regulation  refers  to  the  regulation  of  the  distribution.  or   intermediation.

  CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  regulation  stipulates  that  products   need  to  be  filed  with  the  regulator/supervisor.  explicit  approval  is  required  by  the  regulator  before  offering   products.Product  regulation  aims  to  ensure  stability  and  consumer  protection  by  regulating   the  nature  and  structure  of  insurance  products.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  may  be  used  as  a  way  of  compensating  for  an  otherwise  light   regulatory  burden  and  to  allow  innovation.   In  other  instances.     Product  regulation  may  involve  one  or  more  of  the  following:         15th  Floor.  with  a  window  period  for  response   by  the  supervisor.  New  Delhi  –  110  019.  the  product  is  automatically  approved.  If  no  objection  is  made  by  the   supervisor  within  the  stipulated  timeframe.  India   Registration/  approval:  In  some  jurisdictions.      Aspects  of  product  regulation.  Regus.  Eros  Corporate  Tower   Nehru  Place.  regulatory   systems  are  often  structured  around  definitions  of  specific  products  or  product   categories.  In  the  most  basic  form.  before  the  product  is  launched.

      15th  Floor.   Price  control:  Regulation  may  set  specific  minimum  or  maximum  prices  for   product  categories.  Eros  Corporate  Tower   Nehru  Place.g.  cool-­‐off  periods.  standardisation.  Premium  floors  are  mostly  aimed  at  trying  to  ensure  solvency   of  the  insurer  by  avoiding  price  competition.  whereas  premium  ceilings  are  mostly   motivated  by  consumer  protection  considerations  (though  in  practice  they  often   serve  to  protect  insurers  against  intermediaries  with  bargaining  power.Creating  a   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  non-­‐corporates)  or  may  determine  that  certain  types  of  products   may  be  provided  by  only  certain  types  of  providers  (demarcation).  India   Standards:  Regulation  may  require  microinsurance  to  meet  specific  standards  on   simplification.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  in  others  it  may  facilitate  innovation.  Regus.  requirements  relating  to  terms  and  provisions  may  be  quite   onerous.  In  some  instances.   etc.  term.   Demarcation:  Regulation  may  also  prohibit  particular  players  from  providing   products  (e.  documentation.  exclusions.  rather   than  protecting  the    consumer.

 some  countries  have  a  tradition  of  passing   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.   Institutional  regulation.   Compulsory  products:  Lastly.product-­‐based  approach  to  microinsurance  where  a  regulatory  space  is  created         15th  Floor.  The  intention  is  to  limit  the  risk.  The    institutional  and  corporate   governance  regulation  is  generally  not  specific  to  the  insurance    sector  but  generic   across  sectors.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  However.  which  includes  corporate  governance  regulation.  for   example  public  companies  and  cooperatives  that  can  underwrite  insurance.  India   for  those  who  can  comply  with  product  standards  is  therefore  a  further  instance  of   product  regulation.  regulation  may  compel  insurers  to  offer  specific   products.  as   well  as  the  regulatory  corporate  governance  requirements  applicable  to  these   legal  forms.  The  nature  and  extent  of  the  corporate  governance  requirements   normally  determine  whether  that  particular  legal  institution  is  suitable  to  manage   the  risks  inherent  in  underwriting  insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  thereby  justifying  different   market  conduct  and  prudential  standards.  refers  to   those  statutory  requirements  that  determine  the  legal  forms  or  persons.

 taxation.  India   Other  regulation:  A  number  of  other  regulatory  requirements  could  also  affect  the   development  of  the  microinsurance  market.9.  especially  mutuals.specific  statutes  for  individual  insurance  firms.  Examples   include  anti-­‐money    laundering  provisions.  a   supervisory  approach  of  “benign  neglect”  or  “forbearance”  can  allow  the  market   to  develop  in  ways  that  cannot  be  foreseen  ex  ante  by  a  regulator.  regulation  of  the   microfinance  sector  and  credit  regulation  generally.  even  if  regulation  exists.  Methodological  approach     In  each  country  study.     2.  the  following  research  process  was  followed:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   It  is  not  only  regulation  that  affects  market  developments.  Although  not  insurance-­‐specific.  Regus.  New  Delhi  –  110  019.           15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  absence  of   regulation  can  play  an  equally  powerful  role.  Similarly.  they   affect  the  underwriting  and  intermediation  of  insurance  products.  Eros  Corporate  Tower   Nehru  Place.  regulation  of  the  payment   system  (that  impacts  the  ease  whereby  premiums  can  be  paid).

 These  findings  are  used  to  make  conclusions  about  the  key   characteristics        of  the  micro-­‐insurance  market.  Each  country  study  describes  the   microinsurance  market  in  terms  of:     (i)  the  various  players  (corporate  and   mutual/cooperative.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.·∙ Understanding  the  microinsurance  market.  (iii)   usage  among  the  low-­‐income  population  of  formal  and  informal  insurance   products.  Eros  Corporate  Tower   Nehru  Place.   This  included  an  investigation  into  the  risk  experience.  formal  and  informal)  active  in  the  low-­‐income  market.  Regus.  provider.  India    (ii)  the  products  available  and  any  low-­‐income  market  product  innovations.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         15th  Floor.  as  well  as    (iii)  distribution  channels  employed  in  the  low-­‐income  market  and  any  distribution   innovations.  product  and   channel  preferences  of  the  focus  group    participants.  New  Delhi  –  110  019.  as  well  their  trust  in  the   insurance  market  in  general.  Focus  group  research  was  used  to   identify  the  need  for  and  understanding  of  insurance  among  the  target  market.

Understanding  the  insurance  regulatory  framework.   Drivers  of  microinsurance.  These   are  then  used  as  a  basis  to  formulate  potential  guidelines.  Eros  Corporate  Tower   Nehru  Place.  In  light  of  the  above.  New  Delhi  –  110  019.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  aim  is  to  identify   common  themes  across  the  countries  and  distil  guidelines  for  policymakers.  crosscutting  drivers  of  market  development  are  developed.  Each  study  gives  an         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   Emerging  guidelines.  each  study  seeks  to  draw  out   respectively  the  non-­‐regulatory  (market.  we  also  develop  a  model  of  the  way  that   microinsurance  markets  develop.  in  general  and  as  pertaining  to   microinsurance.  In  this   report.  Regus.  macroeconomic  and  political  economy   context  related)  and  regulatory  drivers  of  the  state  of  microinsurance.  The  drivers  are  used  as  the  basis  for  determining  lessons  for   the  regulation  of  microinsurance  as  supported  by  the  country  experience.  In  capturing   the  cross-­‐country  findings.  India   overview  of  the  insurance  regulatory  framework.

 Eros  Corporate  Tower   Nehru  Place.   Qualitative  focus  group  research.  supervisors  and  other   stakeholders.  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  regulators.   Regulatory  and  policy  analysis.   Insights  from  behavioural  economics  that.   allow  for  a  hypothesis  on  how  insurance  usage  is  triggered  and  insurance  markets   are  developed.  together  with  focus  group  findings.  The  methodologies  applied  involved:         15th  Floor.regulators  and  supervisors  that  facilitate  microinsurance  market  development   while  also  protecting  consumers.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   The  methodology  for  each  country  consists  of  desktop  research  as  well  as   consultations  with  industry  roleplayers.  India   Traditional  demand  and  supply  mapping.  Regus.  New  Delhi  –  110  019.

 indemnity  health   insurance  is  excluded  from  the  scope  of  the  study.  as  is   government  social  welfare  and  social  security  provision.Controlling  for  context  and  the  distinctive  evolution  of  the  broader  insurance   market  in  each  country  in  deriving  conclusions.  Indemnity  health  insurance  is   an  extremely  important    product  for  the  low-­‐income  market  but  needs  a  dedicated   study  as  it  often  is  regulated  and  supervised  differently  to  other  insurance   business  and  is  a  complex  field.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.     2.  Project  scope           15th  Floor.  India   The  scope  of  the  study  covers  all  life  and  non-­‐life  insurance  products  targeted  at   the  low  income  market.  intricately  linked  to    health  service  provision.   While  capital  health  insurance  products  are  considered.  Pure  savings  products   and  retirement  savings  products  are  excluded  from  the  scope  of  the  study.  including  savings  products  provided  by  insurers   (endowments)  where  it  includes  an  element  of  guarantee.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.10.

 Eros  Corporate  Tower   Nehru  Place.1.  Colombia   Over  the  past  two  decades.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Country  context   This  section  provides  a  brief  overview  of  the  country  context  and  microinsurance   market  composition  for  each  of  the  sample  countries.  Against  this  backdrop.     3.  This  is  all  the  more  remarkable  as  there  is  no  microinsurance         15th  Floor.  Regus.   The  next  section  provides  an  overview  of  the  context  and  main  findings  arising   from  each  of  the  countries  reviewed  providing  the  basis  for  the  cross-­‐cutting   findings  in  Section  4.  traditionally  through  large   cooperative  insurers  and  more  recently  also  on  the  back  of  microfinance   development.  but  also  a  major  financial  sector  crisis.     3.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Colombia  has  experienced  financial  liberalisation  and   growth.The  study  covers  all  categories  of  providers  and  intermediaries  including  informal   markets.   microinsurance  has  developed  significantly.

1.  Yet  uniform  prudential  requirements  mean  that   it  remains  difficult  to  provide  microinsurance  “from  the  bottom  up”.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  even  without  a         15th  Floor.1.  Context   Despite  the  informal  economy  employing  almost  60%  of  the  workforce  and   contributing  at    least  half  of  GDP.         3.  Eros  Corporate  Tower   Nehru  Place.  Regus.  urbanisation  and  poverty  levels:   Colombia  India  Philippines  South  Africa  Uganda   Population  46-­‐million  1.1-­‐billion  89-­‐million  47-­‐million  29-­‐million   Urbanisation  57%  29%  63%  59%  13%   Literacy  (%  of  adults)  93%  61%  93%  82%  67%   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Colombia  illustrates  that   microinsurance  can  develop  where  external  circumstances  are  favourable  and   where  the  policymaker  and  regulator  have  a  fairly  open  stance.  Colombia  compares  favourably  to  the  other   sample  countries  for  literacy.  India   dedicated  microinsurance  regime.regulation  and  only  indicative  financial  inclusion  policies.

 most  notably  funeral  insurance  provided  by  so-­‐called   funeral  entities.  20%  urban  14%  23%  82%         15th  Floor.  the  Fundamental  Law  of  the  Financial  System  (FLFS).74-­‐million21  formal  microinsurance  policies  (9%  of  the  adult  population).  Eros  Corporate  Tower   Nehru  Place.  61%  urban  44%  36%  96%     3.  New  Delhi  –  110  019.  There  are   about  2.  This   phenomenon.  Regus.1.  making  it  slightly  bigger  than   the  formal  market  (at  52%  of  the  total  microinsurance  market).  requires   foreign  companies  to  set  up  a  local  subsidiary  in  order  to  sell  policies  locally.2.   Informal  microinsurance.  was  most  prevalent  in   the  1970s  and  1980s  in  Colombia.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  result  of  a  high  inflationary  environment.    The  insurance  law.  but  is  now  on  the  decline.Population  <$1/day  8%  40%  rural.  is  also  important.  Industry  sources  estimate  the  informal  market   reaches  up  to  three-­‐million  clients  (10%  of  adults).  Salient  features  of  the  microinsurance  market     Use:  An  estimated  19%  of  Colombian  adults  are  microinsurance  clients.  India   Population  <$2/day  19%  88%  rural.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 as  some  people  may  have   more  than  one  policy.  are  the   microinsurance  pioneers.  2007.  New  Delhi  –  110  019.  as  quoted  in  country  report.           15th  Floor.7-­‐million  insurance  policyholders.  Though  17  insurers  provide  some  form  of    icroinsurance   products.  Note  that   this  figure  may  be  overestimated.7-­‐   million.  of  which  41  are  corporates   and  two  are  cooperatives.  They  remain  the  largest  players  in  the  microinsurance   market.  as  it  is  not  clear  that  the  actual  number  of   account  holders.  rather  than  accounts.   There  may  be  some  duplication  of  accounts  per  person.  they  are  estimated  to  account   for  62%  of  the  total  formal  microinsurance      market.  National  Banking  Association  Survey.  With  1.  still   significantly  below  the  total  cooperative  membership  of  3.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .    This  may  be  a  slight  overestimation  of  policyholders.  however.  This  is.  La  Equidad  and  Solidaria.  was  measured.  implying  scope  for  further  cooperative-­‐based  microinsurance  expansion.  Regus.  Eros  Corporate  Tower   Nehru  Place.  the  two  insurance  cooperatives.     Players:  There  are  43  registered  insurers  in  Colombia.

 India   compared  to  international  experience.  including  motorbike  insurance.  Eros  Corporate  Tower   Nehru  Place.  though  it  is   growing  strongly  on  the  back  of  credit  expansion.  This  category  is  in  turn  largely   comprises  cellphone  insurance.   Innovative  new  products  are  also  increasingly  marketed  on  the  non-­‐life   side.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   Fasecolda  (the  insurance  industry  association)  estimates  property  insurance  to   comprise  60%  of  the  microinsurance  market.  and  cellphone   insurance.  The  most  popular  life   microinsurance  products  are  funeral  insurance.Products:  Voluntary  microinsurance  plays  an  important  role  in  Colombia         15th  Floor.  repatriation  insurance  for  migrant  workers.  72%  of  whom  are  classified  as  lower  income.  New  Delhi  –  110  019.  now  own  a  cellphone.  followed  by  credit  life  insurance.  insurance  tailored  to  cover  the  stock  of  small   businesses.  products  providing  benefit   pay-­‐outs  in  the  form  of  grocery  vouchers  or  education  fee  coverage.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  Thirty-­‐million  Colombians  (about  64%  of  the   population).  Compulsory  credit  life  insurance  is   estimated  to  account  for  only  27%  of  all  microinsurance  clients.

 Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Instead.  New  Delhi  –  110  019.  The  insurance  policy.     3.  The  Financial  Superintendence  (FS)  acts   as  insurance  regulator  and  supervisor.  as  well  as  through  micro-­‐credit  NGOs  requiring   compulsory  credit  life       .  India   prominently  in  the  microinsurance  market.1.  Insurance  is  incorporated  with  other   financial  activities  under  the  Fundamental  Law  of  the  Financial  System  (FLFS)  and   its  subordinate  decrees  and  regulations.Distribution:  Traditional  broker  and  agent  distribution  channels  do  not  feature         15th  Floor.  The  minimum  upfront  capital  requirement   consists  of  a  standard  minimum  capital  component.  regulation  and  supervision  landscape     Colombia  has  no  dedicated  insurance  law.  as  well  as  additional  technical   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     Prudential  and  institutional  regulation:  Both  public  corporations  and   cooperatives  may  register  as  insurers.3.  Eros  Corporate  Tower   Nehru  Place.  microinsurance  is  distributed   largely  through  cooperatives.

5-­‐million  for  credit   and  export  insurers.  asset.  or  call  centres.     Product  regulation:  On  registration.  insurers  are  authorised  to  provide  various   classes  of  policies  (group  life.2-­‐million.  In  2006.  Regus.  for  example  through  telemarketing.  vehicle.  $1.  It  establishes  a  framework  to  develop  cooperative   activities        and  allows  cooperative  insurers  to  provide  insurance  to  non-­‐members.7-­‐million  for  life  and  non-­‐life  insurers.    "Directs  sales"  refer  to  insurance  products  sold  directly  by  the   insurer  without  tied  agents  or  brokers.  etc).   There  is  no  special  dispensation  for  cooperative  insurers  and  they  have  to  adhere   to  the  full  set  of  regulatory  requirements  for  insurers.  Eros  Corporate  Tower   Nehru  Place.  Sometimes  this  involves  insurers  selling  products   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Apart  from  the  FLFS.capital  requirements  per  class  of  product  provided.  The   total  minimum  upfront  capital  requirement  therefore  depends  on  the  combination   of  products  provided  by  the  insurer.  New  products  have  to  be   submitted  to  the  FS.  and  $11-­‐million  for  reinsurers.  New  Delhi  –  110  019.  The  technical  equity  required   ranges  from  $0.  the  standard         15th  Floor.  health.  according  to  the  type  of  product.  Law  79  of  1988  on   Cooperatives  is  also  relevant.3-­‐million  to  $1.  India   component  was  $2.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  direct   mail.

 collective  life.  funeral  or   education  policies.         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  insurance  may  be  distributed  directly  by   the  insurance  company.  Eros  Corporate  Tower   Nehru  Place.  personal  accident.  Strict  product   demarcation  applies  only  to  individual  life  policies.  Regus.  Under  Article  38  of  the  FLFS.  Any  other  life   insurers  may  sell  group  life.through  their  employees  without  such  employees  being  considered  agents  or   brokers.  through  agents.   Non-­‐life  insurers  may  sell  collective  life.  insurance  agencies  or  by  means  of   insurance  brokers.  India    With  the  insurance  premium  added  as  a  separate  item  to  a  person’s  monthly   utility  statement  but  product  authorisation  is  not  required.  1993.     Market  conduct  regulation:  In  Colombia.       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  health.  5  FLFS  and  Art  2  Decree  2605.   insurers  providing  individual  life  policies  must  do  so  exclusively.  This  is  allowed  under  Art.  brokers  or  agencies.  New  Delhi  –  110  019.  insurance  cooperatives  may  sell   their  own  or  another  insurer’s  policies  without  using  agents.  Under  the  Cooperative  Law.  as  well  as  annuities  and  non-­‐life  policies.  group  life  and  health  insurance  in  addition   to  asset  based  policies.

The  main  difference  between  brokers  and  agents  is  that.   Insurers  must  certify  that  they  have  trained  their  agents  to  ensure  that  they  are   competent  and  must  make  their  training  programmes  available  to  the  FS.  In   practice.  Eros  Corporate  Tower   Nehru  Place.  Fasecolda.  There  is  no  price  control  on  premiums  or   commissions.  Market  conduct  provisions  mostly  relate  to  consumer  protection   measures  such  as  the  right  to  choose  the  provider  in  the  case  of  credit   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     The  direct  distribution  and  agencies  channels  are  interpreted  quite  broadly  to   accommodate  new  channels.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  channels  (for  example.  insurers  implement  this  requirement  jointly  through  courses  presented  by   the  industry  association.  Regus.  brokers  must  be  a  limited  company  or  public  corporation.  They  must   register  with  the  financial  superintendence  and  are  subject  to         15th  Floor.  Agents  do  not  have  to  register  and  the  onus  is  placed  on  the   insurers  dealing  with  them  to  ensure  that  they  are  compliant  and  competent.  New  Delhi  –  110  019.  while  agents  are  natural   persons.  bancassurance  or   distribution  through  public  utilities)  have  also  been  regulated  through  subordinate   regulation  on  an  ad  hoc  basis.  India   capital  requirements.

 Regus.           15th  Floor.  As  of  June  2007.  pensions  and  remittances.  insurance.  India   Financial  inclusion  policy:  Financial  inclusion  is  an  important  policy  objective.  transfers.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the   government  has  amended  banking  regulations  to  allow  the  establishment  of  non-­‐ bank  agents  (named  “nonbank  correspondents”)  to  extend  the  formal  banking   network  into  previously  unserved  areas.  including   payments.  A  key  feature  is  the  Opportunity   Banking  policy.  loans.  Among  others.insurance  and  the  establishment  of  proper  complaints  procedures.  which  seeks  to  provide  access  to  financial  services.  Eros  Corporate  Tower   Nehru  Place.   specifically  the  president  and  government  invests  much  energy  in  supporting  the   development  of  financial  services  for  the  poor.  there  were  3  508  non-­‐ bank  correspondents  and  between  2006  and  2007  the  new  channel  has  enabled   almost  one-­‐million  Colombians  to  access  formal  credit  for  the  first  time.  Non-­‐bank   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  but   establishes  the  overall  policy  framework  that  guides  public  and   private  players  to  extend  access  to  financial  services.  savings.  It  does   not  place  regulated  inclusion  objectives  on  private  financial  institutions.

 for  example  they  belong  to  the  same  union.  neither  is  it  restrictive  on   underwriting:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   microinsurance  can  grow.1.  New  Delhi  –  110  019.  However.  Eros  Corporate  Tower   Nehru  Place.     3.correspondents  are  not  currently  allowed  to  sell  insurance.  regulation  and  supervision  on  the  market     As  the  FLFS  makes  no  reference  to  microinsurance.   Absence  of  any  regulatory  concessions  to  facilitate  its  development.  and  there  is  no  official   microinsurance  definition.    The  only  difference  between  group  life  and  collective   life  policies  is  that  in  the  former  there  is  some  relationship  between  the   policyholders.  Regus.  though  they  may   collect  premiums.4.  the  Colombian  experience  illustrates  that         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  this   is  only  possible  because  general  insurance  regulation  does  not  impose  an  unduly   heavy  burden  on  the  intermediation  of  microinsurance.  Collective  life  would  for   example  refer  to  the  policies  sold  via  the  electricity  utility.  Impact  of  policy.

Insurance  provided  by  unregulated  funeral  entities.  Funeral  entities  serve  a  large   part  of  the  market  and  have  also  supported  formal  market  development  by   increasing  awareness  and  familiarity  with  the  concept  of  insurance.  A  2006   opinion  by  the  FS  (based  on  a  2003  constitutional  court  judgment)  holds  that  the   policies  provided  by  funeral  service  providers  fall  outside  the  definition  of   insurance  in  the  FLFS.  These  providers  therefore  operate  on  an  unregulated  and   unsupervised  basis.  Though  this  “regulatory  forbearance”  has  by  and  large  served   the  development  of  the  market,  it  could  create  the  risk  of  consumer  abuse  if  not   carefully  monitored  by  the  supervisor.  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Demarcation  rules  favourable  to  market  development.  Market  development  in   Colombia  is  supported  by  the  fact  that  an  insurer  is  allowed  to  provide  health,   non-­‐life  and  group  life  policies  under  a  single  licence.  

Flexible  market  conduct  regime.  The  Colombian  regulatory  framework  facilitates  


microinsurance  intermediation  in  a  number  of  ways.  It  accommodates  new  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

channels  within  the  “direct  sales”  or  “agencies”  categories  or  through  specific   subordinate  legislation  as  they  arise.  Furthermore,  no  price  controls  (in  the  form  of   commission  caps)  apply  to  the  intermediation  process.  Cooperatives  may  sell   insurance  to  non-­‐members  and  may  act  directly  as  a  distribution  channel.  Lastly,   the  FS  delegates  supervision  of  agents  to  insurers.  These  factors  combine  to  make   Colombia  one  of  the  sample  countries  with  the  most  flexible  market  conduct   regime.  This  gives  providers  the  confidence  to  pursue  distribution  innovation,  as   witnessed  in  the  various  new  channels  emerging.  

Active  government  encouragement  of  low-­‐income  market  activity.  To  date  one   of  the  main  impacts  of  the  Opportunity  Banking  policy  has  been  the  introduction   of  “non-­‐bank  correspondents”  as  an  intermediary  category  to  support  the   distribution  of  financial  services  in  poor  and  remote  areas.  The  expansion  of  micro-­‐ credit  in  turn  paves  the  way  for  credit  life  microinsurance  expansion.    

3.1.5.  Conclusion:  insights  and  lessons  from  Colombia  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

The  financial  liberalisation  and  subsequent  crisis  in  Colombia  shaped  the  current   state  of  the  microinsurance  market  in  that  it  increased  competition  for  domestic   clients,  which  prompted  a  move  downmarket  by  domestic  banks  and  insurers  in   the  quest  for  new  market  segments.  Microfinance  expansion  in  turn  stimulated   the  growth  of  the  credit  life  microinsurance  market.  Despite  the  growing   importance  of  compulsory  credit  life  insurance,  voluntary  microinsurance  (driven   by  the  cooperative  insurers)  still  dominates,  with  funeral  insurance  being  the  most   popular  product  and  non-­‐life  insurance,  especially  cellphone  insurance,  also   growing  in  popularity.   A  relatively  open  regulatory  stance  as  well  as  generally  low  regulatory  burden,   especially  on  the  intermediation  side,  has  meant  that  market  rather  than   regulatory  forces  have  been  the  definitive  driver  of  microinsurance  development.   Nevertheless,  a  number  of  policy  and  regulatory  aspects  have  affecting  the   microinsurance  market.  Perhaps  most  significantly,  the  Opportunity  Banking   policy  represents  a  significant  push  by  government  for  the  facilitation  of  financial  

inclusion.  Though  current  evidence  suggests  that  the  absence  of      microinsurance   specific    regulation  has  generally  not  hampered  the  development  of   microinsurance,  overall  microinsurance  penetration  remains  low  and  

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microinsurance  is  still  largely  driven  by  two  large  cooperative  players.  The  creation   of  a  microinsurance  definition  may  serve  to  align  policies  and  efforts  for   developing  the  market  and  close  the  regulatory  gaps  that  do  exist,  such  as  the  fact   that  no  intermediate  step  or  tier  with  reduced  regulatory  cost  is  available  to   smaller  or  community-­‐based  entities  who  want  to  enter  the  microinsurance   market.       3.2.  India     The  sheer  scale  of  the  Indian  low-­‐income  market  creates  enormous  scope  and   need  for  microinsurance.  Potential  voluntary  demand  is  strong,  particularly  for   micro-­‐health  cover.  A  strong  political  imperative  exists  for  financial  inclusion,  

resonating  in  regulation  that  mandates  low-­‐income  market  expansion,  as  well  as   a  dedicated  microinsurance  space.  Yet  microinsurance  penetration  in  India  is  still   extremely  small.  The  legacy  of  a  state-­‐owned  insurance  monopoly  still  looms   large.  Private  insurers  as  well  as  the  insurance  regulatory  authority  are  new  and   have  found  it  difficult  to  prioritise  microinsurance  in  the  face  of  other   pressing  concerns.  The  regulatory  strategy  to  compel  insurers  to  reach   downmarket  has  triggered  some  interest  in  the  low-­‐income  market,  but  rarely   beyond  that  required  by  law.     Furthermore,  general  insurance  regulation  as  well  the  specific  provisions  for  

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microinsurance  impose  restrictions  that  have  contributed  to  its  limited  success  so   far.         3.2.1.  Context  


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With  a  population  of  around  1.1-­‐billion,  India  is  the  second-­‐most  populated   country  in  the  world.  In  recent  years,  there  has  been  strong  GDP  growth.  Yet   poverty  remains  high,  especially  among  the  70%  of  the  population  living  in  rural   areas.  The  World  Bank  (2007)  estimates  that  88%  of  the  rural  population  and  61%   of  the  urban  population  live  on  less  than  $2  a  day,  reducing  to  40%  rural  and  20%   urban  (33.5%  of  the  total  population)  for  $1  a  day.     Government  nationalised  the  insurance  industry  in  the  1950s,  monopolising  it  into   two  state-­‐owned  corporations:  the  Life  Insurance  Corporation  (LIC)  and  the   General  Insurance  Corporation  (GIC),  the  latter  with  four  subsidiaries.  The   insurance  industry  was  only  liberalised  in  1999  to  allow  private  insurers.  Since   then  insurance  premiums  have  grown  rapidly  on  the  back  of  new  entries  to  reach   3.5%  of  GDP.  The  two  state-­‐owned  insurers  remain  the  largest  insurers  in  the   market.    

India  is  unique  in  that  the  government  plays  a  proactive  role  in  providing  

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insurance  to  the  very  poor  (those  below  the  $1  a  day  threshold)  through  various   social  security  programmes  and  subsidised  insurance  schemes.  Therefore  the   microinsurance  market  in  India  should  largely  be  regarded  as  the  low-­‐income   population  living  on  more  than  $1  a  day.     3.2.2.  Salient  features  of  the  microinsurance  market     Usage:       Though  no  figures  are  available  on  the  exact  size  of  the  microinsurance  market  in     India,  a  rough  estimate  would  place  it  at  around  14-­‐million  people,  or  about  2%  of   the  adult  population25.  Note  that  India  is  the  only  country  for  which  this  estimate   includes  health    This  figure  is  derived  as  follows:  the  main  market  for  microinsurance  in  India  is   the  MFI  clients  (clients  of  both  privately  run  MFIs  and  the  members  of  self-­‐help  

groups  (SHGs)  promoted  under  the  Government’s/NABARD  SHG-­‐Bank  Linkages  

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Programme).  There  are  about  50-­‐million  MFI  clients,  of  which  30m  are  currently   served.  Of  these,  30-­‐40%  are  poor  which  means  that  there  are  about  10.5-­‐million   credit  life  micro-­‐insurance  clients.  The  low  take-­‐up  can  be  ascribed  to  a  general   lack  of  awareness  of  insurance  as  a  financial  product,  even  in  the  high-­‐  to  middle-­‐ income  market.  This  emerged  strongly  in  the  focus  group  findings.  Rural  financial   services  infrastructure  for  distribution  is  lacking,  as  well  actuarial  data27,  and   these  also  inhibit  the  development  of  the  microinsurance  market.     Players:       Though  the  state-­‐owned  insurers  still  have  the  largest  market  share,  there  are   now  32  licensed  insurers.  A  feature  setting  India  apart  from  other  countries  is  the   fact  that  microinsurance  is  mostly  provided  by  large,  corporate  insurers.  This  is   due  to  a  cautious  regulatory  approach  that  limits  the  players  in  the  non-­‐bank  field   to  large  cap  institutions,  which  is  a  response  to  small  and  cooperative  financial  

institutions  not  performing  well  historically.  The  cooperative/mutual  sector   therefore  does  not  feature  as  a  microinsurance  

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provider,  though  corporate  insurers  use  it  as  a  distribution  channel.  Informal   insurance  is  virtually  exclusively  the  domain  of  formal  entities  such  as  health   insurance  schemes  not  registered  for  insurance  purposes,  rather  than  community   risk-­‐pooling  groups,  and  is  estimated  to  comprise  only  20%  of  the  market.     Products:      Microinsurance  in  India  is  for  the  most  part  driven  by  compulsory  credit  life   insurance  on  the  back  of  microfinance.  The  limited  reach  of  the  public  health   system  has  also  created  a  high  natural  demand  for  health  insurance.  Many  MFIs   therefore  provide  a  credit  linked  package  of  compulsory  insurance  cover  to  their   clients  –  this  includes  life,  asset  as  well  as  health  insurance.  The  cover  is  for  the   term  of  credit,  usually  one  year.  Health  cover          provided  in  such  packages  is  not  


comprehensive  and  covers  only  certain  listed  diseases  which  require  

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hospitalisation.  Accident  cover  is  a  rider  with  life  insurance  and  is  a  fixed   payout.  India  is  therefore  unique  in  that  compulsory  insurance  cover  extends   beyond  life  cover.     It  is  estimated  that  only  10%  of  microinsurance  policies  are  sold  on  a  voluntary   basis.  Of  these,  up  to  90%  are  endowment  products  rather  than  pure  risk  products,   indicating  a  preference  among  the  low-­‐income  population  for  financial  products   that  provide  some  payout  regardless  of  whether  a  risk  event  has  happened.  Health   insurance  (by  Yeshasvini  and  a  few  other  schemes)  largely  account  for  the   informal  part  of  the  microinsurance  market.  The  health  insurance  cover  in  this   case  is  quite  comprehensive,  unlike  in  credit  linked  policies,  and  covers  a  number   of  illnesses  as  well  as  out-­‐patient  costs.  The  lack  of  adequate  health  care  facilities   in  rural  areas,  however,  undermines  micro-­‐health  insurance.    


There  are  about  5-­‐million  clients  served  by  community  health  schemes.  However,   there  are  some  overlaps  among  the  clients  of  private  MFIs/SHG-­‐Bank  Linkages   Programme  and  also  the  lives  that  are  covered  by  credit  life  and  social  security   schemes.  Therefore,  assuming  an  overlap  of  about  10%,  the  total  number  of  low-­‐

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income  clients  served  by  microinsurance  will  be  around  14-­‐million.  This  estimation   does  not  include  micro-­‐pensions.  These  figures  would  have  increased  by  around   20-­‐30%  in  2008  as  the  microfinance  sector  in  India  has  grown  at  this  pace  for   last  several  years.  Note  that  this  estimate  differs  from  for  example  Roth,  McCord   and  Liber  (2007),  where  it  is  stated  that  in  excess  of  30-­‐million  lives  are  covered  by   microinsurance  in  India.  This  can  be  ascribed  mainly  to  the  fact  that  the  emphasis   in  this  study  is  on  the  number  of  policy  (insurance  product)  holders  rather  than  the   number  of  lives  covered  (more  than  one  life  may  be  covered  per  insurance   product).  In  addition,  this  study  did  not  count  micro  pensions  (noted  as  an   important  product  in  Roth  et  al)  as  microinsurance.    


 As  agreed  in  the  methodology  for  the  country  studies,  health  insurance  would  be  

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outside  the  scope  of  the  study.  Due  to  its  important  role  in  the  low-­‐income  market,   India  is  however  the  one  country  for  which  an   exception  was  made.      As  private  insurers  are  still  young,  they  have  not  been  able  to  accumulate  enough   pricing  data.     Distribution:  Distribution  is  an  important  part  of  the  microinsurance  landscape  in   India.  Regulations  were  issued  in  2005  to  create  a  microinsurance  agent  category   for  the  dedicated  distribution  of  microinsurance.  Currently  such  agents  distribute   only  about  20%  of  all  microinsurance.  Instead,  distribution  mainly  takes  place   through  MFIs,  which  either  do  not  qualify  as  microinsurance  agents  under  the   regulations  or  which  find  the  regulations  too  restrictive,  as  partners  or  agents  of   formal  insurers.  The  key  features  of  the  microinsurance  market  are  in  Figure  6.    


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3.2.3.  The  insurance  policy,  regulation  and  supervision  landscape     Insurance  in  India  is  regulated  under  the  Insurance  Act  of  1938  (as  amended).   Concomitant  to  the  liberalisation  of  the  insurance  industry,  the  Insurance  IRDA  Act   of  1999  established  IRDA  as  the  regulator  and  supervisor.  As  its  name  indicates,   IRDA  has  two  explicit  mandates:  regulating  the  industry  for  stability  purposes,  and   also  promoting  industry  development.     Prudential  and  institutional  regulation:       The  Insurance  Act,  1938  defines  four  categories  of  insurance:  life,  fire,  marine  and   miscellaneous.  IRDA  licenses  two  categories  of  insurers:  life  and  general  (covering   the  last  three  product  categories).  Applicants  must  be  registered  companies.   Cooperative  insurers  are  allowed  but  must  comply  with  the  full  regulatory  load                  

and  minimum  capital  requirements28.  No  more  than  26%  of  the  issued  share  

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capital  of  an  insurer  may  be  foreign-­‐owned.  All  insurers,  regardless  of  type  of   product  offered  or  institutional  type,  must  hold  Rs100  crores  (about  $25-­‐million)  in   minimum  start-­‐up  capital.     Product  regulation:       One  insurer  is  not  allowed  to  offer  both  life  and  general  insurance,   unless  it  forms  two  separate  companies.  Health  insurance  may,  however,  be   provided  under  either  a  life  or  a  general  insurance  licence.  New  products  are   subject  to  a  file-­‐and-­‐use  approval  approach.  General  (non-­‐life)  insurance   premiums  have  traditionally  been  regulated,  i.e.  were  subject  to  price  control.  In   an  effort  to  improve  efficiency,  IRDA,  28  Just  one  cooperative  insurer,  specialising   in  agricultural  insurance,  has  been  established  so  far.     Market  conduct  regulation:    


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IRDA  recognises  four  types  of  insurance  intermediaries:  brokers,  agents,  corporate   agents  (that  can  for  example  include  rural  banks  or  MFIs)  and  microinsurance   agents.  Intermediaries  have  to  undergo  a  minimum  number  of  hours  of   training  and  (with  the  exception  of  microinsurance  agents)  have  to  pass  an   examination  before  they  can  register.  From  2008,  IRDA’s  approach  has  been  to   concentrate  on  solvency  issues  and  to  delegate  market  conduct  supervision  to  self-­‐ regulatory  insurance  councils,  for  example  in  administering  examinations  of   prospective  insurance  agents.  Nevertheless,  IRDA  has  set  up  a  grievance   cell/complaints  office  and  works  with  insurers  towards  the  expeditious  disposal  of   complaints.  Furthermore,  it  works  towards  the  standardisation  of  concepts,  simple   application  forms,  acceptable  accounting  standards,  transparency  in  business   operations  and  disclosure  of  financial  statements.     Financial  inclusion  policy  and  regulation:    

 Financial  inclusion  is  an  explicit  policy  objective  of  the  Indian  government  and   various  initiatives  have  been  launched  to  that  effect.  India  is  one  of  only  two  

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sample  countries  with  a  microinsurance  regime  in  place.  Two  sets  of  regulations   issued  by  IRDA  under  its  market  development  mandate  are  relevant  to   microinsurance:     Regulations  regarding  rural  and  social  sectors  obligations,  2002:       These  regulations  oblige  insurance  companies  to  procure  insurance  business  on  a   quota  basis  from  pre-­‐defined  rural  areas  and  social  sectors,  with  the  latter  defined   as  “unorganised  workers,  (and)  economically  vulnerable  or  backward  classes  in   urban  and  rural  areas”.  The  quotas  are  phased  up  over  time:   5%  of  all  life  insurers’  policies  must  be  from  rural  areas  in  year  one,  phasing  up  to   16%  in  year  five.  ·∙ For  non-­‐life  insurers,  2%  of  total  gross  premiums  underwritten   must  be  from  rural  areas  in  year  one,  phasing  up  to  5%  in  year  five.  


In  the  social  sectors,  each  insurer  has  to  maintain  at  least  5  000  policies  in  year   one  rising  to  20  000  in  year  five,  for  both  life  and  general  insurance.   An  insurer  failing  to  reach  the  targets  incurs  a  financial  penalty.  Repeated   violations  could  prompt  IRDA  to  revoke  such  an  insurer’s  licence.     Microinsurance  regulations,  2005:      These  regulations  embody  IRDA’s  commitment  to  extending  the  reach  of  the   insurance  sector.  They  create  a  specific  category  of  microinsurance  agents  to  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

distribute  microinsurance  products  on  behalf  of  registered    Previously,  health  and   property  were  combined  in  one  product  and  property  rates  cross-­‐subsidised   health.  With  property  rates  falling,  this  is  no  longer  feasible.    All  insurers  and  provident  societies  incorporated  or  domiciled  in  India  are   members  of  the  Insurance  Association  of  India.  It  has  two  councils,  namely  the  Life   Insurance  Council  and  the  General  Insurance  Council,  funded  by  industry.  Both  


councils  act  as  self-­‐regulatory  bodies  by  developing  codes  of  conduct,  setting   disclosure  standards,  developing  compliance  programs,  etc.  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

 Full  name:  The  Insurance  Regulatory  and  Development  Authority  (Obligations  of   insurers  of  rural  social  sectors)   Regulations    Gazetted  in  November  2005.  Available  at:   www.irdaindia.org/regulations    Microinsurance  products  are  defined  as  both  life   and  general  insurance  products.   The  definition  is  set  according  to  minimum  and  maximum  benefits,  the   minimum/maximum  term  of  the  insurance  policy  and  minimum/maximum  age  of   entry,  as  well  as  certain  simplicity  requirements.  The  specifications  vary  according   to  the  type  of  cover  provided.     3.2.4.  Impact  of  policy,  regulation  and  supervision  on  the  market      


A  high  regulatory  burden  undermines  dedicated  microinsurance  provision.  The  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

high  minimum  statutory  capital  requirement  is  a  deliberate  entry  barrier  imposed   by  IRDA.  As  there  is  no  concession  for  dedicated  microinsurance  providers,  this   policy  could  impede  growth  of  the  microinsurance  industry  since  it  precludes   mutual  groups  and  other  community-­‐based  entities  from  formalising  into   registered  insurers.  Likewise,  market  conduct  regulation,  for  example  the  price   controls  on  commissions,  increases  the  burden  on  insurance  provision  to  the  low-­‐ income  market,  as  does  the  service  tax.     Rural  and  social  sector  quotas  force  a  move  downmarket,  but  do  not  necessarily   improve  the  livelihoods  of  poor  people.  The  impact  of  the  quotas  has  been   ambivalent.  While  it  has  prompted  some  insurers  to  experiment  with  new   distribution  channels  through  NGOs,  MFIs  and  the  rural  banking  network,  many   insurers  still  do  not  regard  this  as  a  profitable  market  opportunity  beyond  the   quotas.  The  quotas  furthermore  do  not  specify  that  policyholders  


need  to  be  poor,  and  it  is  reported  that  many  insurers  meet  the  quotas  by  focusing   on  higher-­‐income  individuals  within  the  rural  and  social  sectors.   Microinsurance  regulations  open  space  for  microinsurance  distribution,  but  the   impact  is  undermined  by  restrictions.  The  concessions  granted  to  microinsurance  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

agents  bring  down    intermediation  costs  and  allow  enhanced  functions  such  as  the   routing  of  premiums.  This  is,  however,  undermined  by  the  fact  that  these   concessions  are  available  only  to  a  limited  category  of  agents.  The  implication  of   the  exclusion  of  for-­‐profit  entities  from  the  microinsurance  agent  definition  is  best   illustrated  in  the  case  of  NBFCs  that  are  for-­‐profit  companies,  often  MFIs,   registered  by  the  Reserve  Bank  of  India.  NBFCs  account  for  more   than  80%  of  the  clients  served  by  microfinance  and  are  a  ready  base  for   microinsurance  distribution.  Excluding  them  from  the  microinsurance  agent   definition  means  that  insurers  are  forgoing  this  cheaper  distribution  opportunity.   It  is  estimated  that,  largely  as  a  result  of  this  restriction,  only  20%  of   microinsurance  products  are  currently  distributed  through  microinsurance  agents.  


 Eros  Corporate  Tower   Nehru  Place.  no  composite   microinsurance  products  have  yet  been  registered.  Furthermore.  and         15th  Floor.  India   despite  the  high  potential  demand  indicated  in  the  focus  groups35.2.5.  this  has  been  linked   mainly  to  the  growth  of  the  microfinance  sector  rather  than  of  microinsurance  per   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.Despite  the  relaxation  in  the  demarcation  requirement  for  microinsurance.  the  reach  of  the  Indian  microinsurance  market  remains  limited   to  2%  of  adults.  Where  microinsurance  uptake  has  grown.       3.  Conclusion:  insights  and  lessons  from  India     Despite  large  microinsurance  potential  and  policy  measures  for  low-­‐income   market  expansion.  Regus.  It  is  argued  that  this  is  because   insurers  are  reluctant  to  bind  themselves  to  any  one  other  insurer.  New  Delhi  –  110  019.   the  microinsurance  regulations  restricting  microinsurance  agents  to  partner  with   one  life  and  one  non-­‐life  insurer  exclusively  makes  it  impossible  to  combine  the   best  products  from  different  companies  into  a  bouquet  that  would  suit  the  needs   of  particular  types  of  clients  within  the  microinsurance  space.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 however.  while  self-­‐help  groups  and   other  low-­‐income  groups  are  important  role  for  microinsurance  distribution.   with  the  informal  insurance  market  largely  comprised  of  health  insurance   schemes.  Low  use.  Eros  Corporate  Tower   Nehru  Place.  Furthermore.   underwriting  through  informal  mutual  groups  has  not  played  a  significant    role.  rural  and  social  sector  obligations  have   triggered  only  limited  interest  in  the  low-­‐income  market  beyond  what  the  quotas   require.  is  also  linked  to  a  distinct  regulatory  aspect.  A  number  of  factors  explain  this.  the  microinsurance  space  has  not  achieved  significant  success.se.  including  a  lack  of  awareness  among  the         15th  Floor.  That  the  space  does  not  allow  for  a  separate  prudential  tier  implies   that  minimum  capital  requirements  remain  a  significant  barrier  to  entry.  On  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.   The  history  of  government  involvement  has  meant  that  the  private  insurance   market  and  the  regulatory  authority  are  still  new.  India   public  and  perceived  low  affordability.  the  approach  followed  has  often  been   quite  prescriptive  and  restrictive.  Though  IRDA  has  implemented  a  number  of  measures  to   expand  the  reach  of  the  insurance      market.  It   must  be  noted  that  the  regulations  are  still  fairly  new  and  may  take  some  time  to   take  effect.  making  low-­‐income  expansion   all  the  more  difficult.  Likewise.  Thus  far.  Regus.

 the  Philippines  created  a  special  prudential  tier.  New  Delhi  –  110  019.   However.  Eros  Corporate  Tower   Nehru  Place.  Philippines     The  Philippines  has  a  strong  mutual/cooperative  tradition  and  informal  risk   pooling  and  underwriting  is  common.  has  been  the  driving  force  behind  the  development  of   microinsurance.  whereas  India  created  concessions  for  microinsurance  on  the   intermediation  side.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  with   significantly  lower  minimum  capital  requirements.  for  the  underwriting  of         15th  Floor.  Besides  India.  the  restrictive  definition  has  contributed  to  microinsurance   agents  by  and  large  not  yet  becoming  a  vehicle  for  accelerated  outreach  to  low-­‐ income  clients.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This.market  conduct  side.  the  Philippines  is  the  only  sample  country  where   microinsurance  is  explicitly  provided  for  in  the  insurance  regulatory  regime.3.  together  with  the  growth  of  the   microfinance  industry.  Regus.       3.

 Eros  Corporate  Tower   Nehru  Place.  the  latter  having  to  be  non-­‐profit  in  nature.  The   microinsurance  regulations  also  contain  an  innovative  mechanism  to  facilitate   formalisation  of  informal  insurance  operators:  microinsurance  MBAs  which  are   unable  to  meet  the  minimum  capital  requirements  upfront.  New  Delhi  –  110  019.  India   Associations  (MBAs)  in  their  Insurance  Code.  Filipino  insurance  regulation  allows  a   great  deal  of  institutional  flexibility  for  formal  insurers  –  they  can  be  stock   companies.         CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  much  informal  activity  remains.   However.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  Filipino   Insurance  Commission  triggered  a  move  to  formalise  the  informal  sector.     Through  these  regulations.   are  allowed  to  increase  their  capital  over  time  without  having  to  forfeit  their   registration.  and  some  public  awareness  campaigns.  Regus.  cooperatives  or  MBAs.microinsurance  policies  and  linked  this  to  the  allowance  for  Mutual  Benefit         15th  Floor.

 The  insurance   sector  is  less  developed.  provided  through  more   than  1  400  MFIs.1.  The   World  Bank  (2007)  estimates  44%  of  the  population  to  live  on  less  than  $2  a  day   and  14%  on  $1  a  day  or  less.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.   The  private  microfinance  industry  has  only  recently  started  to  grow.  GDP  grew  by  7.2%  of  GDP.  after  having   been  crowded  out  by  three  decades  of  government-­‐subsidised  directed  credit   programmes.6-­‐million  clients.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Since  the  introduction  of  a  National  Microfinance  Strategy  to   encourage  increased  private  sector  participation  in  1997  the  market  has  grown   from  less  than  500  000  to  more  than  3.   3.  The  Philippines  has   a  relatively  sophisticated  banking  sector  and  the  country  has  been  a  pioneer  in   mobile  payments  that  are  accessible  to  the  low-­‐  income  market.  During  2007.  with  insurance  premiums  representing  only  1.3.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  India   The  Philippines  has  a  population  estimated  at  about  88-­‐million  people.  spread   over  more  than  7  000  islands  –  48%  of  the  population  lives  in  urban  areas.3%.  Context           15th  Floor.

 Salient  features  of  the  microinsurance  market     Players:       There  are  33  life.  94  non-­‐life  and  three  composite  insurers  in  the  Philippines.2.   Commercial  insurers  play  only  a  small  autonomous  role  in  microinsurance.  Regus.         15th  Floor.  There  are  18  MBAs.  Eros  Corporate  Tower   Nehru  Place.  All  of  the  latter  and  most  of  the  former  were  established  by   MFIs  to  serve  as  a  vehicle  for  providing  microinsurance  to  their  clients.3.  MBAs  are   intricately  linked  to  the  MFI  sector.  India   3.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  six  registered  as   microinsurance  MBAs.  about  half  are  estimated  to  provide  some  form  of  insurance  to  their   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Their   low-­‐income  market  activity  is  mostly  limited  to  credit  life  insurance  provided  via   the  MFI  sector.  Insurance  distributed  by  MFIs  and  rural  banks39  (denoted  as   “corporate  insurance”  on  the  diagram)  accounts  for  68%  of  formal  microinsurance   use.  Mutual  insurance.  provided  by  MBAs.  New  Delhi  –  110  019.  Of  the  22   000  operational  cooperatives  in  the  Philippines  (80%  of  which  are  financial   cooperatives).  also  plays  an  important  role.

    Other  groups.  These  schemes  are  not  licensed  by  the   Insurance  Commission.members  through  “mutual  fund  schemes”.  However.  such  as  damayan  funds  (risk-­‐pooling  societies).  India   formally.  CISP.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  One.  is  registered  as  an  MBA  with  primary   cooperatives  as  members.  Only  two  cooperatives  currently  provide  insurance         15th  Floor.  has  been  put  under  curatorship  by  the  Insurance  Commission  because   of  financial  difficulties  –  symptomatic  of  the  generally  poor  condition  of  prudential   risk  management  pervasive  in  the  cooperative  sector.  both  of  them  registered  simultaneously  as  cooperative  service  providers   with  the  Cooperative        Development  Authority.  also  provide  risk-­‐ pooling.  and  as  life  insurers  with  the   Insurance  Commission.  their  activities  fall   beyond  the  definition  of  insurance.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  The   other.  CLIMBS.  These  two  cooperative  insurers  therefore  act  as  insurers   to  networks  of  cooperatives  that  essentially  serve  as  distribution  agents.  as  these  do  not  provide  guaranteed  benefits.

 life  insurance  and  “casualty  insurance”  (including   disability  and  health  insurance  related  to  accidents)  are  the  most  important   products.  life  insurance.  They  have  their   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Only  the  two  cooperative  insurers  apply  agent-­‐based   sales  directly  to  individuals.  MBAs  provide  only  life  and  credit  life  insurance.  Individual  sales  through  traditional  broker  and   agent  channels  are  rare.  MBAs.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS         15th  Floor.  sometimes  with  added  hospitalisation   or  accident  coverage.  Regus.Products:  Compulsory  credit  life  is  estimated  to  account  for  49%  of  microinsurance   use.  As  they  are  also  registered  as  cooperative  service   providers  under  the  Cooperative  Development  Authority.  they  target  people   belonging  to  their  cooperative  member  networks  for  such  sales.  In  the  informal  (self-­‐ insured  cooperative)  market.     Distribution:       Microinsurance  is  distributed  mainly  through  MFIs  (including  rural  banks).  is  the  most  common  insurance  product  offered.  India   .   cooperatives  and  other  groups.   Within  the  voluntary  market.  Eros  Corporate  Tower   Nehru  Place.

 Eros  Corporate  Tower   Nehru  Place.       This  health  insurance  entails  a  capital  pay-­‐out  in  the  case  of  a  health  contingency.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.   rather  than  covering  medical  expenses  incurred  (the  traditional  meaning  of  health   insurance).  Country  Bankers.  Regus.  not   funeral  insurance  as  found  in  some  other  jurisdictions.  India   insurer  involved  in  microinsurance.  by  health  maintenance  organisations  regulated  by  the  Department  of   Health  and  defined  as  juridical  entities  organised  “to  provide  or  arrange  for  the   provision  of  pre-­‐agreed  or  designated  health  care  services  to  its  enrolled  members   for  a  fixed  pre-­‐paid  fee  for  a  specified  period  of  time”  (Department  of  Health   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  was  formed  by  the  rural   banks  to  underwrite  their  credit  life  policies.own  set  of  Insurance  Commission-­‐licensed    Note  that  the  largest  commercial         15th  Floor.   products  targeted  at  funeral  costs  are  generally  provided  by   pre-­‐need  companies.       Note  that  these  life  insurance  policies  are  “traditional”  life  insurance  policies.  The  latter  is  provided  outside  of  the  jurisdiction  of  insurance   regulation.  In  the  Philippines  setting.

 the  primary  cooperative  may  deal  directly  with   CLIMBS  and  opt  not  to  go  through  the  assurance  manager.  which  is  considered  a  marketing  arm  of  CLIMBS.  Agents  assigned  directly  to  a         15th  Floor.  For   claims  processing.  Realising  their  clients’  need  for   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  34  dated  July  30.  This  cuts  the  claims   processing  time  (CLIMBS  promises  to  pay  the  claims  within  seven  days).Administrative  Order  No.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   Three  main  market  factors  drive  the  development  of  the  microinsurance  market:         Microinsurance  mainly  driven  by  microfinance  development:       The  growth  of  the  microfinance  industry  demonstrates  the  viability  of  the  poor  as   financial  services  clients.  1994).  however.  Increased  competition  among  MFIs  has  led  to  providing   better  and  expanded  services  to  members.  India   partner  cooperative  to  market  insurance  and  process  the  documentation.  CLIMBS   shares  the  commission  between  the  agent  (called  an  “assurance  manager”)  and   the  primary  cooperative.  New  Delhi  –  110  019.  Regus.  Eros  Corporate  Tower   Nehru  Place.

 loss  of  assets  by  small   businesses).protection  against  risks  (e.  Moreover.  Regus.  New  Delhi  –  110  019.  and  compulsory  credit  life   insurance  has  familiarised  the  market  with  insurance  to  the  extent  that   spontaneous  demand  for  other  types  of  insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  many  of  whom  are  clients  of  MFIs.  such  as  health  and  life.  India   create  awareness  of  financial  services  among  the  poor.  Eros  Corporate  Tower   Nehru  Place.  is   emerging.  premium  collection  and  claims  payments.  MFI  staff  and  credit  processes  provide  an  existing  and  cost-­‐ effective  channel  for  selling  insurance.       Role  of  groups  in  microinsurance:      Microfinance  provision  in  the  Philippines  is  mostly    initiated  and  facilitated   through  client  groups.  death  in  the  family.  many  MFIs  started  to  offer  or  facilitate  the  provision  of  insurance   services  to  clients  beyond  just  credit  life  insurance.g.  Microcredit  also  served  to         15th  Floor.  illness.  The  group   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 New  Delhi  –  110  019.  Regus.  largely   due  to  the  experience  of  CARD  (centre  for  Agriculture  and  Rural  Development)   MFI.  This  group-­‐based         15th  Floor.  On  advice  from  the  regulator.  With  time.  however.   CARD  registered  an  MBA  to  rehabilitate  its  insurance  operations  and  bring  it   within  the  formally  regulated  space.  Eros  Corporate  Tower   Nehru  Place.  and  has  been  instrumental  in  the  establishment  of  a  tiered  regulatory   regime  for  microinsurance  MBAs.  it  realised  that  this  was   unsustainable  and  could  bankrupt  the  organisation.  CARD  MBA’s  subsequent  success  provides  an   example  to  other  MFIs  that  want  to  cater  for  the  risk  protection  needs  of  their   members.  has  lent  itself  to  the  formation  of  MBAs   for  providing  insurance  to  MFI  clients.  and  clients’  familiarity  with  it.  India   mechanism.  CARD  initially  offered   informal  insurance  to  its  members.mechanism  is  used  to  grant  loans  and  collect  repayments.  one  of  the  MBA  pioneers  in  the  Philippines.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .     The  role  of  CARD  MBA:       The  MBA  has  become  the  vehicle  of  choice  for  insurance  provision  by  MFIs.  CARD  furthermore  plays  an  important   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 the  MFI  can  register  an  MBA  and  fully  handle  its  own  insurance.  an  MBA  is  only  recognised  as  a  microinsurance  MBA         15th  Floor.development  role  in  the  MFI-­‐MBA  sector.  small  MFIs’  members  are  initially  insured  with  CARD  MBA.   though  enrolment.     3.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  with  the  Insurance  Commission  as  regulator  and   supervisor.   CARD  MBA  implemented  a  programme  called  Build  Operate  and  Transfer.  also  provided  outside  of  the  regulatory  mandate   of  the  Insurance  Commission.  New  Delhi  –  110  019.  Insurance  is.  however.3.  Under   this  programme.  1460)  of  1978.3.  through  guaranteed-­‐benefit  pre-­‐need  plans  and   health  insurance  contracts.  Eros  Corporate  Tower   Nehru  Place.  Pre-­‐need  plans  are  regulated  by  the  Securities  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  CARD  also  provides  technical  assistance.  Regus.  regulation  and  supervision  landscape     Insurance  in  the  Philippines  is  regulated  under  the  Insurance  Code  (Presidential   Decree  No.  documentation  and  processing  of  claims  are  lodged  within  the   MFI.  The  insurance  policy.  India   when  it  has  a  minimum  of  5  000  clients.  When  the  necessary  scale  is   reached.  Under  the  Insurance  Commission   Circular  9-­‐2006.  As  most  MFIs  were  not  yet  large  enough.

 India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   composite  insurers  and  mutual  benefit  associations.   but  only  two  cooperatives  (out  of  thousands  providing  in-­‐house  insurance)  have   done  so.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  In  effect.  non-­‐life  insurers.  An  important  characteristic  of  prudential  and   institutional  regulation  in  the  Philippines  is  the  fact  that  it  allows  for  a  tiered   minimum  capital  regime.  Eros  Corporate  Tower   Nehru  Place.  whereas  health  insurance  contracts  are  provided  by  health   maintenance  organisations  (HMOs)  regulated  by  the  Department  of  Health.Exchange  Commission.  Regus.     Prudential  and  institutional  regulation:       The  Insurance  Code  identifies  four  types  of  insurers:  life  insurers.  The  code  allows  cooperatives   providing  insurance  (registered  under  the  Cooperative  Development  Authority  but   not  extensively  supervised  in  practice)  to  also  register  for  insurance  purposes.  A  life  insurance  provider  may  organise  itself  either  as  a  stock  corporation   or  a  mutual  life  company.  New  Delhi  –  110  019.  five  tiers  are  created:         15th  Floor.  There   are  discussions  in  Congress  to  bring  these  institutions  under  the  authority  of  the   Insurance  Commission.

 minimum  capital  requirements  were  raised  to  Php  1-­‐billion   ($24-­‐  million)  for  new  life  and  non-­‐life  insurers  and  double  that  for  composite   insurers.2-­‐million  previously  required  of  commercial   insurers.5-­‐million).Under  Circular  2-­‐2006.   The  Insurance  Commission  has  the  discretion  to  reduce  this  requirement  by  up  to   half  for  cooperatives.  This  is  up  sharply  from  the  $1.  New  Delhi  –  110  019.   This  increase  is  even  more  pronounced  for  new  MBAs.  as  specific  guidelines  for  implementing  this  provision  of  the   cooperative  code  have  not  yet  been  formulated.  Regus.  They  must  now  hold  capital   of  about  $3-­‐million  (Php125-­‐million).  Eros  Corporate  Tower   Nehru  Place.   Existing  MBAs  must  hold  capital  of  $305  000  (Php12.  but  thus  far  no  cooperatives  have  applied  for  registration   under  this  condition.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS         15th  Floor.   Microinsurance  MBAs  (see  the  discussion  of  this  category  below)  must  hold   capital  of  $122  000  (Php5-­‐million)  that  must  be  phased  up  over  time  to  the  level  of   existing  MBAs.  an  extremely   sharp  increase  from  the  minimal  capital  requirement  previously  in  place  (Php10   000).   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   .

 Eros  Corporate  Tower   Nehru  Place.  India    “Pre-­‐need  plan”  is  the  term  used  in  the  Philippines  for  an  endowment  insurance   product.It  is  the  only  category  for  which  such  graduation  is  allowed.    A  stock  corporation  is  owned  by  shareholders  while  a  mutual  life  company  is   owned  by  policyholders.  New  Delhi  –  110  019.  depending  on  the  institutional   form:   Commercial  insurers  (stock  companies)  may  either  provide  life  or  non-­‐life   exclusively.           Product  regulation:  Insurance  is  demarcated  into  life  and  non-­‐life.  health  care  plans  fall  outside  the  jurisdiction  of  the   Insurance  Commission.  As  discussed.  in  which  case  they  can  provide  both   categories.  Regus.  but  composite   products  are  allowed  under  certain  circumstances.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  for  example  an  education  savings  plan  that  promises  to  pay  out  a  certain   amount  at  a  certain  time  in  future  in  exchange  for  a  monthly  premium.  or  apply  for  a  composite  licence.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         15th  Floor.

 This  may  be  because  the  Microinsurance  Circular  could   not  override  the  Insurance  Code  that  was  passed  long  before  microinsurance  came   on  the  horizon.       Market  conduct  regulation:      Insurance  may  only  be  distributed  through  licensed  agents  or  brokers.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         15th  Floor.Yet  life  and  non-­‐life  insurance  can  include  health  insurance  related  to  accidents   Cooperative  insurance  societies  registered  with  the  Cooperative  Development   Authority  and  also  licensed  by  the  Insurance  Commission  may  provide  both  life   and  non-­‐life  products.  They  could   be  individuals  or  companies/organisations  (in  which  case  the  company  has  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  Eros  Corporate  Tower   Nehru  Place.  India   MBAs  may  provide  only  life  insurance.  New  Delhi  –  110  019.  even  though  they  are  the  main  vehicle  for   microinsurance  and  the  microinsurance  regulations  define  both  life  and  non-­‐life   microinsurance  products.  It  is  counterintuitive  that  MBAs  are  subject   to  the  strictest  demarcation.

 the  MFI   either  enters  into  a  partnership  with  an  insurer  for  the  distribution  of  insurance   45  Section  20  of  Republic  Act  No.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  India   agent  selling.  to   use  any  or  all  of  its  branches  as  outlets  for  the  sale  of  other  financial  products.  Brokers   and  agents  are  required  to  take  a  written  examination  prior  to  authorisation  and   are  required  to  explain  the  nature  and  provisions  of  the  contract  to  their  clients.  subject  to  prior  approval  of  the  Monetary  Board.  they  only  do  so  within  their  own  network  of  member   cooperatives.  otherwise  known  as  the  General  Banking   Law  of  2000.  Under  banking  regulation.  In  practice.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  and  even  there.  an   insurance  company  allied  with  a  bank  is  allowed  to  sell  insurance  products  to  that   bank’s  clients  within  the  premises  of  the  bank  (bancassurance)45.  No  commission  caps  are  imposed.  Eros  Corporate  Tower   Nehru  Place.  8791.provide  the  specific  list  of  people  or  individuals  who  may  act  on  its  behalf).  Only  the  two  cooperative  insurers  use  individual         15th  Floor.  New  Delhi  –  110  019.   particularly  the  minimum  disclosure  requirements  printed  in  the  insurance  policy   contract.  the  traditional  broker  and  agent  channel   is  not  applied  in  microinsurance.  allows  a  bank.  For  the  rest.  in  partnership  with  such  member  cooperatives.  This  is  however   not  allowed  for  rural  banks.

  to  its  members.  this  is  applicable  only  to  universal  and  commercial  banks.  Regus.546  a  month)  and  maximum  benefits  (of   approximately  $4  000)  for  life  insurance  only  (no  benefit  caps  apply  to  non-­‐life   microinsurance  policies  that  are  included  in  the  microinsurance  category).  It  also   stipulates  that  policies  must  clearly  set  out  all  relevant  details.  Eros  Corporate  Tower   Nehru  Place.  or  a  licensed  agent  of  the  commercial  insurance  company  sells  a   group  insurance  policy  to  the  MFI  or  rural  bank.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Under  BSP  Circular  No.  357.  must  be  easy  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.including  insurance.  the  Insurance  Commission   in  2006  issued  Memorandum  Circular  No.  New  Delhi  –  110  019.  Series  of         15th  Floor.  of  its  allied  undertaking.  9-­‐2006  to  encourage  microinsurance   provision.  It  defines  microinsurance  as  insurance  (life  and  nonlife)   aimed  at  mitigating  the  risks  of  the  poor  and  disadvantaged.     Financial  inclusion  policy  and  regulation:      In  line  with  government’s  financial  inclusion  objective.  It  is  defined  in  terms   of  maximum  premium  (of  about  $25.  not  to  rural  banks.  India   2002.

 India   collection  must  coincide  with  cash  flow  of/not  be  onerous  to  the  target  market.  tailored  to  the  capacity  and  activities  of   microinsurance  MBAs.  If  they  are  unable  to   comply  with  this.  the  Circular  requires  the  establishment  of   a  set  of  performance  standards.  the  regulatory   concessions  created  in  the  circular  apply  only  to  microinsurance  MBAs.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  to  evaluate.  governance   and  risk  management.  Premium         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  an  even  lower  amount  is  allowed.  but  they  must  increase  their   capital  at  a  rate  of  5%  of  gross  premium  collections  per  year  until  they  reach  the   required  minimum  capital.  their  solvency.  New  Delhi  –  110  019.  and  must  have  simple  documentation  requirements.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.         Although  any  registered  insurer  can  offer  microinsurance  products.  Furthermore.  An  MBA   can  be  recognised  as  microinsurance  MBA  if  it  provides  only  microinsurance  and   has  more  than  5  000  member-­‐clients.understand.  amongst  others.  Microinsurance  MBAs  are  allowed  to  hold   reduced  minimum  capital  vis-­‐à-­‐vis  new  MBAs  and  must  phase  up  their  minimum   capital  over  time  to  reach  the  level  of  as  existing  MBAs.  Regus.

4.  This  allows  the  Commission  to   provide  the  insurance  industry  sufficient  latitude  to  innovate.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  and  to  issue   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   3.  regulation  and  supervision  on  the  market     Regulation  shapes  the  microinsurance  market  in  the  Philippines  in  a  number  of   ways:     A  “market-­‐following”  approach  of  monitoring  market  trends  and  tailoring   regulation  accordingly:     The  Insurance  Code  confers  wide  powers  on  the  Insurance  Commissioner  to  issue   circulars  in  response  to  changing  market  conditions.  Eros  Corporate  Tower   Nehru  Place.  Regus.                   15th  Floor.  New  Delhi  –  110  019.  Impact  of  policy.3.

    Impact  of  financial  inclusion  policy:     The  National  Microfinance  Strategy  dramatically  influenced  the  growth  of  the   microfinance  industry.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.regulatory  measures  that  consider  and  accommodate  such  innovations.  It  triggered  credit  life  expansion  and  the  growth  of  the   MBA  vehicle  that  in  turn  paved  the  way  for  implementing  the  Insurance   Commission  circular  defining  microinsurance  and  setting  out  a  tiered  prudential         15th  Floor.  However.  Eros  Corporate  Tower   Nehru  Place.  unlike  the  approach   in  India  and  South  Africa.  This  is  in   line  with  regulation  in  the  broader  Filipino  financial  sector.  Commercial   insurers  enjoy  neither  capital  nor  market  conduct  concessions  to  market   microinsurance  products.  New  Delhi  –  110  019.  India   structure  favouring  microinsurance  MBAs.  and  the  Philippines  has  therefore   seen  only  a  few  instances  of  innovation  by  large  insurers  focused  on  the  low-­‐   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  to  date.   except  to  sell  group  credit  life  policies  to  MFIs  and  rural  banks.  government’s  financial  inclusion  policy  does  not  extend   to  encouraging  large  commercial  insurers  to  reach  into  the  low-­‐income  market.

 the  dramatic  increase  in  their  minimum  capital   requirements  (from  $1.  Eros  Corporate  Tower   Nehru  Place.2-­‐million  to  $24-­‐million)  has  arguably  discouraged   experimentation  in  the  low  premium  market.  The  provision  allowing  MBAs  that   cannot  meet  the  minimum  capital  requirements  to  register  and  then  grow  their   capital  over  time  is  proving  useful  to  formalize  insurance  operations  that  were   previously  conducted  in  an  informal  and  unsupervised  manner.income  market.  New  Delhi  –  110  019.  India   thereby  limiting  their  ability  to  extend  their  product  range  in  line  with  the  needs  of   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  On  the  contrary.  but  with  limitations:         The  microinsurance  circular  (Circular  9-­‐2006)  carved  out  a  space  for  dedicated   microinsurance  MBAs  in  the  Philippines.  This  approach  has  proved  conducive  to   microinsurance  development  (with  six  microinsurance  MBAs  already  registered   and  more  being  prepared  for  registration).       Tailored  regulatory  space  facilitates  microinsurance.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         15th  Floor.  remain  unable  to  underwrite  non-­‐life  and  health  products.  however.  Microinsurance   MBAs.

 New  Delhi  –  110  019.  These  in-­‐house  insurance  schemes  are  not  subject  to  actuarial   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  both  constitute  “insurance”.  This  has  created  confusion  in  the  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  implies  that  differing  rules  and  regulations  are   applied  to  various  insurance  products.  Eros  Corporate  Tower   Nehru  Place.their  clients.  Furthermore.  where  people  indicated  that  they   were  hesitant  to  buy  any  insurance  due  to  a  recent  failure  of  a  large  pre-­‐need   company  to  meet  its  obligations.           15th  Floor.  as   was  apparent  from  the  focus  group  interviews.  unless  they  obtain  underwriting  by  large  commercial  insurers.  India   A  lack  of  effective  supervision  over  all  insurance-­‐type  products  undermines   microinsurance  market  development:       Though  two  popular  product  types  in  the  Philippines.  pre-­‐need  and  health  care   plans.  these  products  fall  outside  of  the  jurisdiction  of   the  Insurance  Commission.  a  lack  of  enforcement  of  the   provisions  of  the  Cooperative  Code  has  led  to  the  proliferation  of  “in-­‐house”   insurance  schemes  among  cooperatives  not  licensed  to  provide  insurance  under   the  Insurance  Code.  Regus.

 this  potential  cannot  be  exploited  at  present   since  only  universal  and  commercial  banks  (that  are  usually  in   urban  areas)  are  allowed  to  sell  other  financial  products  (that  includes  insurance   products)  on  their  premises.  More  than  65%  of  total   cooperatives  registered  with  the  Cooperative  Development  Authority  are   no  longer  operating  due  to  mismanagement.  However.  Given  their  proximity  to  poor  people.       Inability  of  rural  banks  to  sell  insurance  products  within  bank  premises:       Most  rural  banks  are  in  the  countryside  and  about  25%  of  these  banks  deliver   microfinance  services  to  poor  clients.  As  a  result.  Eros  Corporate  Tower   Nehru  Place.  rural  banks  resort  to  taking  group  credit   life  insurance  policy  contracts  with  commercial  insurers  to  cover  their  loan         15th  Floor.  governance  issues  and  more   importantly.  the  lack  of  rules  and  regulations.  rural   banks  have  the  potential  to  be  effective  channels  for  widespread  delivery  of   microinsurance  products.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  New  Delhi  –  110  019.evaluations  and  therefore  create  risks  for  their  members.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

3.  At  present.  Regus.  the   definition  of  microinsurance  in  terms  of  premium  and  benefit  limits  did  to   some  extent  provide  a  benchmark  for  commercial  insurers  to  create  innovative   products  that  would  be  affordable  to  the  poor.     3.  It  illustrates  how  MFI-­‐based  microinsurance  can  evolve   beyond  the  provision  of  credit  life  insurance  to  also  provide  life.  Therefore.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  remains  underdeveloped   and  the  fact  that  total  microinsurance  penetration  is  estimated  at  less  than  6%  of   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  very  few  microfinance  clients  of  rural  banks   have  therefore  availed  themselves  of  insurance  products  other  than  credit  life.  Conclusion:  insights  and  lessons  from  the  Philippines     Microinsurance  in  the  Philippines  is  fundamentally  group-­‐based  and  largely   microfinance  driven.  however.  India   commercial  insurers  outside  of  the  MFI  realm.    It  is  reported  that  the  Insurance  Commission  has  to  date  approved  five     microinsurance  products  provided  by  commercial  insurers.  accident  and   capital  health  insurance  to  members.exposure  to  bank  clients.5.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  provision  of  microinsurance  by         15th  Floor.

 In  this  way.adults  indicates  much  scope  for  expansion.  The  challenge  is  that  this  approach   requires  ongoing  management  to  monitor  risks.  the  Philippines  present  one  of   only  two  current  examples  where  microinsurance  has  explicitly  been  included  in   the  insurance  regulatory  regime.  a  number  of  policy  and   regulatory  aspects  bode  well  for  the  growth  of  microinsurance.  While  commercial  insurers  may  also   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  fact  that  pre-­‐need   and  health  plans  fall  outside  of  the  Insurance  Commission’s  jurisdiction  and  the   inability  of  rural  banks  to  provide  bancassurance).  is  boosting  microfinance   and  hence  the  microinsurance  sector.  Financial  inclusion   policy.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Most  importantly.  India   (such  as  the  proliferation  of  in-­‐house  cooperative  insurance.  Despite  some  remaining  obstacles         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  in  the  form  of  the  National  Microfinance  Strategy.  The  microinsurance  concessions  are   however  limited  to  MBAs  that  are  willing  to  exclusively  provide  microinsurance   and  have  reached  a  certain  level  of  scale.  New  Delhi  –  110  019.  Regus.  which  may  imply  challenges  to   the  capacity  of  the  regulator.  The  Insurance  Commission  takes  a  reactive.   “market-­‐following”  approach  that  encourages  innovation.  it  has   adopted  a  risk-­‐based  supervision  approach.

 the  latter  largely  excluded   from  the  formal  sector.  Where  formal  providers  would  not  go.  South  Africa     South  Africa  has  one  of  the  highest  insurance  penetrations  in  the  world.  Following  the  end  of  apartheid.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  government  has  pursued  a  policy   of  financial  inclusion  with  agreed  targets  for  insurance  outreach  by   commercial  insurers  into  previously  marginalised  markets.  At  the         15th  Floor.4.  In  the  financial   sector  this  has  created      a  distinct  divide  between  the  intensively  served  high-­‐ income  end  of  the  market  and  the  low  income  market.  India   same  time  it  is  characterised  by  a  history  of  inequality  and  poverty.           3.offer  products  that  fall  within  the  definition.  Regus.  informal  markets   developed.  there  are  no  regulatory  concessions   applicable  to  them.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

  Extensive  market  conduct  legislation  was  promulgated  for  the  entire  financial   sector.       3.  It  increased  the  cost  of  insurance  intermediation  to  such  an  extent  that  the   individual  marketing  of  microinsurance  policies  became  too  costly.  Due  to  a   history  of  abuse.  New  Delhi  –  110  019.1.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Context     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   The  combination  of  formal  and  informal  provision  has  created  the  biggest   microinsurance  market  (relative  to  population)  in  the  five  sample  countries.   Funeral  insurance  dominates  the  low-­‐income  market.  Regus.  showing  the  importance  of   the  demand  for  the  underlying  service  in  triggering  insurance  uptake.  The   government  is  in  the  process  of  designing  a  dedicated  microinsurance  space  to   ensure  continued  growth.  South  Africa  also  strongly  emphasises  consumer  protection.4.         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.

 Use  of  financial  services  has  risen  to  60%   of  adults.  sophisticated  financial  sector.  With  a  premium-­‐to-­‐ GDP  ratio  of  among  the  highest  in  the  world  (16%)48.  of         15th  Floor.   almost  exclusively  for  funeral  insurance.  The  payment  system  infrastructure  is  strong.  India   which  59%  live  in  urban  areas.  Eros  Corporate  Tower   Nehru  Place.  Salient  features  of  the  microinsurance  market   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.2.  South  Africa  has  a  well-­‐ developed.  with  an  excess  of  15  600   Automatic  Teller  Machines  and  a  multitude  of  POS  (Point  of  Sale)  devices  spread   across  the  country  (PriceWaterhouseCoopers  (PWC).  New  Delhi  –  110  019.   with  GDP  growth  averaging  around  4%  since  2000.  In  the   traditional  formal  vacuum.  a  robust  informal  risk-­‐pooling  market  has  developed.  Regus.  The  country  has  recently  had  an  economic  upswing.  the  insurance  sector  is  well   developed.       3.4.  The  industry  traditionally  served  the  high-­‐income  end  of  the  market   and  only  recently  started  to  focus  on  ways  in  which  to  innovate  (in  terms  of   products  and  especially    distribution)  to  penetrate  the  low-­‐income  market.  2007).South  Africa  is  a  middle-­‐income  country  with  a  population  of  around  47-­‐million.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

        15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  focusing  on   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     Products:  Formal  insurers  have  started  to  move  downmarket  recently.  Regus.  a  number  of  burial   societies  provide  funeral  insurance  formally  (as  friendly  societies).  there  is  only  one  mutual  insurer50.  The  formal  market  is  dominated  by   corporate  insurers.  as  well  as  between   3  000  and  5  000  funeral  parlours  providing  funeral  cover  –  of  which  we  estimate   50%  to  do  so  formally.  with  underwriting  by  registered  insurers.  India   Players:  There  are  75  commercial  long-­‐term  (life)  and  97  short-­‐term  (non-­‐life)   insurers.  New  Delhi  –  110  019.  within  a  limited-­‐ benefit  space  provided  for  them  under  the  insurance  legislation.e.  No  composite  insurers  are  allowed.  they  demutualised  to  become  public  companies  towards  the  end  of  the   1990s.  and  50%   informally.  Though  the  two  largest  insurers  originally  developed  as   mutuals.  All  in  all.  almost  two  thirds  of  the  demand  for  funeral  insurance  is  met   informally.  On  the  informal   side  it  is  estimated  that  there  are  between  80  000  and  100  000  mutual  burial   societies  serving  between  four  and  eight-­‐million  people51.  Eros  Corporate  Tower   Nehru  Place.  i.  In  addition.  Today.

 India   associations’  efforts  to  create  product  standards  for  the  purpose  of  complying   with  the  Financial  Sector  Charter.  New  Delhi  –  110  019.  various  products  are  now  available  that   provide  cover  at  as  little  as  $3-­‐$7  a  month      and  that  are  characterised  by  simple   and  flexible  terms.  Eros  Corporate  Tower   Nehru  Place.  Regus.  easy  access  and  decent  terms   (so-­‐called  CAT  standards).  The  increasing  prominence  of  credit  life   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  As  a  result.     The  charter  is  a  commitment  negotiated  between  industry  and  various  roleplayers   to  achieve  certain  access  targets  that  were  then  adopted  in  regulation  and   committed  government  to  providing  the  regulatory  space  that  supports  inclusion.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .      The  South  African  microinsurance  market  is  distinguished   from  most  of  the  international  experience  in  that  voluntary  insurance  accounts  for   most  of  the  microinsurance  market.  This  is  partly  due  to  industry         15th  Floor.  This  figure  moves  up  to  41%   when  only  focusing  on  the  formal  market.innovations  for  more  appropriate  products.   The  criteria  for  these  standards  include  fair  charges.  Compulsory  credit  life  insurance  accounts  for   only  about  22%  of  the  total  microinsurance  market.

    There  is  limited  take-­‐up  of  non-­‐life  and  non-­‐funeral  life  insurance  among  poor   people.  despite  recent  innovations  and  the  introduction  of  housing.    Note  that  this  is  a  conservative  estimate  and  that  the  share  of  credit  life  insurance   may  therefore  be  higher.insurance  is  largely  the  result  of  the  development  of  the    Mutual  insurers  are  not   allowed  unless  a  special  act  of  parliament  is  passed  to  provide  for  them.  New  Delhi  –  110  019.  cellphone.  India   the  requirements  of  the  act.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Focus  group  insights  indicate  this  to  be  a  function  of  affordability  and  a   lack  of  awareness  of  the  value  proposition  such  products  offer.  Under  the   Friendly  Societies  Act.  only  180  are  registered  friendly  societies.  only  friendly  societies  with  a  turnover  of  more  than  R100   000  (about  $13  000)  need  to  submit  annual  financial  statements  and  adhere  to         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.   personal  accident  and  other  types  of  insurance  targeted  at  the  low-­‐income   market.  Only  74  of  the  180  registered  friendly  societies  are  in   this  category.  Regus.  The  only  asset-­‐ based  insurance  product  starting  to  achieve  some  voluntary  take-­‐up  is  cellphone   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.    Of  these  burial  societies.

 as  well  as  a   sophisticated  payment  system.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   importance  of  cellphones  as  personal  and  business  communication  tools   in  the  lives  of  the  poor  –  a  phenomenon  strongly  supported  by  the  focus  groups.  well-­‐developed  retail  network  in  South  Africa.  Eros  Corporate  Tower   Nehru  Place.  with   no  or  limited  advice  and  verbal  disclosure  of  product  terms.  New  Delhi  –  110  019.  as  well  as  joint  ventures  with  retailer  chains  and  even  with  low-­‐income   groups  such  as  church  networks  or  sports  clubs  as  distribution  channels.  High-­‐income  individuals  tend  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   all  these  products  are  sold  in  a  passive.  Rather.insurance.   Innovation  in  microinsurance  distribution  has  been  made  possible  by  the   availability  of  a  large.     Distribution:  Intermediation  innovations  have  been  important  in  all  the  successful   microinsurance  products.  This  reflects  the  rapid  adoption  of  mobile  telephony  and  the         15th  Floor.  insurance   policy  contracts  are  filled  out  using  a  “tick-­‐of-­‐the-­‐box”  approach  that  requires   minimal  insurer  or  sales  person  engagement.  Regus.  These  include  using  cellphones  as  communication  and   sales  tools.  “off  the  shelf”  way.  This  is  a  feature  that  characterises   only  models  aimed  at  the  lower-­‐income  market.  Due  to  the  restrictive  market  conduct  regulation.

 Eros  Corporate  Tower   Nehru  Place.  of  insurance  products   sold  to  the  low-­‐income  market  and  the  implicit  emergence  of  a  “microinsurance”   category  of  products.  regulation  and  supervision  landscape     Insurance  in  South  Africa  is  primarily  regulated  by  the  Long-­‐term  Insurance  Act  (52   of  1998)  and  the  Short-­‐term  Insurance  Act  (53  of  1998).  All  of  this  has  assisted  in  bringing  down  the    risk.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Health  insurance  (in  the  form  of  indemnity   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  Financial  Services  Board  (FSB)  is  the   statutory  body  in  charge  of  supervision.  governing  respectively  the   life  and  non-­‐life  insurance  industries.  New  Delhi  –  110  019.  both  from  an   underwriting  and  a  market  conduct  point  of  view.be  served  via  the  traditional  broker/agent  model.4.  A  regulatory  review  process  has  been  launched  with  the   intent  to  formalise  the    definition  of  microinsurance  so  as  to  tailor  regulation  to  its   specific  risk  characteristics.  The  insurance  policy.3.  Low-­‐income  market  products         15th  Floor.  Regus.     3.  India   are  also  sold  on  a  group  basis  and  with  contract  periods  of  no  more  than  one  year   (with  the  norm  being  one-­‐month  contracts      renewable  with  the  payment  of  each   premium).

    Below.  Eros  Corporate  Tower   Nehru  Place.  Regus.benefits  covering  medical  expenses)  is  regulated  separately  under  the  Medical         15th  Floor.  No  company  may  have  more  than  one  insurance  licence  and  no   composite  licences  are  possible.  India   Schemes  Act  (131  of  1998)  and  does  not  fall  under  he  supervision  of  the  FSB.  certain  elements  of  the  Friendly  Societies  Act  (25  of  1956)  and  the   Cooperatives  Act  (14  of  2005)  are  of  relevance.  provided  their  policy   benefits  do  not  exceed  R5  000  (just  more  than  $600).  Market  conduct  is  regulated   primarily  through  the  Financial  Advisory  and  Intermediary  Services  (FAIS)  Act  (37   of  2002).  New  Delhi  –  110  019.     Institutional  and  prudential  regulation:  Only  public  companies  with  insurance  as   their  main  business  are  allowed  to  register  as  insurers  under  either  the  long-­‐term   or  short-­‐term  act.  In   addition.  Registered  friendly  societies  may  provide   insurance  without  registering  under  the  insurance  acts.  Under  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  main  aspects  of  the  regulatory  scheme  are  discussed.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 with   assistance  business  policies  defined  as  policies  not  exceeding   R10  000  (about  $1  300)  in  value.  New  Delhi  –  110  019.       Product  regulation:  On  registration.  India   must  register  under  the  long  or  short-­‐term  act.  Eros  Corporate  Tower   Nehru  Place.  it  is  possible  to   register  as  an  “assistance  business”  (funeral  insurance)  provider  only.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Prudential  regulation  requires   minimum  upfront  capital  of  approximately  $1.3-­‐  million  for  life  and  $0.  though  insurers  are  required  to  report  separately  to  the  FSB  on  each   class  of  policies  they  provide.  Though  no  prudential  or  institutional  concessions   are  made  for  assistance  business-­‐only  insurers.  registered  financial  cooperatives  may  provide  insurance  but         15th  Floor.  Regus.  undermining  the  intent  of  the  act  to  facilitate  the   delivery  of  financial  services  by  cooperatives.7-­‐million   for  non-­‐life  insurers.  No  product  pre-­‐approval  is   required.  In  the  case  of  the  Long-­‐term  Act.Cooperatives  Act.  assistance  business  is  granted   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  In  effect  this  implies  that  they  must   convert  to  a  public  company.  each  insurer  is  authorised  to  provide  a   number  of  classes  of  policies  as  defined  under  each  act.

 It  sets  the  conditions  for  the  intermediation  of  insurance  (and  other   financial  services)  to  the  public  to  enhance  consumer  protection.e.  even  when  the  policy  contract  terms  specifies  that   payment  will  be  in  kind  (i.  Among  others.  Eros  Corporate  Tower   Nehru  Place.   Insurers  are  required  to  give  assistance  policyholders  the   option  of  a  monetary  benefit.  India   product  for  which  no  commission  caps  are  imposed  and  its  intermediaries  are   temporarily  exempted  from  the  education  requirements  under  the  FAIS  Act.  it   requires  all  intermediaries  providing  advice  or  intermediary  services  to  be   authorised  to  do  so  by  the  supervisor.  New  Delhi  –  110  019.  the  provision  of  a  funeral).special  regulatory  treatment  in  a  number  of  instances:  it  is  the  only  class  of         15th  Floor.  Assistance  business  is  the   only  product  subject  to  this  requirement.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.       Market  conduct  regulation:  Market  conduct  regulation  is  primarily  contained  in   the  FAIS  Act.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 experience.  but  when  furnishing  advice.  in  the  case  of  advice.  This  has  opened  the  space  for  “tick-­‐of-­‐the-­‐box”.  fit  and  proper.Intermediary  services  are  defined  as  actions  requiring  the  person  to  exercise         15th  Floor.  FAIS  does  not  require  advice   to  be  provided  on  all  transactions.  financial  products  may  be  sold  by  non-­‐authorised   intermediaries  as  long  as  they  do  not  provide  advice  or  intermediary  services.   this  includes  the  recommendation  of  a  product  choice.  In  terms  of  a  guidance   note  issued  by  the  FSB.   identify  the  products  that  will  be  appropriate  to  the  clients’  needs  and  take   reasonable  steps  to  ensure  that  the  client  understands  the  advice  and  makes  an   informed  decision.  India   judgment  that  leads  the  client  to  enter  into  a  transaction.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  as  long  as  they  do  so  in  a  passive.  the  financial   service  provider        is  obliged  to  conduct  an  analysis  of  client’s  financial  needs.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  records  of  client  interactions  and  advice  should   be  kept  for  a  minimum  of  five  years.  reporting  and  other   requirements53.  Authorisation  in  turn   entails  various  education.  Furthermore.  clerical  way  that  does  not  require  the  exercise   of  judgment.  that   is.  advice-­‐less  sales   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.

        15th  Floor.  Regus.  commission  levels  payable  to  intermediaries  are  capped  under   the  regulations  to  the  Long-­‐term  and  Short-­‐term  Acts.  which  in  turn  have  found  application  in  the  various  innovative  models   currently  on  the  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  duty  to  supply  factually   correct  information  to  the  client  and  to  confirm  this  in  writing  upon  request.       Financial  inclusion  policy  and  regulation:       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  with  the  exception  of   assistance  business.  India   In  addition  to  FAIS.  Eros  Corporate  Tower   Nehru  Place.  and   the  duty  to  disclose  the  nature  and  extent  of  any  remuneration.  an  annual  levy.  New  Delhi  –  110  019.models.      Including  the  need  to  appoint  a  compliance  officer.  the  need  to  maintain   externally  audited  accounting  records.

Since  democratisation  in  1994.  “Effective  access”  is  defined  in  terms  of  the   distance  to  the  nearest  service  point.  2006).  India   towards  black  economic  empowerment.  the  range  of  products  and  services  available.  The  charter  also  commits  government  to   providing  a  facilitative  regulatory  framework  to  achieve  the  charter  targets  and   goals.5-­‐million  long-­‐ term  policyholders  (FinScope™.  Regus.  South  Africa  has  been  characterised  by  a  drive         15th  Floor.  The  access  targets  for  insurance  require  that  6%  of  the  low-­‐income54   population  have  effective  access  to  short-­‐term  and  23%  to  longterm   insurance  by  2014.   their  appropriateness  to  the  needs  of  the  low-­‐income  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  equates  to  1.  labour   and  other  stakeholders  within  the  financial  sector  in  2003  negotiated  and   signed  the  Financial  Sector  Charter  as  a  commitment  by  the  formal  industry  to   implement  black  economic  empowerment  that  includes  the  extension  of  financial   access  to  the  lowincome  market.  industry  is  committed  to  spending   0.  Eros  Corporate  Tower   Nehru  Place.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.2%  of  post-­‐tax  profits  on  consumer  education.  and  whether  they   are  affordably  priced  as  well  as  structured  and  described  to  customers  in  a  simple   and  easy  to  understand  manner.  As  part  of  this  process        industry.  In  addition.2-­‐million  short-­‐term  and  4.

 India   Other  regulation  of  note  includes  the  implementation  in  2007  of  the  National   Credit  Act  of  2005:      This  has  implications  for  the  credit  life  insurance  industry.  Regus.  Eros  Corporate  Tower   Nehru  Place.  combined   with  government’s  commitment  under  the  charter  to  remove  regulatory  barriers   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.           15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .     Current  reconsideration  of  insurance  legislation  as  it  pertains  to  micro-­‐ insurance:       Concerns    about  potential  consumer  abuse  in  the  low-­‐income  market.  should  the  credit  provider   compel  them  to   take  out  credit  life  cover.  New  Delhi  –  110  019.  as  well  as  for  transparent  sales  and  pricing  of  credit  life   insurance.  in  that  it  reiterates  the   client’s  right  to  choose  the  provider  of  insurance.

    3.  have  prompted  the  National  Treasury  (the  policymaking   body  for  the  financial  sector)  to  reconsider  the  insurance  regulatory  framework.  Eros  Corporate  Tower   Nehru  Place.4.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Bringing  down  transaction   costs  has  been  essential  in  the  attempt  to  achieve  this.4.  New  Delhi  –  110  019.  regulation  and  supervision  on  the  market   Financial  inclusion  policy  drives  low-­‐income  market  expansion  and  triggers   innovation:             15th  Floor.to  market  development.  India   The  access  targets  in  the  Financial  Sector  Charter  have  been  the  main  driving  force   in  formal  sector  expansion  over  the  past  few  years.  Impact  of  policy.   The  aim  is  to  create  a  microinsurance  regulatory  space  to  (i)  bring  down   regulatory  unit  costs  to  facilitate  outreach  into  the  lowerincome   market  by  formal  insurers  and  (ii)  provide  formalisation  and  graduation  options   for  the  informal  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Intermediation  innovation   has  emerged  as  the  most  viable  avenue  for  achieving  lower  transaction  costs  and   larger  scale  reach.  Regus.

 The  average  individual  income  in   LSM  5  amounts  to  about  $140  per  month  (FinScope™.  since  the  regulation  allows  financial  products  to  be   sold  by  non-­‐authorised  intermediaries  as  long  as  they  do  not  provide  advice  or   intermediary  services.  However.  The  average  income  across  LSM1-­‐5  is  about  $300  per   household.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  advice-­‐less   sales  models  that  in   ownership  of  household  assets  and  access  to  services  to  group  individuals  into  one   of  ten  potential  LSMs.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  2006).  or  $100  per  individual  per  month.  Eros  Corporate  Tower   Nehru  Place.           15th  Floor.  creating  a   disincentive  to  serve  lower-­‐income  (and  hence  lower  revenue-­‐per-­‐premium)   clients.  this  has  opened  the  space  for  “tick-­‐of-­‐the-­‐box”.  This  is  especially  true  where  advice  is  provided  as  part   of  the  sales  process.  Regus.  India   At  the  same  time  FAIS  Act  increases  intermediation  costs:       The  greater  drive  towards  consumer  protection  embodied  in  the  FAIS  Act  increases   the  per  transaction  cost  of  intermediating  financial  services.

 is  not  commensurate   to  the  risks  inherent  in  microinsurance  products.  New  Delhi  –  110  019.  versus  a  low-­‐income  market  served  through  advice-­‐less  selling  techniques.   is  a  split  in  the  market  into  a  high-­‐income  end  served  with  detailed  financial   advice.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  India   the  increased  transaction  costs  under  FAIS  and  (iii)  the  space  for  advice-­‐less  sales.  existing  prudential  regulation.  (ii)         15th  Floor.  Given  the  importance  of   burial  societies  in  the  funeral  insurance  market.  The  result  of  (i)  the  need  for  low-­‐income  market  expansion  under  the  charter.  this  undermines  formal   microinsurance  development.  Regus.   The  implication  is  that  the  low-­‐income  market  receives  no  advice  in  the  insurance   products  that  they  buy.  Furthermore.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  set  at  a   uniform  level  for  respectively  the  life  and  non-­‐life        category.       Regulation  inhibits  the  large  number  of  informal  providers  being  formalised:       Current  institutional  regulation  inhibits  the  formalising  of  mutual  groups  by   requiring  registered    insurers  to  be  public  companies.

 In  practice.  an  inability  to   provide  funeral  insurance  is  a  serious  disadvantage  to  low-­‐income  market   expansion.  India   Strict  demarcation  undermines  the  development  of  short-­‐term  microinsurance:     Demarcation  between  short-­‐term  (non-­‐life)  and  long-­‐term  (life)  insurance  implies   that  short  term  insurers  are  not  able  to  offer  funeral  insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  however.  as  these  products  tend  to  be  written   on  a  one-­‐month  or  one-­‐year  at  most        renewable  contract  basis.  Given  the   dominance  of  funeral  microinsurance.  which  is  classified   as  a  long-­‐term  insurance  product.  Regus.  the  product  characteristics   of  funeral  insurance  as  provided  in  South  Africa  correspond  to  that  of  short-­‐term   insurance  rather  than  long-­‐term  insurance.  Eros  Corporate  Tower   Nehru  Place.           15th  Floor.

          15th  Floor.  as  the  application  of  “tick  of  the  box”  models  has  shown.  partly  as  a  result  of  Financial  Sector  Charter   commitments.  credit  life  insurance  remains  an  important  and  growing   market.5.4.  Regus.  Although  the  cost  of  distribution  can  be  substantially   increased  by  regulation  it  can  also  be  substantially  reduced  through  distribution   innovations.  Conclusion:  insights  and  lessons  from  South  Africa     South  Africa  is  characterised  by  a  large  voluntary  market  for  funeral   microinsurance.  driven  by  the  cultural  significance  attached  to  a  dignified  funeral   in  African  society.  the  highly  sophisticated   formal  insurance  market  is  also  increasingly   expanding  downmarket.   Effective  market  provision  of  microinsurance  requires  the  distribution  of  products   with  low  value  premiums.  This  has.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  In  addition.  Whereas  informal  social  risk-­‐pooling  mechanisms  and  funeral   parlours  account  for  a  large  proportion  of  total  demand.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   3.

 due  to  the  high  awareness  of   and  natural  demand  for  it  that  makes  it  possible  to  sell  it  as  a  “commodity”   without  active  sales  effort.   The  proposed  regulatory  reform  of  microinsurance  is  encouraging  in  that  it   suggests  an  active  engagement  by  the  regulatory  authorities  to  address  the   challenges  highlighted.  only  been  successful  in  funeral  insurance.  however.  implying  that  such  products  need  to  be  actively  sold.  Now  the  market  faces  the    challenge  of  also  selling   other  life  and  non-­‐life  insurance  to  their  funeral  insurance  clients.  thus  far  been   inhibited  by  onerous  market  conduct  regulation.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  Active.  it  will   provide  a  valuable  case  study  on  the  impact  of  regulatory  change  on  the   development  of  a  microinsurance  market.   Should  the  proposal  for  regulatory  reform  be  accepted  and  implemented.  New  Delhi  –  110  019.   advice-­‐based  selling  to  the  low-­‐income  market  has.       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   Beyond  funeral  insurance  the  awareness  among  low-­‐income  people  of  the  value  of   insurance  is  low.  Regus.however.

 Eros  Corporate  Tower   Nehru  Place.  India   Uganda  has  a  small.  Adding  to  these  market  factors  is  the  fact  that  the  insurance   regulatory  framework  in  Uganda  is  very  young.  especially  the  voluntary.  relatively  young  insurance  market.  accompanied  by  widespread  mistrust  of  the   insurance  industry.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  non-­‐credit   life  market.  Extremely  low  and  irregular  average  household  incomes  in  Uganda   mean  less  disposable  income  to  pay  for  insurance.  Regus.  Uganda             15th  Floor.3.  such  as  banks  and   national  retailers.  New  Delhi  –  110  019.  the  understanding  of  insurance   among  the  population  is  limited.   Though  focus  groups  indicated  a  strong  need  for  the  mitigation  of  health  risk  (and   to  a  more  limited  extent  also  of  other  risks).  Moreover.5.  The  country  faces  many   challenges  in  the  expansion  of  microinsurance.  imply  that  there  are  few  channels  for  low-­‐cost  insurance   distribution.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  limited  footprint   of  formal  sector  activity.

 one  of   which  is  developing  its  relatively  underdeveloped  financial  sector.  Of  the  total  population  of  29-­‐million  (of   which  13-­‐million  are  adults)   87%  still  reside  in  rural  areas  (this  presents  a  key  complication  for  the  distribution   of      financial  services).  New  Delhi  –  110  019.  Regus.1.  Uganda  faces  many  development  challenges.5.However.  This  leaves   little  time  and  resources  to  be  spent  on  microinsurance.  2007).  In  the  1980s  it  was  subject  to  a   period  of  hyperinflation.  triggering  significant  entry  of  foreign  insurers  over   the  past  10  years.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  At  the  same  time.  96%  live  on  less  than  $2  a  day.  from  which   the  country  took  a  long  time  to  recover.  The  first  priority  of   the  supervisor  must  of  necessity  be  to  cultivate  a  compliance  culture.  regulatory  gaps  remain.  India   has  brought  greater  certainty.  extremely  low-­‐income  country.  and  82%  live  on  less  than  $1   a  day  (World  Bank.  the  passing  of  an  insurance  law  and  the  establishment  of  a  supervisor         15th  Floor.  followed  by  a  large  currency  devaluation55.  Only  21%  of  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     3.  Eros  Corporate  Tower   Nehru  Place.  Context     Uganda  is  a  small.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  insurance  industry  in  effect  operated  in  an  unregulated  domain.  New  Delhi  –  110  019.  2006).  Salient  features  of  the  microinsurance  market     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  This  implies  that  62%  of  the   adult  population  do  not  use  any  type  of  financial  service   (FinScope™  Uganda.  India   service.  Regus.           3.   Until  recently.   Formal  insurance  sector  legislation.  regulation  and  supervision  have  only  been   implemented  over  the  last  decade.Ugandan  adult  population  use  any  type  of  formal  or  semi-­‐formal56  financial         15th  Floor.  with  gross  premiums  totalling  less  than  1%  of  GDP.  Eros  Corporate  Tower   Nehru  Place.  and  17%  use  informal  financial  services  only.5.  The  insurance  sector  is  even  more  underdeveloped   than  the  financial  sector.2.

 Eros  Corporate  Tower   Nehru  Place.    The  banking  sector  is  tiered  by  regulation  into  4  types  of  financial  services.  India   while  an  estimated  0.  Uganda  is  therefore   unique5  After  the  devaluation.  credit  institutions.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  tier  3   may  do  the  same  as  tier  2.  Regus.Usage:  The  insurance  market  currently  serves  no  more  than  8%  (1m)  of  the  adult   population.  the   first  three  of  which  are  classified  as  “formal”  and  the  latter  as  “semi-­‐formal”:   banks.  New  Delhi  –  110  019.  microfinance  deposit-­‐taking  institutions.6-­‐million  (4.  and  may  extend  credit.  except  operate  cheque  accounts.         15th  Floor.  Banks  (tier  1)  may  mobilise  deposits.   extend  credit  and  perform  foreign  exchange  transactions.  tier  2  may  do  everything   as  tier  1  except  perform  foreign  exchange  transactions.  a  life  insurance  policy  would  only  pay  out  1%  of  its   original  value.    This  estimate  is  based  on  an  AMFIU  (Association  of  Microfinance  Institutions  of   Uganda)  estimate  that  there   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  2006).  not  the  general  public.   and  cooperative  cooperatives  and  MFIs.4m)  of  adults  use  traditional  (non-­‐micro)  insurance   (FinScope™  Uganda.  Only  3%  (0.6%)  use  microinsurance57.  tier  4  may  mobilise   savings  only  from  its  own  members.

 New  Delhi  –  110  019.  some  of  the  underwriting  is  done  by  commercial  insurers   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       Players:  The  insurance  sector  is  fragmented.    The  low  penetration  overall  is  due  primarily  to  the  low  and         15th  Floor.  though  focus   groups  indicate  that  some  community-­‐based   informal  risk  pooling  activity  does  exist  and  people  also  appeal  to  family  networks   to  mitigate  funeral  and  health  risks.  Eros  Corporate  Tower   Nehru  Place.  The   foreign  presence  is  strong  –  12  of  the  20  insurers  are  foreign-­‐owned.  Regus.are  between  500  000  and  800  000  micro-­‐credit  borrowers  with  credit  insurance   countrywide.  India   irregular  incomes  of  the  Ugandan  population  that  leaves  little  disposable  income   to  pay  insurance  premiums.   Interestingly.  with  20  relatively  small  players.  In  the   microinsurance  sphere.  Focus  group  interviews  also  show  widespread   mistrust  of  the  insurance  industry  as  well  as  limited  understanding  of  insurance.  no  informal  risk-­‐pooling  is  picked  up  in  the  usage  data.

      Distribution:  Infrastructure  distributing  microinsurance  is  limited.  Microinsurance  is  virtually  exclusively  comprised   of  credit  life  insurance  sold  through  microfinance  institutions  (MFIs).  if  any.  41%  of  all  non-­‐life  insurance  is  “miscellaneous   accident”  insurance.  Eros  Corporate  Tower   Nehru  Place.   cooperative  or  mutual  insurance  activity.and  some  by  the  MFIs  that  provide  credit  life  insurance.  The  infrastructure  that  is  available  such  as  the  bank   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  There  is  little.  Uganda  lacks  a   formal  retailer  network.  This  small  share  is  often   attributed  to  the  currency  devaluation  of  the  1980s  that  undermined  consumers’   trust  in  the  life  insurance  sector.  the  category  under  which    credit  life  insurance  is  traditionally   written.  India   Products:  The  life  insurance  sector  is  much  smaller  than  the  non-­‐life  sector  and   constitutes  only  4%  of  gross  insurance  premiums.  It  is  therefore  an  anomaly  that  most  credit  life    insurance  is  not  written   under  a  life  licence.  Regus.             15th  Floor.  New  Delhi  –  110  019.

 A  lack  of  actuarial  and            other  insurance  skills   also  hinders  development.  The  payment  system  is  also  weak  and   transactions  are  still  mainly  conducted  using  cash.  There  are  several  reasons  for  this.network  and  cellphone    platforms  is  not  actively  used  at  present  to  distribute   insurance.  Insurers  are  small  by  international  standards.  At  35%  of  net  premiums.         15th  Floor.  The  entry  of  foreign  insurers  into  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.       Poor  value  proposition:  Insurance  as  currently  provided  in  Uganda  offers  clients  a   poor  value  proposition.  including  a   lack  of  efficiency  and  competition  in  parts  of  the  industry.  and  the  high  costs   associated  with  relatively  weak  and  expensive  communications  and  payment   infrastructure.  Bank  branch  infrastructure  is  concentrated  mainly  in  urban  areas.  Regus.  Eros  Corporate  Tower   Nehru  Place.  indicating  that  little  money  is  paid   back  to    policyholders  as  benefits.  the  average  claims  ratio  is  very   low  (compared  to  about  60%  in  South  Africa).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  India   thereby  excluding  most  of  the  population.  with  insurers  spending  a  large  portion  of  premium  income   on  administration  costs.  making  it  difficult  for   them  to  spread  their  fixed  costs.

3.   Insurance  regulation   was  introduced  in  1996  with  the  promulgation  of  the  Insurance  Statute.  Eros  Corporate  Tower   Nehru  Place.  converted   to  the  Insurance  Act  (Cap  213)  in  2000.  1989)  that  makes  third  party  insurance  compulsory   for  all  vehicle  owners.  triggering  product  innovation  and  a  more         15th  Floor.  with  nominal   supervision  by  the  then  Department  of  Insurance  within  the  Ministry  of  Finance.  The  insurance  policy.5.  New  Delhi  –  110  019.  1991  and  the  Companies   Act  (Cap  110  of  1961)  establish  the     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  as  seen  in  a  steady  reduction  in  premiums  on  credit  life   insurance.  regulation  and  supervision  landscape     Before  1996.  The  Insurance  Act  governs  all  insurance   business  and  is  supplemented  by  the  Motor  Vehicle  Insurance  (Third  Party  Risks)   Act  (Cap  214  Laws  of  Uganda.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  insurance  industry  was  effectively  unregulated.  however.  India   competitive  marketplace.  The  Cooperative  Societies  Statute.     3.Ugandan  market  is.

 The  recent  nature  of   the  regulation  has  meant  that  trust  in  the  industry  and  a  compliance  culture  is  still   developing.institutional  framework  for  respectively  cooperatives  and  companies.  with  no  furtherdefinition  of  these  terms.  The  Act  restricts  institutions  that  may   provide  insurance  to  companies.  India   Insurance  Commission  was  established  as  supervisor  in  1997.  which  creates  a  risk  pool  too  small  for   responsible  underwriting.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The         15th  Floor.  The  latter  is  restricted  to   having  between  25  and  300  members.     Prudential  and  institutional  regulation:  The  Act  does  not  contain  a  substantive   definition  of  insurance.  Regus.  Eros  Corporate  Tower   Nehru  Place.  cooperative  insurance   societies  and  mutual  insurance  companies.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  It  is  defined  as  simply  including  “assurance  and   reinsurance”.  New  Delhi  –  110  019.  insurance  corporations.  Consequently  no  mutual  insurance  companies  have   been  registered.  By  convention  rather  than   definition  it  seems  that  provision  of  benefits  without  any  guarantee  falls  under   informal  risk  pooling  rather  than  insurance.

  They  are  not   required  to  provide  any  upfront  capital.  Eros  Corporate  Tower   Nehru  Place.  This  sharp  increase  for  local  insurers  has   been   described  as  a  deliberate  attempt  by  the  commission  to  reduce  the  number  of   insurers  in   the  market  (subsequently  the  insurers  reduced  from  30  to  the  current  20).  These   requirements  were  instituted  in  2002.  local  insurers  were  required  to  hold  only  $115  000.  India   Previously.  Lower   capital   requirements  apply  to  mutual  insurance  companies  (but  not  to  cooperatives).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         15th  Floor.  New  Delhi  –  110  019.   double  that  for    a  composite  licence.Capital  requirements  are  about  $580  000  for  either  a  life  or  non-­‐life  licence.  Regus.  and  $1.  but  must  hold  a  surplus  of  not  less  than   15%  of   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.4m  for  a  reinsurer.  while  foreign   insurers  were   required  to  hold  the  present  $580  000.

 The  Act  provides  for  a  scale  of  minimum  premium  rates   for  non-­‐life   product  lines  to  be  agreed  between  the  industry  association  and  the  regulator.  New  Delhi  –  110  019.  all  new  products  must  be  submitted  to  the  Insurance  Commission  for   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   The  first   finalised  set  of  minimum  premiums  was  agreed  on  in  2007  and  is  now  being   implemented.  but  does  not  specify  a  medical  insurance  category  or  how  insurers   should  treat   medical  insurance.  As  a  result.  the  commission  interprets  it  as  residing  under   “miscellaneous”  non-­‐life  insurance.assets  over  liabilities.  India   Product  regulation:  The  Insurance  Act  demarcates  life  and  non-­‐life  insurance  and   reinsurance.         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  or  such  other  percentage  to  be  determined  by  the   commission.  Composite  insurance  products  may  be   provided  by   composite  insurers  only.  Eros  Corporate  Tower   Nehru  Place.   Furthermore.

approval.  New  Delhi  –  110  019.  the  commission  considers  issues  such  as  the   experience   of  the  insurer  in  writing  the  particular  type  of  business.  A  broker  is  an  independent  contractor  working  for  commission.  Before  granting  approval.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  while  an   agent  is   appointed  by  an  insurer  to  solicit  applications  for  insurance  in  exchange  for   commission.  companies  may  be  agents  but  in  practice  most  agents  are   licensed  in   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.         15th  Floor.  Legally.  A  number  of  possible  microinsurance  products  have  been   rejected  by   the  Insurance  commission  for  failing  in  these  respects.  Eros  Corporate  Tower   Nehru  Place.  Regus.  India   Market  conduct  regulation:  The  distribution  of  insurance  is  limited  to  registered   brokers  and   agents.  the  data  and  the   calculations   underlying  the  pricing.   Brokers  are  required  to  be  bodies  corporate  or  companies  incorporated  under  the   Companies  Act.

 India   from  being  insurance  agents.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   as  a   commoditised  product.  New  Delhi  –  110  019.their  capacity  as  individuals.   The  Act  does  not  contain  any  prescriptions  on  how  the  sales  process  should  be   conducted   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Two  limited  exceptions  apply:  (i)  bancassurance  is   allowed  for   banks  and  micro  deposit-­‐taking  institutions.  may  be  bought  directly  at  petrol  stations.  clients   have  to  approach  an  insurance  company  and  ask  to  purchase  a  product  directly.  As  there  are  no  call  centre  distribution   channels.  the  use  of  this   distribution  channel  is  very  limited.  but  they  are  only  allowed  to  distribute   products   covering  their  own  credit  exposure.  (ii)  compulsory  third  party  vehicle  insurance.  Although  direct   sale  of   products  by  an  insurer  to  the  public  is  not  prohibited  by  legislation.  The  Act  expressly  prohibits  employees  of  insurance   companies         15th  Floor.  Regus.

 Eros  Corporate  Tower   Nehru  Place.         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  clients  will  not  be  allowed  to  pay  premiums  on   monthly.  establish  an  obligation  for  the  Insurance  Commission  to  provide   a  bureau   where  members  of  the  public  can  submit  complaints  related  to  insurance.  This   implies   that  if  an  insurance  policy  is  sold  by  an  agent  or  directly.   Only  registered  brokers  (not  agents)  may  collect  premiums  on  a  credit  basis.  New  Delhi  –  110  019.  and  the  policy  is  written   for  a   period  longer  than  a  month.  India   It  does.  Regus.  however.  It  also   explicitly   prohibits  misleading  advertising.  The   Act  furthermore  stipulates  that  a  scale  of  maximum  commission  rates  must  be   agreed   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.and  whether  the  client  is  entitled  to  advice  or  product  disclosure  and  what  this   should  entail.

 New  Delhi  –  110  019.  Different   maximum   commission  levels  are  determined  for  different  classes  of  insurance  and  these   levels  vary   between  25%  for  consequential  loss  and  5%  for  motor  third  party  insurance.between  the  intermediary  and  insurer  associations  and  the  supervisor.   Financial  inclusion  policy:       Financial  policymakers  have  paid  some  attention  to  promoting   access  to  credit  or  microfinance.  India   identifies  rural  financial  services  (defined  as  credit  or  microfinance)  as  a  focus  area   for  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   commissions  account  for  about  24%  of  net  premiums  received  by  insurers  in  the   Ugandan   non-­‐life  market.  Maximum  commissions  are  not  set  for  life  insurance.  The  Poverty  Eradication  Action  Plan  (PEAP)  of   2004         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.   Overall.

 but  as  virtually  all   microinsurance  is         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  though  no  specific  regulations  have  been  issued  in  this   regard.5.  New  Delhi  –  110  019.       3.  Impact  of  policy.  India   credit  life.  the  development  of  the  rural  financial  services  industry  could  lead  to   microinsurance  expansion.   Microinsurance  is  not  included  in  the  scope  of  the  PEAP.  some  regulatory  uncertainty   continues  to   plague  the  market:       Regulatory  certainty  was  greatly  improved  by  the  establishment  of  the   Uganda  Insurance  Commission  and  the  introduction  of  the  insurance  regulatory   framework.4.elimination  of  poverty.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  regulation  and  supervision  on  the  market   Despite  introduction  of  regulatory  framework.

 This  creates   difficulties   for  those  insurers  not  willing  to  interpret  the  law  in  this  way.  The  absence  of   explicit  health   insurance  regulation  has  created  uncertainty  for  players  in  this  space  or  interested   in   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  though   insurance  is  demarcated  into  life  and  non-­‐life.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  with   common   practice  being  to  write  credit  life  insurance  under  a  non-­‐life  licence.  Unclear  regulation  and  ad  hoc  enforcement  have.Only  once  such  certainty  was  achieved  did  foreign  insurers  start  to  enter  the   market.   Therefore  the  introduction  of  a  regulatory  regime  was  fundamental  to  the   development  of         15th  Floor.   however.  India   the  Ugandan  insurance  market.  some  grey  areas  remain.  For   example.   meant  that  some  uncertainty  has  persisted  in  the  low-­‐income  market.  New  Delhi  –  110  019.

      Market  conduct  regulation  inhibits  market  development:  Uganda  is  judged  to   have  high   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  while  health  microinsurance  is  not  explicitly  part  of  the  scope  of  the   study.  At  the  same  time  it  has  also  opened  a  space  for  market   development.  and  indicative  of  a  poor  public  health  system  on  the  other  hand.         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  this  was  a  particular  gap   in  the  insurance  regulatory  framework  that  emerged  in  Uganda.  Regus.entering  the  market.  This  is  due  to  a  distrust  in  the  life  insurance  industry  (due  to  past   hyperinflation  experiences)  on  the   one  hand.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  India    Note  that.  Health  insurance   was  also  shown  by  focus   groups  to  potentially  be  the  product  with  the  highest  likelihood  of  spontaneous   demand  among  the  low-­‐income   population.

 Eros  Corporate  Tower   Nehru  Place.  also  a  strong  regulatory  driver  behind  this  phenomenon.intermediation  costs  relative  to  the  other  countries  in  this  study.  the   strongest  distribution  network  remains  that  of  the  banking  sector.  Regus.  This  can  partly  be   ascribed   to  the  fact  that  such  a  large  proportion  of  the  population  live  in  hard-­‐to-­‐reach   rural  areas   with  poor  bank  and  payment  infrastructure  that  makes  premium  collection   expensive.  Furthermore.  New  Delhi  –  110  019.  By  not  allowing   bancassurance  apart  from  credit  life  insurance  on  the  bank’s  own  loans.  There   is.  however.   regulation   effectively  neutralises  the  single  most  important  alternative  distribution  footprint   available   in  a  poorly  served  nation.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Despite   limitations.  the  setting  of  minimum  premium  rates   stifles         15th  Floor.

 thereby   further   limiting  potential  distribution  channels.  New  Delhi  –  110  019.  Regus.  the  fact  that  providing  credit   on  premium   payments  is  restricted  to  brokers  makes  direct  distribution  unattractive.  Eros  Corporate  Tower   Nehru  Place.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.       Institutional  limitations  on  the  market:  The  inclusion  of  a  mutual  insurance   company   institutional  category  in  the  Insurance  Act  with  lower  capital  requirements   indicates  a   willingness  by  the  authorities  to  facilitate  insurance  provision  by  smaller  mutual   entities.  In  addition.competition  in  the  market  and  the  commission  caps  can  make  it  uneconomical  to   distribute   insurance  to  lower-­‐income  consumers.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         15th  Floor.

 The  mutual   option  that   could  encourage  community-­‐based  insurers  to  emerge  is  therefore  an  option  in   name  only.  Conclusion:  insights  and  lessons  from  Uganda       Uganda  illustrates  the  challenges  of  expanding  access  to  microinsurance  in  an   extremely   poor  country  with  a  relatively  underdeveloped  formal  financial  sector.       3.  India   facilitate  the  creation  of  a  large  enough  risk  pool  to  write  insurance.  New  Delhi  –  110  019.  the  limit  placed  on  maximum  membership  (300  members)  is  not  high   enough  to         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.However.  Regus.5.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  is   exacerbated  by   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.5.

 Eros  Corporate  Tower   Nehru  Place.  As  the  market   develops.  India   take-­‐up.   The  introduction  of  a  new  regulatory  regime  offers  a  unique  opportunity  to  pre-­‐ empt   potential  pitfalls  and  ensure  a  framework  that  will  facilitate  financial  inclusion  –   an  objective   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Insofar  as  it  has   achieved  some         15th  Floor.  Regus.  it   is  therefore  important  for  non-­‐credit  life  insurance  to  be  established  in  the  low-­‐ income   market.a  lack  of  well-­‐developed  informal  risk  pooling  mechanisms  –  implying  that  the   overwhelming   majority  of  the  population  is  vulnerable  to  financial  shocks.  people  need  to  be  “won  over”  through  positive   experiences  in  credit   life  insurance  and  insurance  in  general  to  break  the  prevailing  mistrust  in   insurance.  To  achieve  this.  New  Delhi  –  110  019.  microinsurance  has  been  limited  to  credit  life  insurance.

 it  also   illustrates  the   potential  pitfalls  to  avoid  –  namely  the  creation  of  an  overly  restrictive  regime   designed         15th  Floor.  Regus.  Factors  affecting  microinsurance  market  development       This  section  summarises  the  key  factors  affecting  microinsurance  development  in   the  sample   countries.  While   the   Ugandan  case  has  shown  the  benefits  of  introducing  greater  certainty.  India   without  explicit  regard  for  financial  inclusion  that  leaves  certain  important  market   segments   with  an  inconclusive  regulatory  regime.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .especially  important  in  a  country  with  such  high  poverty  levels  as  Uganda.  Eros  Corporate  Tower   Nehru  Place.  It  presents  some  hypotheses  on  how  these  factors  combine  to  shape  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     4.

 Regus.  Salient  features  of  microinsurance  markets  in  the  sample  countries   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.1.development  of  the  microinsurance  market.  New  Delhi  –  110  019.  supply-­‐ side   (particularly  emerging  channels  of  distribution).  regulatory  factors  (using  the   structure  of  the   regulatory  framework)  and  macro-­‐economic  conditions  (including  general   infrastructure).  Four   different   categories  are  detailed  in  this  section:  demand-­‐side  (insurance  decision).  India   the  impact  of  regulation.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  Although  the  ultimate  focus  is  on   understanding         15th  Floor.   We  commence  with  a  summary  of  the  salient  features  common  to  the   microinsurance   markets  in  the  sample  countries.       4.  the  broader  country  context  needs  to  be  considered.

 Regus.  the  take-­‐up  of   microinsurance  among   adults  is  even  more  constrained.  with  only  South  Africa  and  Colombia  achieving   more  than   10%  of  adults  –  and  much  of  this  is  provided  by  informal  insurers.  Insurance  penetration  is   consistently   below  5%  of  GDP.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  expect  in  South  Africa.         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  India   The  microinsurance  markets  in  the  five  sample  countries  share  a  number  of  key   features:     Low  insurance  and  microinsurance  take-­‐up:  Total  insurance  take-­‐up   (microinsurance  and   other  insurance)  is  very  low  in  the  sample  countries.         A  large  proportion  of  population  are  in  low-­‐income  categories:     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Within  this.

 but  indemnity  health  insurance  as  a  dedicated  field.  as  it  falls  outside  the  jurisdiction  of   insurance  regulation.   provided  by  health   maintenance  organisations  is  excluded.  Regus.   A  large  proportion  of  the         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  in  the  form  of  an  insurance  policy  that  can  be   claimed  in  the  event  of  for  example   an  accident.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  This  is  due  to  the  intricate  link  between  microinsurance  and   health  insurance  in  India.  New  Delhi  –  110  019.  is  also  included.  The  ultra-­‐poor  (less  than  $162/day)  population  is  also   significant.  Low-­‐    Note  that  India  is  the  only  country  for  which  indemnity  health  insurance  is   explicitly  included  in  the   microinsurance  data.  In  the   Philippines.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  some  health  cover.  India   population  in  the  sample  countries  (ranging  from  Colombia  at  19%  to  Uganda  at   96%)  live  on   less  than  $261  a  day.

 India   levels  also  imply  limited  disposable  income  to  allocate  to  insurance  products  and  a   high  opportunity  cost  of  doing  so.Secondly.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  even  of  informal  products.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  falling  in  the   market   redistribution  zone  as  depicted  in  the  access  frontier  in  Section  2.  low  income         15th  Floor.2.  Regus.  In  Uganda  the   low  level   of  insurance  take-­‐up.   These  groups  may  have  to  remain  the  responsibility  of  government.  may  in  part  reflect  the  very  low-­‐ income   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Care  should  be  taken  by  regulators   when   designing  regulation  aimed  at  encouraging  insurance  provision  at  the  ultra-­‐poor   levels.  The  reality  is  that  a  proportion  of  the  low-­‐ income   population  may  simply  be  too  poor  to  be  reached  by  the  commercial  insurance   market   where  they  are  expected  to  pay  the  premium.

profile  of  the  population.  estimates  show  that  the   informal   sector  accounts  for  a  sizable  proportion  of  the  total  microinsurance  market.  In  South  Africa  informal  insurance  is  provided  by   funeral   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Informal  mechanisms  take  various  forms.  Though  microinsurance  expansion  is  definitely  possible.       High  informality:  In  all  of  the  countries  barring  Uganda.  Regus.  In   Colombia  it  is   mainly  funeral  insurance  provided  by  funeral  parlours  that  are  not  regulated  for   the         15th  Floor.   ranging  from   20%  in  India  to  52%  in  Colombia.   at  some   stage  growth  will  become  constrained  by  high  levels  of  absolute  poverty.  Eros  Corporate  Tower   Nehru  Place.  India   purposes  of  providing  insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.

 New  Delhi  –  110  019.  The   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  formal  entities  provide  insurance  without  being   registered  for  insurance  purposes  and  largely  consist  of  health  insurance  schemes.  India   informal  burial  societies.  Regus.  The  focus  groups  did  note  the   presence  of   informal  risk-­‐pooling  groups.   In  the   Philippines  informal  provision  is  largely  made  up  of  cooperatives  offering   insurance  but  not   registered  for  the  purpose  of  doing  so.parlours    in  a  similar  way  as  in  Colombia  but  also  on  a  much  larger  scale  through   completely         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  but  this  was  not  reflected  in  the  available  data.  In  India.  This   may  be   more  the  result  of  limitations  in  the  available  data  rather  than  a  lack  of  risk-­‐ pooling.  In  Uganda.  no  quantitative  evidence  is   available  to   suggest  significant  informal  insurance  activity.

 New  Delhi  –  110  019.e.apparent  low  level  of  informal  insurance  may.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  also  indicate  that.  however.   Hence  it  was   not  picked  up  in  the  demand-­‐side  survey.  Even  in   the   countries  where  credit  life  does  not  make  up  the  bulk  of  the  microinsurance   market  it  is  still         15th  Floor.  Regus.  given   the   extremely  low  levels  of  income  in  Uganda.  the  nature  of  the  risk-­‐pooling   mechanisms  are   largely  ad  hoc  (i.       Large  reliance  on  compulsory  credit-­‐based  insurance:  Formal  microinsurance   mainly   comprises  compulsory  credit  life  policies  sold  on  the  back  of  microcredit.  no  premium  collection  by  a  structured  society  of  some  kind).  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 it  is  estimated  that  80-­‐100  000  burial  societies  are   estimated  to  provide  funeral  cover   to  between  four-­‐million  and  eight-­‐million  people.    Different  to  Colombia.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.    As  noted  in  Section  3.  these  activities  are  not  covered  by  an  exemption  to   insurance  legislation  and  are.  illegal.  Eros  Corporate  Tower   Nehru  Place.   therefore.1.4.  funeral   parlours  have  managed  to  obtain  an  exemption  from  insurance  regulation   which  allows  them  to  provide  in-­‐kind  funeral  service  benefits  without  having  to   register  or  comply  with  insurance   regulation.significant.  New  Delhi  –  110  019.  This  is  provided  on  a  non-­‐ guaranteed  basis  so  it  is  not  deemed   to  be  insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.4.           15th  Floor.  and  credit  life  expansion  on  the  back  of  micro-­‐credit  growth  remains   an   important  driver  of  microinsurance  growth    As  noted  in  Section  3.

 The  overwhelming  majority  of  voluntary   products   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  Voluntary  take-­‐up  tends  to  be  funeral  insurance   policies   (South  Africa  and  Colombia)  or  other  policies  bundled  with  other  products  and   services.  New  Delhi  –  110  019.         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  For   example:  micro-­‐life  policies  purchased  in  addition  to  credit  life  coverage  via  the   credit   provider  in  the  Philippines  and  accident  and  health  policies  added  to  compulsory   credit  life   in  India.  Eros  Corporate  Tower   Nehru  Place.  this  can  also  include  non-­‐life  insurance  policies  often   purchased   via  a  credit  retailer  to  replace  a  specific  asset  such  as  a  mobile  phone  when  lost  or   stolen  as   was  found  in  Colombia  and  South  Africa.  India   Voluntary  sales  bundled  with  other  products  or  services  and/or  through   mutual/cooperative  channels.  To  a  lesser  degree.

 such  as:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.         15th  Floor.  MFI   networks.  Eros  Corporate  Tower   Nehru  Place.  The  bulk  of   microinsurance   products  offered  in  the  sample  countries  share  features  that  help  to  limit  the  risk   (prudential   and  market  conduct)  of  these  products.  the  Philippines  and  in   South  Africa   (if  informal  provision  is  included).  India   Cooperative/mutual  associations  dominate  in  Colombia.are  sold  via  client  aggregators  such  as  cooperatives/mutual  associations.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   Microinsurance  definitions  vary  but  share  low-­‐risk  features.  they  do  not  play  an  important  role  in   the   underwriting  of  microinsurance.  but  nevertheless  present  an  important   distribution  channel   for  formal  insurers.   retailer  networks  (in  South  Africa)  or  even  utility  companies  (in  Colombia).  In  India.  Regus.  New  Delhi  –  110  019.

 Regus.  As  it  is  easier  to  forecast  and   manage   claims  on  a  short-­‐term  product  than  a  long-­‐term  product.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.   Term  of  contract:  For  the  reasons  outlined  in  Box  2  on  the  next  page   microinsurance   tends  to  be  underwritten  on  a  short-­‐term  basis.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  such  products  hold   lower   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   does  not  impose  a  limit.  For  the  same  type  of  risk  and  geographical  distribution  a   larger   number  of  smaller  benefit  policies  have  a  lower  risk  profile  than  a  smaller  number   of   higher  benefit  policies.Limited  benefits:  Microinsurance  benefits  across  the  sample  countries  tend  to   offer  low   benefit  values  in  line  with  the  needs  of  low-­‐income  households  even  where   regulation         15th  Floor.

 increasing  the  risk  of  mis-­‐selling.  India   Complexity:  Complicated  products  with  various  components  are  more  difficult  to   manage  than  simpler  products.   Nature  of  event  covered  and  ability  to  predict  (including  availability  of  data):   Although   the  shorter  contract  term  reduces  the  risk.  microinsurance  products  tend  to  be  simpler  in   design  to  be  understandable  to  a  market  with  lower  levels  of  financial  literacy.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  Eros  Corporate  Tower   Nehru  Place.  it  does  not  remove  the  risk  completely.  Although  this  is  not   sufficiently  achieved  in  all  countries.   Insurers  still  require  sufficient  data  to  forecast  likely  claims  and  price  their   products.   This  limits   the  risk  of  these  products.technical  risk.  Such  products  are  also  more  complicated  for  the   consumer  to  understand.         15th  Floor.  The   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 India   weather  risks  may  be  more  complicated  to  forecast  and  the  size  of  the  risk  event   also   makes  it  much  harder  to  manage  for  an  individual  (and  particularly  smaller)   insurer.  low-­‐impact  risk  events  that   are   easier  to  manage.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   Based  on  the  evidence  in  the  country  studies  a  large  proportion  of  current   microinsurance  products  offered  cover  high-­‐frequency.ability  to  predict  risk  varies  significantly  across  different  product  categories.  Eros  Corporate  Tower   Nehru  Place.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Exceptions  like  weather  insurance.  Other  risks   such  as         15th  Floor.  Life   risks  are   often  supported  by  better  data.  New  Delhi  –  110  019.   These  features  are  reflected  where  regulatory  definitions  have  been  developed  to   define  a   separate  space  for  microinsurance  underwriting.  remain.  which  allows  accurate  forecasting.  however.  For  example.

 New  Delhi  –  110  019.  Underwriting  methodologies  define  microinsurance  as  short  term   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  requires   simplicity.  excluding   weather   index  insurance).   The  Philippines  defines  maximum  premiums  as  well  as  maximum  benefit  values   for  life   microinsurance  and  sets  simplicity  requirements.   South  Africa  is  proposing  a  definition  that  sets  maximum  benefits.   Box  2.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .g.  India   requires  availability  of  the  insurance  policy  documents  in  the  vernacular  language.  maximum  benefit  values   and         15th  Floor.  Regus.  It  also   limits   the  types  of  risk  events  that  may  be  covered  by  micro-­‐insurers  (e.   and  sets  a  maximum  contract  duration  (12  months)  for  the  insurance  policy.India  defines  a  maximum  and  minimum  contract  term.

 Regus.  New  Delhi  –  110  019.Long-­‐term  policies  require  individual  underwriting:  Traditional  life  policies  are   sold  and         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  premium  may  also  be  fixed  for  the  contract  period.  The  insurer  is   tied  to   the  risk  of  the  policyholder.  Eros  Corporate  Tower   Nehru  Place.  To   manage  this  risk.  insurers  require  individual  underwriting  for  such  policies  where   the   applicant  has  to  fill  in  a  detailed  form  with  biographical  and  health  details  and  in   most  cases   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Such  policies  tend  to  have  a  long  or  whole-­‐life   term   and  the  insurer  typically  cannot  cancel  the  insurance  policy  without  the  consent  of   the   policyholder.  India   underwritten  on  an  individual  basis.  which  necessitates  a  detailed  individual  risk   assessment  to  be   able  to  predict  risk  adequately  and  assign  each  individual  to  a  risk  pool  or   category.

 Successful   underwriting   will  ensure  that  the  actual  experience  of  a  specific  policyholder  corresponds  as   closely  as         15th  Floor.  Combined  with  the  fact  that  these  are  new  markets  on  which   data  is   often  not  available.  Eros  Corporate  Tower   Nehru  Place.  Regus.     Microinsurance  mostly  based  on  group  underwriting:  The  individual  underwriting   process  is   expensive  and  therefore  simply  not  feasible  for  low-­‐income.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   As  a   result.  India   possible  to  the  expected  experience  of  the  risk  category  to  which  it  was  allocated.  insurers  targeting  the  low-­‐income  market  often  assess  the  profile  of  groups   rather   than  of  individuals.  low-­‐premium  policies.has  to  undergo  a  health  examination  (or  make  a  health  declaration).  this  implies  that  insurers  do  not  have  as  accurate  an   understanding  of   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 the   conclusion  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Due  to  this  uncertainty.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  they  are  generally  not   willing  to         15th  Floor.  with  policies  sold  on  a  one-­‐year  or  even   one-­‐month   renewable  basis.  New  Delhi  –  110  019.the  risk  profile  of  the  group  (or  the  individuals  in  the  group)  as  they  would  have   had  in  the   case  of  individual  underwriting.  India   commit  to  a  long-­‐term  price  guarantee  or  contract.     Group  underwriting  requires  short  contract  terms  for  risk  management:  Given   that   individual  underwriting  is  unlikely  to  be  viable  for  small  premium  policies.  Eros  Corporate  Tower   Nehru  Place.  In  such  a  set-­‐up  the  insurer  has  the  option  not  to  renew  the   contract  or  to   adjust  the  price  on  each  renewal  in  line  with  the  risk  experience  of  the  group.  Group  policies  therefore  tend   to  be   written  on  a  short-­‐term  contract  basis.

 Any  regulatory  restriction  on  minimum  insurance  policy  contract   duration.   In  the  next  section  we  explore  the  demand-­‐side  insights  gained  from  the  focus   groups  and   combine  this  with  the  usage  trends  noted  in  this  section  to  consider  the  reasons   people   decide  to  use  insurance  without  being  compelled  to  do  so.  New  Delhi  –  110  019.  for   example  the  minimum  term  of  five  years  in  the  life  microinsurance  definition  in   India.that  microinsurance  will  by  default  be  short  term.2.  Eros  Corporate  Tower   Nehru  Place.  may.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.   however.  This  was  observed  in  the  sample   countries.  influence  insurers’  ability  to  manage  risk  in  this  way.  We  start  with  the   crosscutting         15th  Floor.  Understanding  decisions  about  insurance   This  section  looks  at  the  demand  side  of  the  take-­‐up  equation.       4.

 Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  Regus.  Although  not  comprehensive.  The  absence  of   detailed   demand-­‐side  data  for  the  other  countries  has  meant  that  this  project  had  to  rely   on   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  In  South  Africa  and  Uganda  detailed  demand-­‐ side  survey   data  is  supporting  policymakers  and  insurers  in  defining  ways  of  achieving  low-­‐ income   market  expansion.  India   by  the  availability  of  accurate  data.  recent  surveys  of  the  insurance   sector  in   Colombia  have  catalysed  an  increasing  interest  in  this  market.findings  from  the  country  focus  groups  and  then  synthesize  these  into  a  potential   model  to  explain  the  insurance  decisions  of  low-­‐income  households.       The  value  of  accurate  demand-­‐side  data:  Initiatives  to  expand  the  market  are   greatly  aided         15th  Floor.

 for  example.     4.  pricing  and  market  sizing.  While  this  is  sufficient  to  derive   high-­‐level         15th  Floor.  The  results  of  these  focus  groups  are  in  the   next   section.  India   market  figures.estimates  from  the  limited  available  data  sets.2.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  do  not   provide   quantitative  data.1.  such  as  those  conducted  as  part  of  this  project.  it  provides  little  help  to.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  they  provide  a  useful  qualitative  understanding  of  the  needs   and  financial   behaviour  of  low-­‐income  households.   Although  focus  groups.  insurers  that  have  to  conduct   more   detailed  analyses  for  product  development.  Insights  from  focus  groups     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 six  focus  groups  were  held  with  10  lower-­‐income  people  each.  India   risk  experiences.Methodology:  Qualitative  focus  group  research  was  conducted  for  each  of  the   country   studies.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   Different  ways   of  recruiting  participants  were  used  in  the  different  countries:     In  Colombia.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  Participants   were   typically  not  informed  beforehand  that  insurance  was  the  topic.  Regus.  This  involved  groups  of  low-­‐income  people  who  were  encouraged  to   discuss  their         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  allowed   people  from  a   similar  background  to  interact  and  share  their  perceptions  and  experiences.  their  perceptions  and  understanding  of  insurance.  three   in   Bogota  and  one  each  in  three  other  cities.

 India   In  the  Philippines.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .In  India.         15th  Floor.  Groups  were  selected  to  represent   the   poorest  and  next-­‐poorest  levels  of  the  income  spectrum.   In  South  Africa.  six  groups  of  between  six  and  eight  participants  each  were   conducted  on   asset  insurance  –  three  male  and  three  female.  discussions  were  held  with  73  participants  in  nine  groups   selected   from  current  and  potential  clients  of  MBAs  and  MFIs  that  offer  microinsurance.  Regus.  Discussions  involved  115  clients  in  10  focus  groups  and   75   non-­‐clients  in  another  nine  focus  groups.  All  participants  were   urban   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  participants  were  selected  from  both  clients  and  non-­‐clients  in  the  target   group   of  various  NGOs  and  MFIs.  New  Delhi  –  110  019.

(from  the  greater  Johannesburg  area).  Eros  Corporate  Tower   Nehru  Place.  12  focus  groups  discussions  were  held  in  both  rural  and  urban  areas.   In  Uganda.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  These  are  summarised  below:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  In  addition  this   was         15th  Floor.   These   groups  included  males  and  females  classified  as  very  low-­‐income  (earning  US$1-­‐3   a  day).  New  Delhi  –  110  019.  India   combined  with  earlier  focus  groups  on  funeral  insurance  (12  groups  covering  rural   and   urban.  male  and  female  as  well  as  different  age  groups).  but  some  had  rural  links.  demand-­‐side   insights    into   the  state  of  the  microinsurance  markets.  Regus.   The  focus  group  research  highlighted  a  number  of  cross-­‐cutting.   lower-­‐income  (earning  US$3-­‐9  a  day)  and  middle-­‐  to  higher-­‐income  (earning  more   than   US$9  a  day).

 was  also  often  cited  as   significant.   disability  and  natural  catastrophes.  followed  by  accidents.  The  risk  of  the   death   of  a  breadwinner.  the  death  of  a  breadwinner  was  the  most  important  risk  (combined   with   the  need  for  funeral  expenses).  Generally.  though   acknowledged  as   important.  Eros  Corporate  Tower   Nehru  Place.   Risk  of  death.  India   The  poor  face  various  material  risks:  In  all  the  focus  groups.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  unemployment  or  sickness  was  stressed  in  South  Africa.  or  of  becoming  disabled  or  unemployed.  were  emphasised.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  was  afforded  less  priority  in  the  minds  of  respondents:   In  Colombia.  illness.  Regus.  Health  risks.  poor  people  were   aware  of   being  exposed  to  risk.  hospitalisation.  the  risk  of  assets  being  damaged  or  lost.         15th  Floor.  in  particular.

  Illness  in  the  family  was  the  only  risk  for  which  respondents  in  the  Philippines   indicated  a  spontaneous  need  for  risk  mitigation.  Eros  Corporate  Tower   Nehru  Place.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  You  can  forego  a   wedding  but  you  cannot  forego  sickness.  India   Health  was  the  top  priority  for  more  than  60%  of  participants  in  the  Indian  focus   groups.  it  is  sickness  because  you  are  not  sure  and  it  is  your  life.       15th  Floor.  New  Delhi  –  110  019.  You  have  to  attend  to  it  immediately.   “Well.”   (Ugandan  respondent)   Little  knowledge  and  awareness  of  the  insurance  value  proposition  was  a  main   findings  across  all  the  focus  groups.  Though  some  respondents  indicated  that   they  are   familiar  with  insurance  as  a  form  of  protection  that  gives  one  “peace  of  mind”.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 Furthermore.  they  had  not  considered   buying  an  insurance  product.  This  points  to  a  lack   of   understanding  of  the  value  proposition  of  insurance  as  protection  against  risk   events.  Regus.  Eros  Corporate  Tower   Nehru  Place.  India   happens  was  raised  as  an  issue  in  several  of  the  focus  groups.  The  following   responses  from  the  Ugandan  focus  groups  underline  the  limited  knowledge  and   awareness:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.    As  they  had  not  been  introduced  to  insurance.uncertainty  remained  around  how  insurance  works.   rather  than  as  a  savings  vehicle  providing  a  return  regardless  of  risk.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  some  focus   group   respondents  indicated  that  they  had  never  had  any  explanation  or  introduction  to    All  such  insights  are  to  be  regarded  as  qualitative  only  and  are  not  statistically   representative  of  the  lowincome   population.  the  fact  of  no  pay-­‐out  if  no  risk  event         15th  Floor.  In  the  Philippines.

 At  the  end  of  the  year  I  would  have  given  the   insurance  company  free  money.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Those  that  we  know.  you  say  you  have  insured  me  for  let  us  say  burglary.”   "Sincerely  this  community  knows  nothing  about  insurance."   "I  don’t  trust  insurance  companies  because  I  cannot  trust  something  I  don’t  have   full   knowledge  about.  no  burglar  comes   even         15th  Floor.  India   close  to  my  house  to  take  anything.  we  see  adverts  as  we  go  to   Kampala."     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  I  need  to  be  educated  fully  about  it  and  therefore  I  can  decide   whether  to  trust  it  or  not.  Most  of  the  insurance   companies  are  based  in  the  city.  even  if  it  is  charging  me   one   shilling.“There  is  one  reason  why  I  would  not  go  for  insurance.  Eros  Corporate  Tower   Nehru  Place.

 utility  companies  and  banks  are  examples  of  this)  or  trust  derived   from   word  of  mouth  of  positive  claims  experiences.  The  focus  groups  revealed  a  general  mistrust  of  the  formal  sector   and  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.The  importance  of  trust  to  achieve  insurance  take-­‐up:  An  introduction  to   insurance  is         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.   for   example.  trust  attached  to  a   particular   brand  (retailers.  for  example.  institutions  fail  and   cannot   meet  their  obligations  under  the  insurance  contracts  or  claims  are  rejected   without   proper  cause.  the  insurance   transaction  is   complicated  where  trust  is  undermined  when.  New  Delhi  –  110  019.  India   greatly  facilitated  where  there  is  trust  in  the  provider  or  intermediary.  This  can  be.  Conversely.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  trust  of  community  or  member-­‐based  groups.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  They  are  profit-­‐making  companies.  They  do  not  benefit   people…”  (Ugandan  respondent).  New  Delhi  –  110  019.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  more  recently.   “I  do  not  trust  them.  Eros  Corporate  Tower   Nehru  Place.  India   In  India.  the  lack  of  trust  and  perceived  low  benefits  were  outstripped  only  by  a   lack   of  awareness  and  affordability  issues  as  reasons  for  not  taking  up  insurance.insurance  sector  in  particular:         15th  Floor.  Regus.   Many  participants  in  the  Philippines  indicated  that  they  do  not  want  to  purchase   any   type  of  insurance  products  because  of  past  bad  experiences  with  a  big  commercial   insurance  provider  and.  some  pre-­‐need  companies  which  defaulted   on  their  commitments.  This  damaged  the  reputation  of  the  insurance  industry  in   the   minds  of  the  low-­‐income  market.

 may  lead  to   a   negative  perception  of  insurance:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  or  hearing  about  the  negative  claims  experience  of  others.  A  past  negative  or  slow   claims   experience.  Eros  Corporate  Tower   Nehru  Place.  Government  used  to   honour  claims  but  eventually  they  failed  and  people  completely  lost  the  idea  of   insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   This  is  echoed  in  Uganda  where  hyperinflation  eroded  the  value  of  life  insurance   policies  two  decades  ago:  “Previously  insurance  was  okay.”  (Ugandan  respondent).     The  importance  of  quick  and  reliable  claims  payment:  Claims  payment  emerged   as   important  in  determining  people’s  perception  (and  trust)  of  insurance.  Regus.         15th  Floor.  The  need   exists   for  speedy  payments  with  little  administrative  hassle.

 The  long  delay  in  claims’   payments   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019..  in  the  meantime  you  suffer  as  you  have  no  other  phone  to   use  and   you  are  paying”  (South  African  respondent).     “I  have  seen  the  bad  experience  my  grandmother  had  with  her  cellphone   insurance..   A  similar  picture  emerged  outside  the  focus  groups.         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  From  there  on.  That  is  what  I   have   heard  but  I  don’t  know  whether  it  is  true”  (Ugandan  respondent).  Moreover..“They  take  long  to  compensate  their  customers  when  risks  occur.  It  cost  us   transport  money  to  take  it  in.  they  kept  on  fixing  it  without  replacing  the  phone.  I  hate  everything  and  anything  about   cellphone  insurance.  The  process  was   tedious  and   annoying.  as  they  will  not  replace  the  cellphone.  Regus.  India   When  it  was  faulty.  Eros  Corporate  Tower   Nehru  Place.

 affordability  is  a  problem  given  other  spending   priorities.   This  is  especially  relevant  for  participants  with  irregular  incomes  or  people  who   cannot   commit  to  a  fixed  premium  amount  every  month.  Regus.  however.  It  must  be  noted.was  the  main  motivation  for  CARD  MBA  moving  to  get  its  own  insurance  licence.         15th  Floor.  that   this   may  relate  to  perceived  affordability  as  respondents  were  not  always  informed  on   the   actual  cost  of  insurance:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   Also   most  of  the  complaints  received  by  the  Ugandan  Insurance  Commission  are   related  to   delays  in  settlement  of  claims.  India   Affordability  and  spending  priorities:  Even  when  respondents  acknowledge  that   insurance  could  offer  value.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.

 respondents  tended  to  perceive  insurance  as  unaffordable.  Even  should  products  be  available   that   are  actually  affordable.  however.  leaving  little  if  any  room  for   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   In  the  Philippines.   noted   that  this  correlates  with  a  lack  of  awareness.  India   Affordability  was  listed  as  second  only  to  lack  of  awareness  as  the  reason  for  not   taking  up  insurance  among  focus  group  participants  in  India.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  focus  group  discussions  revealed  that  participants  spend  50%-­‐ 70%   of  their  total  income  on  food  and  educating  children.  some  participants  indicated  that  they  did  not  have  insurance   because   they  perceive  it  to  be  expensive  and  because  they  believe  only  high-­‐income  people   can  buy  insurance.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  It  was.  Regus.         15th  Floor.   In  Colombia.

 If  I  have  R50.  This  is.         15th  Floor.  not  the  case  for  asset  insurance  products:  “…  a   cellphone  insurance  may  cost  R35.  A  surprising   observation   from  the  South  African  focus  group  discussions  was  the  relative  insensitivity   towards   the  price  of  funeral  cover.  I  cannot  spare  R35  to  pay   insurance   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  Regus.  India   “…it  is  very  expensive  to  afford  it  is  usually  big  organisations  and  the  rich."   (Ugandan   respondent)   Price  sensitivity  may  vary  for  different  product  categories.  however.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .insurance.  Eros  Corporate  Tower   Nehru  Place.  with  no  concern  expressed  by  one  respondent  on  finding   out  that  another  respondent  in  the  same  group  is  paying  much  less  for  the  same   amount  of  cover.

2.  I  do  not  have  a  bank  account  where  insurance  money  can  be   debited.because  I  need  to  use  the  same  money  to  pay  transport  to  go  and  pay  the   insurance.”  (South  African  respondent)     Conclusion:       The  focus  group  insights  indicate  that.  trust  and  low  levels  of  knowledge  and  awareness   dominate  in   explaining  the  low  demand  for  insurance  despite  high  levels  of  need.2.  Low  levels  of   awareness  also  reflect  the  often  limited  sales  effort  invested  in  the  low-­‐income   end  of  the   market.         15th  Floor.  though  affordability  is  perceived  as  a   significant  barrier  to  access.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  India   As  it  stands  now.     4.  Regus.  Towards  a  model  of  the  insurance  decision   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.

 Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  it   needs  to  be  substantiated  through  further  research.  India   Based  on  the  experiences  in  the  sample  countries  we  have  modelled  a  behavioural   pattern   to  help  understand  individual  clients’  decisions  of  whether  to  obtain  insurance  or   not.   Although  this  framework  is  consistent  with  the  observations  across  the  country   studies.   Figure  11:  Model  of  the  insurance  decision   Perceived  cost  is  determined  by  both  the  value  of  the  premium  and  the   opportunity  cost  of   paying  that  premium.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         15th  Floor.  A  low-­‐income  consumer  who  has  to  give  up  other   consumption  to  pay   an  insurance  premium  will  attach  a  much  higher  opportunity  cost  to  this  than  a   higherincome   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 Regus.  Eros  Corporate  Tower   Nehru  Place.     Perceived  value  is  influenced  by  at  least  the  following  three  factors:   High  cash  discount  rate  and  the  nature  of  the  benefit:  The  phenomenon  of   overdiscounting   by  low-­‐income  households68  would  seem  to  be  a  strong  driver  in  the   income  hypothesis  by  posing  a  hyperbolic  discounting  theory  that  argues  that   people  over-­‐discount  future  needs   in  favour  of  current  consumption.         15th  Floor.consumer  who  does  not  have  to  sacrifice  any  consumption  to  pay  for  the   premium.  India   This  correlates  with  the  general  finding  that  income  levels  correlate  with  take-­‐up   and  that   growth  in  take-­‐up  correlates  with  economic  growth.   Levels  of  trust:  The  perceived  value  of  an  insurance  product  is  higher  when  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.     .  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

consumer  has  a  higher  level  of  trust  in  his/her  ability  to  lodge  a  successful  claim.  A  complex  product  with  a  lengthy  contract   document   containing  a  lot  of  fine  print  may  lead  the  consumer  to  distrust  his/her  ability  to   successfully  claim  compared  to  a  simpler  or  commoditised  product  with  more   understandable  terms  and  disclosure.  Regus.  Eros  Corporate  Tower   Nehru  Place.  insurers  that  have   demonstrated   that  they  are  willing  to  pay  legitimate  claims  promptly  will  be  trusted  more.  and   their   products  will  achieve  a  higher  perceived  value.1.   specific         15th  Floor.  As  mentioned  in  Section  4.  New  Delhi  –  110  019.  That  is  why  member-­‐based  groups  are   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   Several   factors  influence  the  level  of  trust.  In  the  same  way.  India   entities  such  as  mutual/cooperative  associations  or  trusted  clothing  retailers  have   also   been  able  to  achieve  a  higher  level  of  trust.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

consistently  more  successful  at  distributing  microinsurance  than  individual  agents   or   brokers  unknown  to  the  customer.   This  model  of  the  insurance  decision  goes  some  way  in  helping  to  understand  the   dynamics   driving  the  demand  for  microinsurance.  Making  a  market  for  microinsurance   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.3.  New  Delhi  –  110  019.     4.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  where  the  risk  event  may  not  happen  at  all.  Eros  Corporate  Tower   Nehru  Place.  The  next  section  seeks  to  categorise  the   supply   models  observed  in  this  study.         15th  Floor.  India   Probability  of  the  risk  event  happening:  Products  covering  risk  events  such  as   health   and  life  risks  with  high  frequency  and/or  probability  have  a  higher  perceived  value   than   products  that  cover  assets  risks.

A  variety  of  models  are  being  used  to  intermediate  microinsurance  with  varying   degrees  of  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

success.  In  this  section,  the  models  found  in  the  sample  countries  are  categorised   and  their   relative  success  in  driving  insurance  take-­‐up  is  described.  The  experience  is   remarkably   consistent  across  the  five  countries,  making  is  possible  to  draw  conclusions  on  the   features   required  to  achieve  microinsurance  take-­‐up.  The  section  does  not  present  an   exhaustive   to  save  for  long-­‐term  goals  where  current  needs  are  pressing,  or  to  insure  for   uncertain  risks.     Such  an  understanding  will  also  help  regulators  to  design  an  appropriate   regulatory  space.   Evaluating  success:  It  is  important  to  consider  the  criteria  against  which  to  assess   the  

models.  Financial  inclusion  means  that  people  not  only  have  access  to  appropriate   and   affordable  products,  but  that  they  actively  choose  to  use  them  to  mitigate  their   risks  (see  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Section  2.1).  Ultimately  our  interest  is  in  facilitating  increased  take-­‐up  of  insurance   products   that  are  affordable  and  appropriate  to  the  needs  of  the  poor.  However,  take-­‐up  by   itself  is   not  a  sufficient  objective.  Consumers  may,  for  example,  be  forced  to  take  out   insurance   without  being  aware  of  the  cover  or  how  they  can  claim.  Alternatively,  mis-­‐selling   may  result   in  take-­‐up  but  the  consumer  may  not  be  able  to  claim  due  to  exclusions  that  were   not  made   clear  at  the  time  of  the  sales  transaction.  The  objective  is,  therefore,  to  increase   take-­‐up  of  

appropriate  insurance  products  in  a  way  that  the  client  can  actually  claim.    

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Positive  market  discovery:  Based  on  the  country  experience,  we  propose  that  the   above   objective  can  be  achieved  when  a  particular  business  model  ensures  positive   market   discovery.  

Market  discovery  means  that  the  consumer  must  be  introduced  to  a  product  in  a   way   that  allows  them  to  understand  the  value  that  insurance  may  hold  for  them.  This   is  in   line  with  the  old  adage  that  insurance  has  to  be  sold  (i.e.  you  need  a  “market   maker”)   and  is  also  supported  by  the  finding  in  Section  4.2.1  that  low  levels  of  knowledge   and  

awareness  are  a  key  barrier  to  inclusion.  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Positive  discovery  means  that  consumers  should  not  only  be  sold  the  product  but   must   be  able  to  claim  on  it,  resulting  in  a  positive  demonstration  of  the  value  of  the   product.   No  discovery  will  take  place  if  the  client  is  unaware  that  they  are  covered  by   insurance,  and   the  discovery  will  be  negative  if  a  claim  is  rejected  for  reasons  that  were  not   explained  at  the   time  of  purchase.  A  market  for  a  particular  microinsurance  product  that  is  built  on   positive   market  discovery  allows  other  less  expensive  models  to  extend  into  the  market.   We  assess  five  categories  of  models  emerging  from  the  country  case  studies  based   on  their  


ability  to  achieve  positive  market  discovery:  compulsion,  reinvention,  derived   demand,   passive  aggregators,  and  individual  agent-­‐based  outbound  sales     4.3.1.  Compulsion    

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Dominant  microinsurance  channel:  Compulsory  insurance  in  the  form  of  credit   insurance  on   the  back  of  loans  is  the  single  biggest  category  of  microinsurance  across  the   sample   countries.  It  represents  the  vast  majority  of  microinsurance  policies  in  India  and   Uganda  and   is  estimated  to  account  for  about  half  of  the  microinsurance  market  in  the   Philippines.  In   South  Africa,  it  is  outstripped  only  by  funeral  insurance.  In  Colombia,  compulsory   credit  life  

is  the  fastest-­‐growing  segment,  driving  the  overall  growth  of  microinsurance.  This   product   category  has  evolved  on  the  back  of  credit  expansion  and  was  initially  driven  by   lenders   69  We  also  note  that,  in  practice,  business  models  may  combine  some  of  the   features  that  we  present  as  distinct   categories.  Models  do,  however,  exist  for  each  of  these  categories  and  even  if   combined,  the  assessment  of  the   specific  category  features  will  remain  valid.     Compulsion  and  captive  markets:  This  product  is  compulsory  as  the  lender  can   insist  on  the   consumer  buying  the  insurance  product  (normally  life  insurance  or  insurance   against  default   in  payment)  as  a  pre-­‐condition  to  obtaining  a  loan.  In  some  cases  (e.g.  South   Africa)  such  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  


compulsion  is  officially  sanctioned  by  legislation  allowing  the  lender  to  insist  on   such  cover   but  giving  the  borrower  the  right  to  choose  the  provider  of  insurance.  In  some   cases  the   cover  may  not  be  disclosed  to  consumers,  who  remain  unaware  that  they  are   covered,  what   the  cover  costs  and  even  that  premiums  are  deducted  as  part  of  their  loan   repayment  (or  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

even  funded  in  advance  out  of  the  loan  in  some  cases).  For  example:  even  though   South   African  legislation  gives  consumers  the  right  of  choosing  the  provider  of  the   insurance  policy,   consumers  are  often  not  informed  of  this  right.  In  practice,  therefore,  this  provides   the   lender  a  captive  market  to  sell  its  own  or  preferred  insurance  policies  often   resulting  in  

overpriced  premiums  as  there  is  little  threat  of  competition.      

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Positive  discovery  depends  on  disclosure:  While  some  jurisdictions,  such  as  South   Africa,   compel  the  credit  provider  to  disclose  the  credit  life  insurance  policy  and  provide   the   customer  with  a  choice  as  to  the  insurance  provider  used,  some  countries  place  no   obligation  on  the  creditor  to  provide  a  choice  or  to  disclose  the  insurance  policy.   Even  where   disclosure  is  required  by  law,  limited  enforcement  means  that  lenders  who  are  not   incentivised  to  disclose  details  to  the  client  are  not  forced  to  do  so.  This  can  lead  to   abnormally  low  claim  ratios  and  poor  value  to  the  client.  If  the  compulsory  model   is  to   potentially  lead  to  a  positive  discovery  of  microinsurance,  the  existence  of  the   policy  and  its  

terms  must  be  disclosed  to  the  credit  client.   Potential  to  offer  value  to  consumers:    

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

 The  compulsory  model  is  attractive  as  it  significantly   reduces  the  cost  of  intermediation.  The  same  network  and  staff  are  used  to   market  the   credit  and  sell  the  insurance  policies,  and  premium  collection  is  conducted  via  the   loan   repayment  mechanism.  In  some  cases,  these  policies  have  evolved  to  become   more  client   centric,  offering  additional  benefits  and  ensuring  that  the  client  is  in  a  position  to   use  these.       Compulsion  can  facilitate  positive  discovery:  Although  compulsory  models  run   the  risk  of  

negative  or  no  insurance  discovery,  with  appropriate  regulation  they  can  be  a   powerful  tool  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

to  extend  insurance  to  the  low-­‐income  market.  A  positive  experience  with  credit   insurance   may  encourage  consumers  to  use  insurance  for  other  risks  without  being   compelled  to  do   so.       4.3.2.  Reinvention       Spontaneous  informal  risk-­‐pooling:  When  formal  insurance  is  not  available,  or   unaffordable,  low-­‐income  communities  often  develop  informal  risk-­‐pooling   mechanisms  to   cope  with  risk  events,  thereby  effectively  reinventing  insurance.  Burial  societies  or  

cooperative  insurance  societies  are  formed  to  support  members  who  have  lost  a   loved  one   and  have  to  pay  for  a  funeral.  Such  informal  schemes  may  evolve  over  time  into   formal  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

insurance  programmes  or  remain  informal  providers  of  risk  cover.  Risk  pooling  is   not  always   the  primary  reason  for  a  community-­‐based  institution.  Many  cooperatives  evolve   to  provide   financial  and  other  services  and  only  start  to  offer  house  insurance  or  risk  pooling   later.       Trust  in  the  mutual  mechanism:  In  contrast  to  the  lack  of  awareness  and  trust  of   formal   insurance,  focus  groups  highlighted  the  role  of  community  and  member-­‐based   organisations  

(such  as  cooperatives  or  mutuals)  as  a  trusted  source  of  risk  mitigation.  This   applies  even   when  member-­‐based  institutions  are  unregulated  and  much  weaker  than   commercial  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

institutions  and  the  trust  may,  therefore,  be  misplaced.  Nonetheless  this  inherent   trust   allows  mutuals  to  overcome  some  of  the  demand-­‐side  barriers  presented  in   Section  2.1.   There  is  evidence  of  such  member-­‐based  activities  in  all  the  sample  countries  and   they  are   particularly  prominent  in  Colombia  and  the  Philippines  where  the  bulk  of   microinsurance  is   provided  by  member-­‐based  channels,  as  well  as  in  South  Africa  if  the  informal   market  is   included.    

Mutuals:  In  an  insurance  context,  the  members  of  a  mutual  insurer  own  the   insurer.  

      15th  Floor,  Regus,  Eros  Corporate  Tower   Nehru  Place,  New  Delhi  –  110  019,  India  

Individuals  become  members  of  a  mutual  when  they  purchase  an  insurance  policy.   Thus   all  members  are  also  policyholders  and  all  policyholders  are  members.  Votes  are   generally  proportional  to  the  number  of  policies  held  or  the  value  of  the  insurance   policies.  As  owners,  policyholders/members  are  responsible  for  the  governance  of   the   organisation.  The  surplus  is  redistributed  to  members.  While  mutuals  may  be   membermanaged   to  a  varying  extent,  the  norm  is  for  mutual  insurers  not  to  be  membermanaged,   but  to  outsource  the  function  to  professional  managers.  Mutual  organisations   may,  however,  also  exist  more  informally  than  mutual  insurers,  for  example  the   friendly   society  or  the  mutual  benefit  association.  In  all  instances,  however,  the  principle  of   mutuality  of  interest  among  members  remains.  

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Cooperatives:  The  cooperative  can  be  defined  as  a  distinct  type  of  organisation   based  on   the  principle  of  mutuality/common  interest  among  members.  Unlike  mutual   insurers,   the  cooperative’s  raison  d’être  is  usually  broader  than  the  provision  of  insurance,   which   is  often  a  secondary  activity  of  the  organisation.  The  members  of  the  cooperative   do  not   necessarily  have  to  purchase  an  insurance  policy,  i.e.  membership  does  not   necessarily   imply  policyholder  status.  Member-­‐management  is  furthermore  proportional  to   membership  rather  than  number  of  policies,  with  each  member  generally  being   assigned   one  vote.  Cooperatives  can,  however,  also  grow  into  larger  networks  or  become  


cooperative  insurers,  where  the  main  purpose  does  become  insurance  provision.   The   principle  of  member-­‐ownership  and  governance,  however,  remains  core.   Member-­‐based  entities.  Both  mutuals  and  cooperatives  can  be  defined  as   member-­‐based    entities  to  be  distinguished  from  corporate  entities.  A  number  of  characteristics   mark  the   member-­‐based  form:  

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Ownership/governance/benefit:  The  member-­‐based  organisation  is  owned  and   governed  by  its  members,  for  their  mutual  benefit,  and  with  the  surplus  accruing   to  the   members  (that  are  in  most  instances  the  policyholders).  

Management:  Small  mutual/member-­‐based  organisations  usually  start  out  by   being  

managed  by  the  members  themselves.  This  may  progress  to  professional   management  

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being  appointed  by  the  members.  As  long  as  members  own  and  govern  the   organisation,   the  delegation  of  management  does  not  undermine  the  member-­‐based/mutual   nature.  

Membership  character:  How  membership  is  obtained  may  also  define  the   organisation.   In  some  cases,  all  members  are  also  policyholders  (mutual  insurers),  in  others  all   members  are  not  necessarily  policyholders  (some  cooperatives)  and  sometimes  (as   is  the   case  in  Colombia)  policies  may  even  be  sold  to  non-­‐members.  This  is,  however,  not   a   central  defining  characteristic  of  whether  an  organisation  is  member-­‐based  or  not.  


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Nature  of  risk  carried:  In  many  smaller/informal  mutual-­‐type  organisations,  risk   is   pooled  informally,  for  example  the  burial  society  –  sometimes  on  an  ex  post  basis   (i.e.  all   members  contribute  to  support  the  one  who  has  suffered  a  loss),  sometimes  on  an   ex   ante  basis  (all  members  make  regular  contributions  to  a  pool,  which  is  then  used   to   compensate  members  incurring  a  specific  loss).  In  other  organisations  there  has   been  a   progression  to  guaranteed  benefits.  While  entities  can  be  distinguished  by  the   nature  of   the  risk  carried,  they  remain  part  of  the  overarching  member-­‐based  organisation   category.  


In  this  document,  cooperatives  and  mutuals  (in  whatever  way  they  manifest  and   are  defined   in  each  of  the  countries)  are  regarded  in  their  capacity  as  member-­‐based   organisations.         4.3.3.  Derived  demand  Voluntary  insurance  uptake  is  most  often  the  result  of   demand  for  another  product  or  service:      

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 Derived  demand  for  microinsurance  happens  when  the  client  does  not  set  out  to   purchase  insurance  and  may  not  even  be  aware  of  the  existence  of  insurance   products,  but   is  induced  to  buy  an  insurance  product  based  on  his  or  her  demand  for  another   product  or  

service.  The  secondary  demand  for  insurance  is  therefore  derived  from  the  primary   demand   for  another  product  or  service.  Examples  include  the  following:     ·∙ In  South  African  culture,  an  expensive  funeral  is  regarded  as  an  “unavoidable   expense”,   pushing  people  to  plan  ahead  by  taking  out  funeral  insurance.  This  demand  for   funeral   services  drives  the  demand  for  insurance,  rather  than  the  need  for  life  insurance  in   general.  This  is  supported  by  the  fact  that  40%  of  formal  funeral  cover  in  the  low-­‐ income   market  is  bought  via  funeral  parlours.  This  is  also  the  case  in  Colombia,  where   funeral   service  providers  selling  funeral  cover  (albeit  outside  of  the  formal  definition  of   insurance)  account  for  more  than  half  of  the  total  microinsurance  market.    

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·∙ In  India,  voluntary  insurance,  where  it  exists,  often  relates  to  the  need  to  take  out   insurance  to  cover  health  expenditures  –  a  service  that  people  know  that  they  will   not   be  able  to  afford  when  needed.       ·∙ For  non-­‐life  products,  the  South  African  focus  groups  revealed  that,  even  when  a   person   deems  non-­‐life  insurance  to  be  important,  they  will  only  buy  it  in  practice  when   related   to  the  credit  purchase  of  a  household  good  or  a  cellphone,  generally  regarded  as   an   essential  asset  for  social  and  business/employment  purposes.  Colombia  also  has   an   increased  demand  for  cellphone  insurance  among  the  poor,  as  well  as  for   motorbike  

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insurance,  with  motorbikes  being  a  vital  transport  and  business  asset  for  many   people.     Distribution  through  same  channel  as  underlying  product  or  service:         Insurance  based  on   derived  demand  is  most  often  distributed  through  the  service  provider  (for   example  funeral  

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parlour)  or  product  distributor  (seller  of  mobile  phones)  of  the  product  or  service   which  the   client  set  out  to  purchase  in  the  first  instance.  This  reduces  distribution  costs.  Trust   in  the   insurance  product  may  be  supported  by  the  credibility  of  the  service  or  product   provider.    

  4.3.4.  Passive  aggregators  

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Innovative  new  models  are  emerging  to  intermediate  microinsurance  at  a  low  cost   without   attaching  it  to  any  other  product  or  service.  These  models  may  leverage  existing   client  bases   (e.g.  retailers)  or  reach  out  to  a  large  number  of  people  through  clever  marketing   combined   with  low-­‐cost  passive  sales  strategies.  This  requires  products  to  be  sufficiently   simplified  to   be  sold  through  such  channels.  Examples  of  this  model  include:       ·∙ Retail  client  bases:  Insurance  is  sold  to  the  existing  client  base  of  a  retailer   focused  on  


the  low-­‐income  market.  The  target  market  consists  of  the  clients  of  the  retailer   (who  

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serves  as  the  aggregator)  to  whom  insurance  products  are  sold  either  passively  or   actively  by  the  sales  personnel  of  the  retailer.     ·∙ Public  utilities:  In  Colombia,  Codenza,  an  electricity  utility  company  in  Bogota,   succeeded  in  converting  most  of  its  electricity  clients  to  funeral  insurance  using  a   tickbox   option  on  the  utility  bill.       Low  cost  but  limited  success:  The  low-­‐cost  distribution  of  these  models  is   appealing,   however,  the  experience  to  date  shows  limited  success  beyond  funeral  insurance   that  can  be  


easily  commoditised  and  where  other  players  such  as  funeral  parlours  have  “made   the  

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market”,  as  described  in  the  introduction  to  this  section  (using  the  derived  demand   model   described  in  Section  4.3.3  above).  While  passive  aggregators  are,  therefore,  able   to  extend   existing  markets  at  lower  costs,  the  evidence  suggest  that  they  are  unable  to   make  a  market   for  products  that  low-­‐income  clients  may  be  less  familiar  with.       4.3.5.  Individual  agent-­‐based  outbound  sales   Greenfields  sales  of  insurance:  This  refers  to  the  traditional  model  in  which  an   individual   agent  sells  insurance  without  being  attached  to  another  product.  This  is  typically   done  

through  face-­‐to-­‐face  interaction  with  the  client  but  it  can  also  be  done  through   out-­‐bound  

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call  centres.  Agents  also  distinguish  themselves  from  the  other  channels  in  that   they  usually   provide  advice  on  the  appropriateness  of  the  insurance  products  they  sell.   Although  sales  to   groups,  for  example  the  members  of  a  religious  group,  labour  union  or  employer,   and   innovative  use  of  technology  can  reduce  the  cost,  this  remains  an  expensive   channel.  As  the   insurance  has  to  be  sold  on  its  own  merit,  much  time  needs  to  be  spent  with  the   client  to   inform  them  of  the  benefits.  This  is  particularly  challenging  when  the  client  has   not  been   exposed  to  insurance  before.  


This  model  is  unlikely  to  make  significant  inroads  into  the  low-­‐income  market,   unless  it  

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moves  away  from  the  traditional  agent  model  described  to  more  non-­‐traditional   models   such  as  MFIs  or  other  groups  (and  their  staff)  acting  as  agents      This  is  particularly  the  case  where  market  conduct  regulation  increases  the   regulatory   burden  on  advice-­‐based  sales,  as  in  South  Africa.     4.4.  Impact  of  policy,  regulation  and  supervision  on  market  development   The  country  studies  show  that  regulation  does  influence  the  development  of   microinsurance   markets  both  by  its  presence  and  its  absence.  Moreover,  it  is  not  only  the  details   of   legislation  that  are  relevant,  but  also  the  general  approach  followed  by   policymakers  and  

regulators  and  how  policymaking  in  the  insurance  space  relates  to  other  spheres   of  policy   and  regulation.   In  this  section  we  summarise  the  impact  of  various  features  of  regulation  on   microinsurance   market  development  as  observed  in  the  sample  countries.  We  start  with  three   general   features  of  a  regulatory  framework  that  may  significantly  affect  market   development,  and   then  explore  the  impacts  of  specific  aspects  of  regulation  and  its  enforcement  by   using  the   structure  of  the  regulatory  framework  discussed  in  Section  2.8.  In  each  case  the   impacts  are   illustrated  with  reference  to  experience  in  one  or  more  of  the  sample  countries.      

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4.4.1.  General  features  of  the  policy,  regulatory  and  supervisory  framework   Regulatory  approach  impacts  on  market  development:  The  basic  approach   followed  by  a  

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regulator  in  the  design  and  implementation  of  regulation  under  its  control  may   have  a   significant  impact  on  the  nature  and  level  of  market  development.  Two   characteristics  of  the   regulatory  approach  in  particular  affect  market  development:     ·∙ Pro-­‐active  or  re-­‐active:  The  Philippines  and  India  have  proactively  developed  a   microinsurance  policy  and  South  Africa  is  doing  so.  In  different  ways  all  three  of   these   actively  encouraged  or  even  pushed  providers  to  enter  the  microinsurance  space.   Uganda  and  Colombia,  on  the  other  hand,  have  not  created  a  special  dispensation   for  


microinsurance  and  have  followed  a  market-­‐led  approach  in  which  the  initiative   was   taken  by  the  providers  and  no  pressure  was  exerted  by  the  regulator  and   supervisor.     ·∙ Facilitative  versus  exclusionary  approach:  A  facilitative  approach   accommodates  

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market-­‐led  developments,  allowing  new  models  to  evolve  except  where  explicitly   prohibited  and  choosing  to  intervene  only  when  the  risks  posed  become  material   enough  to  justify  intervention.  Financial  regulation  in  the  Philippines  generally   follows   this  approach.  New  business  models  are  allowed  to  enter,  with  careful  monitoring,   even   if  no  explicit  regulatory  space  exists  for  them.  Regulation  is  then  gradually   adjusted  to  


 The  exclusionary  approach  seeks  to  dictate  what   form   development  should  take.  for  example.  Regulation  in.accommodate  them  if  necessary.  prohibiting  new  models  except  if  explicitly  allowed  in   regulation.  Regus.   In  an  environment  of  fast-­‐changing  models  and  technologies  it  is  increasingly   difficult  for   66   the  regulator/supervisor  to  lead  market  development  and  “pick  winners”  as  the   exclusionary  approach  requires.  New  Delhi  –  110  019.  India  follows  more  of  an  exclusionary   approach.  Eros  Corporate  Tower   Nehru  Place.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.       Regulatory  uncertainty  may  undermine  microinsurance  development:   Regulatory         15th  Floor.  The  result  is  that  innovative  new  models  are   frustrated   by  the  long  process  of  opening  the  regulatory  space  to  operate.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 After  decades  of  having  no  insurance  regulation  at  all.  Uganda.  However.  India   may  raise  the  reputational  risk  for  legitimate  players  to  enter  into  the  same  space.   The  risk  is   that  regulation  may  change.  Regus.  or  be  introduced.  the   regulatory   certainty  provided  by  the  introduction  of  an  insurance  law  encouraged  a  number   of  foreign   insurers  to  enter  the  market.  If  not  appropriately  monitored.   Ironically   the  impact  of  both  regulatory  certainty  and  uncertainty  is  best  illustrated  by  the   same   country.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  new  regulatory  framework  had  some   critical   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  models  that  operate  in  the  grey  areas  of   regulation         15th  Floor.uncertainty  disincentivises  the  entry  of  legitimate  players  into  a  specific  market.  that  may  close  down  a  specific   model  or   space.

 India   necessarily  require  detailed  regulation  in  all  areas  before  market  development  can   proceed.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  for  example.gaps.   Clear  policy  in  favour  of  market  development  may.  New  Delhi  –  110  019.  This  uncertainty  has  discouraged  a  number  of  potential  providers  of   health   insurance  from  entering  the  market  (see  Box  4)  while  leaving  the  room  for  other   models  to   operate  unregulated.   Regulatory  certainty  can  also  be  achieved  under  a  facilitative  approach  and  does   not         15th  Floor.  provide  new   entrants  with   sufficient  certainty  that  their  models  are  in  line  with  government’s  view  on  market   development  even  if  regulation  on  a  specific  aspect  remains  uncertain.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  creating  uncertainty  for  example  on  the  exact  treatment  of  health  insurance   under  the   new  law.  Eros  Corporate  Tower   Nehru  Place.

 the  newly  established  Insurance   Commission  focused  on  developing  a  culture  of  compliance  and  on  achieving  its   mission.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Even  insurers  unable  to  fulfil  basic  operational  functions  were  allowed  to   operate   and  there  was  no  compliance  culture.  Post-­‐1997.   The  fact  that  the  regulatory  regime  is  so  recent  has  had  a  number  of  impacts  on   the   microinsurance  market:     The  presence  of  regulation  has  encouraged  entry  of  foreign  players:  12  of  the  20   insurers   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  insurance  industry  had  no   insurance         15th  Floor.  India   regulator  and  no  effective  supervision  other  than  being  nominally  supervised  by   the  Ministry   of  Trade.  New  Delhi  –  110  019.  Regus.Prudential  issues  addressed  first:  Before  1996.  Eros  Corporate  Tower   Nehru  Place.

 India   legislation  was  introduced.  Regus.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   foreign  insurers  were  reluctant  to  enter  given  the  regulatory  uncertainty  and  risk.  the  fact  that  the   regulation  is  still   so  new  has  meant  that  some  regulatory  uncertainty  remains.  and  the  demarcation  lines  between  life  and  non-­‐life  insurance.     Remaining  uncertainties  undermine  market  development:  Despite  the  greater   certainty   created  by  implementing  the  insurance  regulatory  regime.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.that  are  active  in  the  Ugandan  market  are  foreign-­‐owned  and  entered  after   insurance         15th  Floor.  This  uncertainty   relates   especially  to  two  major  areas:  the  demarcation  of  health  versus  other  categories   of   insurance.  Eros  Corporate  Tower   Nehru  Place.  Even  though  foreign  ownership  was  not  prohibited   before.

 India   licence.  the  loophole  has  led  to  some  reluctance  by   registered  non-­‐life  insurers  to  enter  the  health  space.  however.·∙ Lack  of  health  insurance  definition  distorts  market:  The  Uganda  insurance  law   does  not   refer  to  health  insurance.  most  notably  HMOs  that  provide  health  insurance  outside  of   insurance   regulation.  On  the  formal  sector  side.  Eros  Corporate  Tower   Nehru  Place.  As  it  is  not  explicitly  covered  by  regulation  has.  been  exploited  by   some  operators.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  may  also  be  preventing  innovation  in  health   microinsurance.  New  Delhi  –  110  019.  should  they  thereby  open   themselves  up  to  regulatory  risk  and  face  an  unlevel  playing  field  having  to   compete   with  the  unregulated  HMOs.     ·∙ Life  versus  non-­‐life  demarcation  loophole  creates  unlevel  playing  field:  Though   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  It  is  therefore  usually  written  under  a  short-­‐term   insurance         15th  Floor.

 some  grey   areas   remain.  it  provides  a  payout  to  the  MFI  for  the  outstanding  account  balance  of   the   client  irrespective  of  the  cause  of  death.  New  Delhi  –  110  019.   However.  which  is  a  risk  that  may  be  written  under  a  non-­‐life   licence.  is  providing  credit  life  insurance  under  its  non-­‐ life   licence.  It  justifies  this  on  the  basis  that  it  only  provides  a  pay-­‐out  to  the  client  in   the   case  of  accidental  death.  This  creates  an  unlevel  playing  field  for   those   insurers  reluctant  to  engage  in  such  grey  area  activities.  Regus.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  One  insurer.  which  could  strictly   speaking  be         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.insurance  is  demarcated  into  life  and  non-­‐life  insurance  and  an  insurer  that  does   not   have  a  composite  licence  must  register  as  either  the  one  or  the  other.  for  example.

 Both  intentionally  and  unintentionally.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  degree  of  compliance  costs   and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  and  in  this  way  could  be  undermining  competition  in  the  credit  life   market.           15th  Floor.  compliance  with   regulation   imposes  costs  on  businesses  and  may  also  exclude  some.  Eros  Corporate  Tower   Nehru  Place.  India   Overall  regulatory  burden  determines  the  need  for  microinsurance  dispensation:   Ultimately  regulation  dictates  who  may  operate  in  a  specific  market  and  how  they   must   conduct  their  business.  New  Delhi  –  110  019.  Regus.  for  example  by   preventing  foreign   ownership  of  domestic  insurance  firms.regarded  as  illegal  insurance  practices  even  though  the  supervisor  has  not  put  an   end  to   the  practice.  or  prohibiting  legal  persons  other  than   public/stock   companies  from  conducting  insurance  operations.

 may  be  able  to  develop  without  further  regulatory   intervention.exclusions  determine  the  ultimate  regulatory  burden  of  a  particular  system.   If  the  overall  regulatory  burden  is  low.  New  Delhi  –  110  019.  In  contrast.  Regus.  Eros  Corporate  Tower   Nehru  Place.  This  is   the  case  in  Colombia  where  a  low  overall  regulatory  burden  combined  with  a   general   inclusion  policy  meant  that  no  explicit  intervention  around  microinsurance  was   needed  to         15th  Floor.  as  opposed  to   informal   market  development.  formal  microinsurance.  This   burden   tends  to  increase  naturally  over  time  as  the  sophistication  of  incumbent  market   players  and   products  increase.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  where  the  overall  regulatory   burden  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   catalyse  the  development  of  this  market.

 India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  or  (ii)  in  some  form  of  regulatory  coercion  pushing   providers  to  enter   this  space  (e.  New  Delhi  –  110  019.  quotas  or  charters  such  as  the  case  in  India  and  South  Africa).     4.   It  must  be  noted  that  the  absence  of  such  special  dispensations  does  not   necessarily  prevent   microinsurance  developing  but  tends  to  keep  this  development  in  the  informal   sector.g.  Financial  inclusion  policy  and  regulation         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  In  the  sample  countries  such  regulatory   initiative   has  manifested  in  two  forms  or  in  a  combination  of  these:  (i)  a  dedicated   (exempted)   microinsurance  space.4.  Regus.high  it  increases  the  need  for  special  policy  or  regulatory  exemptions  to  encourage   the   development  of  formal  microinsurance.2.  Eros  Corporate  Tower   Nehru  Place.

 India   or  the  Opportunity  Banking  Policy  in  Colombia)  make  specific  or  detailed  reference   to   microinsurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  the  National  Microfinance  Strategy  in  the   Philippines         15th  Floor.  Financial  inclusion  is  an  increasingly   important   policy  objective  for  governments  around  the  world.  Four  out  of  the  five  sample   countries   have  some  form  of  financial  inclusion  policy.  they  nonetheless  provide  important  support  for  developing  the   microinsurance  market.   but  longterm   growth  and  scale  depends  on  viability.g.   Although  not  all  of  these  policies  (e.  in  various  stages  and  forms  of   implementation.  Increased  financial  inclusion  in  other  financial  sectors  such   as   •  Informal  and  illegal  insurance  have  evolved  to  fill  the  gaps   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.Financial  inclusion  policy  and  regulation  can  push  microinsurance  development.  Eros  Corporate  Tower   Nehru  Place.

 Regus.  Eros  Corporate  Tower   Nehru  Place.  In   both   countries  these  interventions  led  to  a  special  regulatory  dispensation  for   microinsurance   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   inclusion  in  general  also  sends  a  positive  signal  to  entities  that  are  looking  to  enter   and   extend  their  activities  into  the  low-­‐income  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .•  Entry  and  evolution  of  legitimated  players  into  formal  sector  undermined         15th  Floor.  In  South  Africa.  New  Delhi  –  110  019.  this  took  the  form  of  the  Financial  Sector   Charter.  In  India.     Two  main  approaches  to  financial  inclusion:  Two  categories  of  inclusion   regulation  were   found  in  the  sample  countries:     ·∙ Push  interventions:  Both  South  Africa  and  India  have  implemented  explicit   financial   inclusion  interventions.  it  took  the  form  of  regulated  rural  and  social  sector  quotas.

 the  Philippines  government   facilitates  financial  inclusion  and  microinsurance  through  its  National   Microfinance   Strategy  and  public  awareness  campaigns  supporting  microinsurance.           15th  Floor.  led  to  the  introduction  of  non-­‐bank  correspondents  providing  a  low-­‐cost   channel  for  insurance  premiums  collection.  India   ·∙ Supportive  policies/pull  interventions:  In  Colombia.  Rather.       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  This.  Likewise.  Eros  Corporate  Tower   Nehru  Place.that  supports  the  quest  for  inclusion.  for   example.  the  Opportunity  Banking   Policy  does   not  place  any  obligation  on  financial  institutions  to  pursue  inclusion.  it   seeks  to   facilitate  the  provision  of  financial  services  to  the  currently  unserved  by  creating  a   supportive  regulatory  environment  and  removing  obstacles  to  inclusion.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.

 as  non-­‐life  products  priced  to  achieve  large  scale  take-­‐up  among  the   poor  are   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.Limits  of  inclusion  policy:  Inclusion  policy  is  usually  premised  on  the  assumption   that  if         15th  Floor.  which  will  in  turn  will  lead  to  market  development  beyond  that  which   is   compulsory.  its  impact  will  be  limited  if  initiatives  are  not  put  in  place  to  also   support  the   viability  of  the  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  inclusion  policy  cannot  indefinitely  force  providers  to   pursue  unviable   markets  at  any  significant  scale.  Eros  Corporate  Tower   Nehru  Place.  India   commercial  insurance  providers  are  introduced  to  the  low-­‐income  market  they  will   discover   its  potential.  access  targets  for  non-­‐life  insurers  have   proved   problematic.  In  South  Africa.  Regus.  While  push  regulation  can  force  providers  to   enter  a  specific   market  space.  However.  New  Delhi  –  110  019.

 the  rural  and  social  sector  policy  has  thus  far  achieved  limited   microinsurance  take-­‐up  beyond  what  is  required  in  the  relatively  modest  quotas   suggesting   that  insurers  “cross-­‐subsidise”  policies  in  these  sectors  to  reach  the  quotas  and   have  not  yet   shown  that  expansion  beyond  the  quotas  is  viable.  Push  and   supportive   initiatives  could  therefore  be  seen  as  complementary  interventions.   adjustments  also  had   to  be  made  to  create  a  more  supportive  regulatory  environment.  especially.  New  Delhi  –  110  019.     Regulators  require  mandate  to  support  development:  Even  when  an  explicit  or   comprehensive  inclusion  policy  is  absent.  it’s  possible  to  support  financial  inclusion   by   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  In  India.  India   of  view.  In  both  these  cases.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  an   intermediary’s  point         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.in  many  instances  simply  not  viable  from  an  insurer’s  and.

 Eros  Corporate  Tower   Nehru  Place.  including  market  development.  This  means  that  they  can  only  operate   and  apply   their  resources  based  on  what  their  official  mandate  allows  them  to  do.  Increasingly  regulators’  mandates  are  being   extended  to   include  other  objectives.  Regulators   are  bound         15th  Floor.extending  the  regulator’s  mandate  to  support  market  development.   Traditionally.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  Regus.  the  mandate  of  most  financial  sector  regulators  was  limited  to   stability  and.  India   by  the  statutes  under  which  they  operate.  consumer  protection.  If  market   development  or  financial  inclusion  is  not  part  of  that  mandate.  to   some  extent.  India’s  Insurance   Regulatory  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  regulator  could   be  found   to  be  acting  outside  of  the  law  should  it  pass  regulations  or  implement   administrative   actions  that  seek  to  develop  the  market.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .Development  Authority  provides  a  good  example  of  a  regulator  that  was  given  an   explicit         15th  Floor.  such  as  minimum  levels  of  capital.4.  Prudential  and  institutional  regulation   High  regulatory  barriers  undermine  formalisation  and  entry:  Prudential   regulation  seeks  to   ensure  that  insurers  are  able  to  meet  their  contractual  obligations  to  their  clients.  Eros  Corporate  Tower   Nehru  Place.  the  Ugandan  Insurance  Commission   is  an   example  of  a  regulator  that  has  no  explicit  development  mandate  and  therefore   does  not   have  the  scope  to  consider  financial  inclusion  as  part  of  its  policy  obligations.3.   and   requiring  compliance  with  prudential  regulations  governing  the  functioning  of  the   insurer.  New  Delhi  –  110  019.  On  the  other  extreme.   This  is   done  by  setting  minimum  entry  requirements.   4.  Regus.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   development  mandate.

 For  example.  India   regulator.   Using  regulatory  barriers  to  compensate  for  limited  capacity  may  be   counterproductive:   Regulatory  barriers  may  be  the  result  of  general  conservatism.   however.  Regus.  Such  supervisors  may  take  a  conservative  approach  and   explicitly   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.One  outcome  of  prudential  regulation  is  to  limit  entry  into  the  market  to  providers   that  are   able  to  manage  insurance  business  appropriately.  Eros  Corporate  Tower   Nehru  Place.  due  to  limited  capacity.  Unnecessary  high  regulatory   barriers.  unintentional   regulatory  drift   or  deliberate  regulatory  strategies  to  address  specific  concerns  of  the         15th  Floor.  New  Delhi  –  110  019.  regulators  and  supervisors  may  be   concerned  about  their  ability  to  effectively  supervise  the  sector  and  about  the   potential  risk   of  insufficient  supervision.  undermine  the  entry  and  formalisation  of  potentially  legitimate   providers.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 Increasing  entry  barriers  to  the  formal  sector  where  the   supervisor   has  limited  capacity  may.  with  no  second  tier.  has  the  highest  minimum   upfront  capital         15th  Floor.  In  isolation.  however.   rather  than  a   more  limited  insurance  sector.  exceptions   or   opportunity  for  smaller  players  to  graduate  to  this  level.  This  is  a  deliberate   requirement  by   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  Eros  Corporate  Tower   Nehru  Place.   limiting   entry  does  not  necessarily  stop  informal  insurance  activities  for  the  very  same   reason  that   motivated  this  approach:  the  supervisor  does  not  have  the  capacity  to  monitor   and  control   these  informal  activities.  India   requirement  of  the  sample  countries  ($25-­‐million).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  for  example.  New  Delhi  –  110  019.  simply  result  in  a  larger  informal  sector.  therefore.restrict  entry  through  artificially  high  capital  requirements.  India.

 was  not  to  close  down  these  activities  but  to   keep  them   in  the  informal  sector.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  India   smaller  (but  potentially  legitimate)  players  is.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Entry  and   formalisation  of         15th  Floor.IRDA  to  restrict  the  market  to  a  few  large  commercial  insurers.  therefore.  explicitly  discouraged.  however.  Eros  Corporate  Tower   Nehru  Place.   Colombia  India  Philippines  South  Africa  Uganda   Regulatory  barriers  particularly  affect  microinsurance:  The  development  of   formal   microinsurance  is  particularly  affected  by  such  deliberate  entry  barriers.   The  result  of   these  high-­‐entry  barriers.  Regus.  as   informal    Other  objectives  may  include  market  conduct  regulation  and  consumer  education   as  additional  means  of  consumer   protection.

 New  Delhi  –  110  019.  Most  of  them  would  have  to  cede  their  insurance  portfolios  to  registered   insurers   as  they  will  be  unable  to  comply  with  even  the  second  tier  of  regulation  proposed   for   microinsurance.·∙ In  South  Africa.  To  protect  consumers.  the  government  is  concerned  about  allegations  of  consumer   abuse  in         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  it  is  important  to  bring   such   providers  within  the  insurance  regulatory  net.  Regus.  This  needs  to  be  combined  with  active   support  for  such  parlours  to  assist  them  in  making  the  difficult  transition  to   regulatory   status.  India   funeral  parlours  that  self-­‐insure.  Formalisation  is  therefore  regarded   as  a   necessary  strategy  to  limit  consumer  abuse.     ·∙ Cooperatives  that  provide  in-­‐house  insurance  in  the  Philippines  are  not  currently   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 India   purposes.  formalisation  is  not  simple  and  needs  the  support  of  a  dedicated   backoffice   and  actuarial  resource  (provided  by  Rimansi)  and  additional  regulatory  changes  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   making   insurance  take-­‐up  easier  than  for  commercial  insurers.  This  implies  that  risk  is  created  for  the  consumer.  These  member-­‐based  entities  are  trusted  by  clients.  As  with  the  funeral   parlours  in   South  Africa.supervised  by  the  Insurance  Commission  unless  specifically  registered  for   insurance         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .     ·∙ The  importance  of  member-­‐based  entities  with  informal  origins  is  powerfully   illustrated   in  the  transition  of  informal  insurance  schemes  into  the  regulated  MBA  insurance   market  in  the  Philippines.  Regus.  and  formalisation   would   therefore  serve  the  goal  of  consumer  protection.  New  Delhi  –  110  019.

      Tiering  and  graduation  supports  entry.   simply  be  beyond  the  capacity  of  a  supervisor  to  formalise  these  entities  through   supervisory  effort  or  decree.   therefore.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS         15th  Floor.  formalisation  and  growth  of   microinsurancefriendly   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  India   .  reduced  capital  requirements  and  the  ability  to  build   this   up  over  time).  Regus.  An  alternative  approach  is  to  design  the  regulatory   environment  to  encourage  and  support  formalisation  while  gradually  targeting   enforcement   at  high-­‐risk  areas.incentivise  formalisation  (e.   Informal  providers  are  often  outside  of  the  regulatory  scope  because  of  the  limited   capacity   of  the  supervisor  to  enforce  regulation  and  not  the  absence  of  regulation.g.  It  may.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  In  South  Africa.  New  Delhi  –  110  019.   Tiering:  This  approach  creates  a  lower  tier  of  insurer  subject  to  reduced  regulatory   burden   but  limited  to  lower-­‐risk  products.  In  the  Philippines  a  separate  tier  was  created   for  MBAs   (and  within  that  for  microinsurance  MBAs)  that  are  subject  to  lower  capital   requirements   than  commercial  insurers.providers:             15th  Floor.   South  Africa  is  also  in  the  process  of  designing  a  dedicated  microinsurance   regulatory  tier   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   Tiering  and  graduation  have  been  used  in  the  sample  countries  to   facilitate  entry  while  still  maintaining  prudential  standards.  Regus.  friendly  societies  are  allowed  to  write   funeral   insurance  up  to  R7  50072  (about  $940)  under  a  lower-­‐tier  licence  with  reduced   requirements.  Eros  Corporate  Tower   Nehru  Place.

 New  Delhi  –  110  019.  Microinsurance  MBAs  in  the  Philippines  may.  This   allows   regulators  to  reduce  entry  barriers  while  still  maintaining  appropriate  prudential   standards.  Regus.  Eros  Corporate  Tower   Nehru  Place.  India    In  this  approach  providers  (usually  informal  providers  seeking  to  formalise)  who   are  not  immediately  able  to  comply  with  the  full  regulatory  requirements  are   allowed  to   stagger  or  graduate  their  compliance  over  a  set  period  or  according  to  a  set   formula  or   procedure.     Graduation:           15th  Floor.  In  India  tiering  was  only  implemented  for  intermediaries   and  not  for  insurers.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  start  with  a   lower   capital  requirement  and  build  up  their  capital  to  the  required  level  over  time.  for  example.

  This  has  resulted  in  some  successful  friendly  society  insurers  stagnating  as  they   were  unable   to  graduate  out  of  the  restrictive  regulatory  environment  for  such  societies.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .As  noted.  With  friendly   societies  in   South  Africa  graduation  to  full  insurer  status  is  undermined  by  the  fact  that  the   insurance   legislation  does  not  accommodate  the  member-­‐based  legal  structure  of  a  friendly   society.  take-­‐up  of  the  MBA  licence  was  only  achieved  when  this  graduated   capital         15th  Floor.  Regus.  New  Delhi  –  110  019.       Discretionary  approach  may  be  difficult  to  manage:     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   requirement  was  implemented.  Graduation  between  tiers  is  also  critical  to  ensure   that   successful  smaller  providers  are  able  to  evolve  into  full  insurers.

    In  addition  to  explicit  graduation.  This  option  is  technically  available  to  the  insurance  supervisor  in  South   Africa.         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  but   not  used  in  practice  due  to  concerns  over  the  capacity  to  manage  such  an  ad  hoc   process.  In   the  Philippines  the  Insurance  Commission  also  has  the  power  to  reduce  upfront   capital   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  India   discretion  can  also  be  given  to  the  supervisor  to  allow  entry  for  specific   players/categories  of   players  at  a  lower  capital  level  and  allow  them  to  build  this  up  over  time.  New  Delhi  –  110  019.  Although   possible.  Eros  Corporate  Tower   Nehru  Place.   the  ad  hoc  nature  of  this  process  makes  it  difficult  to  manage  with  limited   supervisory   capacity.

 Following  a  risk-­‐based   approach.  This   is  not  the   case  in  South  Africa  where  friendly  societies  are  allowed  to  write  funeral  insurance   policies   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.         15th  Floor.  however.requirements  by  up  to  half  for  cooperative  insurers.  Regus.  India   entities  writing  the  same  kind  of  risk  should  face  a  similar  regulatory  burden.       Unlevel  playing  field  introduces  a  bias  against  provision  by  potentially   legitimate  players:     While  tiering  may  be  a  useful  tool  to  manage  entry  requirements.  been  no   instance   of  such  graduation  so  far.  There  has.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  as  no  cooperative  insurers  have  applied  for  it.  it  can  also   create  unlevel   playing  fields  if  not  carefully  designed  based  on  risk.

        15th  Floor.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  current  tiering  system.  Regus.  the  regulation  applied  to  friendly  societies  are  reduced  to  such   an  extent   that  it  may  be  too  low  to  manage  even  the  level  of  risk  that  remain  at  this  benefit   level.up  to  R7  500  (approximately  $940).  This  is  too  onerous  relative  to  the  limited  product  portfolio  they   write.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  At   the  same  time.   While  the  benefit  caps  on  friendly  societies  reduce  the  risk  compared  to  full   funeral   insurance  licences.  the  differentiated  benefits  mean  that  these  societies  cannot   compete  with   formal  insurers  and  are  losing  ground  in  the  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Dedicated  funeral  insurers  may  write  benefits   up  to   R18  000  (approximately  $2  250)  but  with  regulatory  requirements  similar  to  that   of  a  full  life   insurance  licence.   therefore.

1).  India   In  Colombia.  Eros  Corporate  Tower   Nehru  Place.       Unnecessary  restrictions  on  institutional  types  may  exclude  legitimate  providers:   When   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.creates  an  unlevel  playing  field.  Regus.  they  are   not  subject  to  the  same  regulation.  This  means  that   although   they  write  products  with  similar  risk  features  to  funeral  policies  offered  by   insurers.  This  places  commercial  insurers  at  an  unfair   disadvantage  and  may  discourage  them  from  competing  for  this  market.  funeral  parlours  have  an  exemption  from  insurance  regulation  based   on  legal   technicalities  around  the  definition  of  insurance  (see  Section  3.         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  achieving  neither  appropriate  risk  management   nor   supporting  competition.  New  Delhi  –  110  019.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .regulators  follow  an  exclusionary  approach  (see  Section  4.  Eros  Corporate  Tower   Nehru  Place.  Regus.       Member-­‐based  insurers:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   (and  intermediation)  to  specific.1)  they  may  limit   underwriting         15th  Floor.  This   approach   effectively  requires  the  regulator  to  be  able  to  “pick  winners”  by  deciding  which   entities  will   be  better  placed  to  serve  the  market.  predetermined  institutional  types.4.  Such  institutional  restrictions  do  not  always   add  value   as  they  are  not  based  on  clear  risk  considerations.  This  affects  member-­‐based   entities  as  well   as  commercial  insurers.  New  Delhi  –  110  019.  This  makes  it   difficult  for   new  business  models  with  different  legal  identities  to  enter  the  market.

 member-­‐based  entities  such  as  mutuals  and  cooperatives  may  play  an   important   role  in  developing  microinsurance.   When  these  entities  are  a  feature  of         15th  Floor.  This  is  not  without  problems   as  at   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   society.  New  Delhi  –  110  019.   restricting  them   to  informal  markets.  Regus.  The  overwhelming  majority  of  formal   microinsurance  in   the  Philippines  is  provided  by  member-­‐based  entities.  Eros  Corporate  Tower   Nehru  Place.  however.  do  not   always   provide  the  space  for  such  entities  to  formalise  their  insurance  operations.  Regulatory  environments.     ·∙ The  Philippines  has  created  an  explicit  regulatory  framework  to  accommodate   both   cooperative  insurers  and  MBAs.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

    ·∙ In  Colombia.  New  Delhi  –  110  019.  India   requirements.  the  government’s  approach  has  been  to  support  the  improvement  of   management  and  governance  of  these  entities.  Regus.  Instead  of  excluding   this   category.  informal  member-­‐based  insurers  are  also  significant  in  the   microinsurance  market  (63%  of  the  combined  formal  and  informal  funeral   insurance   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     ·∙ In  South  Africa.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.least  one  of  the  cooperative  insurers  are  under  curatorship.  Sixty  two  percent  of  formal  microinsurance  in  Colombia  is  provided   by   these  insurers.  cooperative  insurers  have  evolved  to  where  they  are  able  to   compete  with   commercial  insurers  on  an  equal  footing  and  are  subject  to  the  same  regulatory         15th  Floor.

 However.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.market).             15th  Floor.  New  Delhi  –  110  019.  thereby  disincentivising  potential  interest.     Commercial  insurers:  These  restrictions  also  affect  commercial  insurers.  Regus.   Microinsurance   regulation  in  the  Philippines  benefits  only  member-­‐based  entities  and  does  not   provide   space  or  incentives  for  commercial  insurers  to  enter  this  market.  While   commercial  insurers   may  not  currently  be  interested  in  serving  this  market  there  is  no  reason  to   exclude  them  in   regulation.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  current  regulatory  structures  do  not  provide  a  suitable  route   for  such   entities  to  grow  and  formalise  themselves  into  insurers.  Eros  Corporate  Tower   Nehru  Place.

 New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  one  of  the  MBA  pioneers  in  the  Philippines.   As  of   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  It  is  regarded  as  the  most  suitable  organisational  structure  for   microinsurance.  Eros  Corporate  Tower   Nehru  Place.  India   of  CARD  MBA.   and  is  the  only  institutional  entity  eligible  for  microinsurer  status  that  enjoys  a   lower  tier  of   minimum  capital  requirements.  payment  flows.The  role  of  CARD  in  choosing  MBA  as  the  microinsurance  vehicle:  The  MBA  is  the   Insurance   Commission’s  vehicle  of  choice  for  formalising  and  developing  microinsurance  in   the   Philippines.  It  is  argued  that  this  decision  is  based  partly  on   the  success         15th  Floor.  reserves  and  capital.  CARD  MBA  showed  how   the  MBA   approach  can  use  microfinance  social  networks.  financial   information  and   management  systems  to  reach  a  critical  mass  of  members.  Regus.

 it  started   offering  basic   life  insurance.   an  MFI.  In  1997.  based  on  a  minimal   weekly   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  CARD.           15th  Floor.  it  responded  to  the  need  to  broaden  the  product  offering   by   including  a  monthly  pension  for  members  older  than  65.  It  paid   out  US$1.  India   Unsustainable  practices  and  consequent  rehabilitation  into  the  MBA  form:  In   1994.  the   result  of  a  turbulent  history.  In  addition.December  2007  it  had  about  470  000  active  members  and  US$16.  This  robust  current  position  is.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   however.  Regus.  New  Delhi  –  110  019.  established  a  Members  Mutual  Fund  (MMF)  among  its  members  to  cover   its   exposure  on  the  loans  of  members  in  the  case  of  death.  Eros  Corporate  Tower   Nehru  Place.1-­‐million  in  claims  over  the  year.5-­‐million  in   assets.

 however.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  CARD  realised  that  two  years  of  a  member’s   contributions   were  needed  just  to  cover  one  month  of  pension  benefits  receivable  by  such  a   member.contribution.  The  MBA  is  registered  as  a  non-­‐ stock.  CARD  sought  advice  from  the  regulator  and  towards  the  end   of  1999   formed  an  MBA  to  manage/replace  the  MMF.  This   was  clearly  not  sustainable.  Regus.  Fulfilling  all  its  obligations  would  “decapitalise”  CARD   and  could   lead  to  bankruptcy.  All  of  this  was  done  without  registration  for  insurance  purposes.   When  such  an   assessment  was  eventually  done.  nonprofit   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  possible  impact  on  the   institution   of  these  in-­‐house  insurance  services  was.   although         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  not  adequately  assessed.  India   registration  was  mandatory  under  the  Insurance  Code.

 Eros  Corporate  Tower   Nehru  Place.legal  entity  owned  and  partially  managed  by  the  members.   The  MBA  was  therefore  used  as  a  vehicle  to  rehabilitate  CARD’s  insurance   operations  and   bring  it  within  the  formally  regulated  space.  Regus.  New  Delhi  –  110  019.  CARD  MBA’s  subsequent  success  (and   advocacy   in  the  sector  at  large  –  sharing  their  learning  and  providing  support  to  other   MBAs)  has  been   instrumental  in  convincing  regulators  to  provide  sufficient  regulatory  space   (through  tiered   capital  requirements)  for  MBAs  engaged  in  microinsurance.  The  success  of  CARD   provided   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   actuary.  CARD  MBA  repackaged  its  existing  product  lines  and  developed  new  ones.   It  has   also  started  to  offer  non-­‐financial  services.  With  the  assistance  of   an         15th  Floor.

 India    While  the  MBA  has  existed  as  insurance  vehicle  since  the  Insurance  Code  of  1971.  Some   active  work  needs  to  be  done  by  the   regulator/supervisor  in  promoting  it.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.an  example  to  other  MFIs  that  want  to  cater  to  the  risk  protection  needs  of  its   members.         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.   it  has  only  recently  started  to  feature  as   vehicle  for  microinsruance  provision  and  the  formalisation  of  MFI  in-­‐house   insurance.  Regus.       Sound  corporate  governance  allows  the  regulator  to  leverage  non-­‐traditional   institutional   types:  Weak  governance  for  a  particular  category  of  institution  means  that  a   much  higher   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  This  shows  how  the  mere  existence  of  a   regulatory  option  in  itself  is  not  always  sufficient  to  trigger  formalisation.

regulatory  effort  is  required  to  ensure  compliance.  However.  excluding  such   institutional         15th  Floor.  a  whole   new   category  of  entities  became  available  to  support  market  development.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  prudential   regulation.  Regus.  Eros  Corporate  Tower   Nehru  Place.  This  is   particularly   relevant  for  member-­‐based  entities  such  as  financial  cooperatives  that.   Examples  of  such  cooperatives  are  those  that  first  emerged  in  the  agriculture   sector.  India   types  may  impede  development.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  or  geared  for.  Where  the  regulator  has  implemented  measures   to   improve  governance  structures  rather  than  excluding  such  institutions.  New  Delhi  –  110  019.   are  often  regulated  under  regulators  not  focused  on.  for  historic   reasons.

  Financial  crises  often  trigger  more  appropriate  regulation  to  strengthen  the   financial   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Under  the  insurance  code.  Regus.  cooperatives  are   allowed  to  write  insurance  but  no  additional  governance  requirements  are  placed   on   those  that  do  this.  New  Delhi  –  110  019.  improved  cooperative  regulation  secured  the  continued  existence  of   the   cooperative  environment  even  through  the  financial  sector  crisis  of  the  late  1990s.     ·∙ In  Colombia.  India   operational  due  to  mismanagement.  Eros  Corporate  Tower   Nehru  Place.·∙ In  the  Philippines  weak  governance  of  cooperatives  has  been  problematic.  and  one  of   these   is  under  curatorship.  Two  cooperatives  currently  offer  formal  insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  with   65%  of   cooperatives  registered  with  the  Cooperative  Development  Authority  no  longer         15th  Floor.

 This  includes  better  corporate  governance  standards.  among  others.     Demarcation  shapes  provider  models:  In  all  five  sample  countries  insurance   regulation   distinguishes  to  a  greater  or  lesser  degree  between  life.  In  India.sector.  MFI   rating   agencies  and  standards  have  ensured  that  MFIs  also  providing  insurance  improve   their   management  and  governance.     ·∙ Market-­‐driven  mechanisms  can  also  incentivise  better  governance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  non-­‐life  and  health   insurance   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  This  led  to  these  entities  obtaining  underwriting  for   previously  informal  insurance  portfolios  (or  risk  being  downgraded  on  their  credit   rating).         15th  Floor.  As   noted.  New  Delhi  –  110  019.  India   cooperative  insurers  are  the  dominant  providers  of  microinsurance  in  Colombia.  Eros  Corporate  Tower   Nehru  Place.

 Eros  Corporate  Tower   Nehru  Place.  Composite  insurers  are  allowed.products.  in         15th  Floor.  New  Delhi  –  110  019.  with  the  exception  of  individual  life   policies.  with  concomitant  increases  in  capital   required.  India   all  but  India  and  South  Africa.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The   degree  and   certainty  of  demarcation  has  shaped  the  nature  of  insurance  provision  in  these   countries.  This  has  allowed  insurers  to  design  products  that  cover  both   assets  and  life   (including  disability  and  health)  risks  in  one  “family  protection”  policy.  Regus.  insurers  may  combine  policies  from  the  three  categories   (with   concomitant  increase  in  capital  required).     Relaxed  demarcation  supports  low-­‐cost  provision  that  meets  market  needs:   Strict   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  under   a  single  licence.  but  with  some  exceptions  for  microinsurance.   For  example.  In  Colombia.

 Regus.  In  this  way.  New  Delhi  –  110  019.  one  insurer   offers  a  so-­‐called  family  protection  policy  at   a  premium  of  $4/month.   as  well  as  cover  of  $10  for  daily  hospital  fees   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  however.  sell   group  life  and  health  insurance.  providing  $5  200  in  life  and  disability  cover  respectively.    Insurance  cooperativescooperative  and  companies  have  designed  products  that   cover  both  assets  and  life  risk  (including   disability  and  health)  as  an  integral  family  protection  plan.  non-­‐life   and  health         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .demarcation  increases  the  cost  of  offering  a  product  that  combines  life.  India   elements.  It  also  restricts  the  cost  efficiencies  that  may  be  gained  from  combined   products.  Both  life  and  non-­‐ life  insurance  companies  may.   The  microinsurance  experience  and  focus  group  findings  in  the  sample  countries   indicate  a    Individual  life  policies  can  only  be  provided  under  a  life  license.

 New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Philippines  and   Uganda.   India’s  microinsurance  regulations  are  also  allowing  composite  products  but   separate   underwriting  of  the  product  and  a  life  and  non-­‐life  insurer  is  still  required.   The  Indian         15th  Floor.  In  South   Africa.  Eros  Corporate  Tower   Nehru  Place.  As  a   result  of  the   need  for  composite  products.and  $2  600  for  serious  illness.   the  proposed  microinsurance  regime  recommends  a  dedicated  microinsurance   licence  that   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  countries  are  moving  away  from  strict  demarcation   in  the   microinsurance  environment.  Regus.  Clients  of  an  NGO  specialised  in  microcredit  are   targeted  for  this  policy.  This  is  already  the  case  for  Colombia.  India   focus  groups  indicated  a  preference  for  composite  life  and  health  products.

 Product  regulation   Weak  insurance  definitions  result  in  regulatory  avoidance  and  arbitrage:  In   several  of  the   sample  countries  weaknesses  and  gaps  in  insurance  definitions  have  been   exploited  to  avoid   regulation.  India   that  both  life  and  non-­‐life  products  that  meet  the  microinsurance  definition  are  of   a  shortterm   nature  and.  Eros  Corporate  Tower   Nehru  Place.  underwritten  on  a  similar  basis.  illustrating  the  need  for  clear  definitions  of  insurance  business:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  therefore.will  allow  life  and  non-­‐life  risks  to  be  underwritten  by  the  same  microinsurer.       4.  There  is  also  an  explicit   recognition  that  composite  products  may  be  required  to  ensure  viability  of  low-­‐ premium   products.  The   rationale  is         15th  Floor.4.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .4.  Regus.  New  Delhi  –  110  019.

 India   ·∙ Colombia:  Funeral  parlours  have  used  the  legal  system  to  exploit  weaknesses  in   the   definition  of  insurance  and  to  avoid  insurance  regulation.     Regulatory  definitions  seek  to  use  low-­‐risk  features  of  microinsurance  products.  Regus.  Eros  Corporate  Tower   Nehru  Place.  some   Health   Management  Organisations  are  using  this  to  provide  unregulated  insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .     ·∙ Philippines:  Health  and  pre-­‐need  companies  have  avoided  insurance  regulation.   arguing  that   they  do  not  fall  within  current  regulatory  definitions  of  insurance.         15th  Floor.     Uganda:  As  health  insurance  is  not  defined  in  the  insurance  legislation.  New  Delhi  –  110  019.   As  noted   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

(with  some  clear  exceptions)  in  Section  4.  generally  predictable  risks  and  limited  benefit   values.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .4):     ·∙ The  Philippines  use  limited  product  definitions  to  create  the  space  for  MBA   microinsurers.  India   features  are  reflected  when  regulatory  definitions  are  used  to  create  a  separate   space  for   microinsurance  underwriting  (see  tiering  and  graduation  in  Section  4.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  These  features  include:  short-­‐term  contracts   underwritten  on  a   group  basis.  These         15th  Floor.  simplified  products.  the  bulk  of  microinsurance  products   offered  in   the  sample  countries  share  features  that  help  to  limit  the  risk  (prudential  and   market   conduct)  of  these  products.1.  Eros  Corporate  Tower   Nehru  Place.

 used  to  create  a  second  tier  of   intermediaries   dedicated  to  microinsurance.     4.5.  Regus.4).  The  microinsurance  definitions  proposed  in  a  recently  issued   discussion  paper  on  the  future  regulation  of  microinsurance  explicitly  seek  to   create  a   second  tier  of  insurers  and  intermediaries  with  reduced  regulation.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Market  conduct  regulation         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.   These   parameters  of  the  definition  are.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .     ·∙ South  Africa  has  used  these  features  to  create  a  space  for  friendly  societies  and   funeral   insurance  products.·∙ In  India  the  microinsurance  definition  is  based  on  the  same  low-­‐risk  features  but   it  is  not   used  to  create  a  second  tier  of  insurers  (for  reasons  explained  in  Section  4.  however.4.

 Regus.The  following  drivers  related  to  market  conduct  regulation  emerge  from  the   country   experience:           15th  Floor.  New  Delhi  –  110  019.  they  have   supported   innovation.  When  facilitative   regulatory   approaches  (see  Section  4.1)  have  accommodated  such  new  models.3   highlighted  the  importance  of  innovative.  Eros  Corporate  Tower   Nehru  Place.4.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  In  contrast  exclusionary  regulatory  approaches  limiting  intermediation   to   specific  and  usually  traditional  models  have  undermined  market  development.  India   Allowing  multiple  channels  facilitates  innovation  and  low-­‐cost  distribution:   Section  4.  non-­‐traditional  models  for  low-­‐cost   distribution   channels  –  a  prerequisite  for  microinsurance  development.

          15th  Floor.  This  sector  is  virtually  exclusive  in  Uganda.  India  and  Uganda.     ·∙ Bancassurance  is  allowed  in  Colombia.  such   as  those   provided  by  banks  or  MFIs.     ·∙ In  the  Philippines.  the  MFI  sector  is  a  large  distributor  of   microinsurance.  In  general  the  growth   of  the   microfinance  sector  has  been  a  direct  driver  of  the  growth  of  microinsurance.  facilitates  market  discovery  and  low-­‐cost  distribution.  Eros  Corporate  Tower   Nehru  Place.  India   ·∙ In  Uganda.  the  Philippines  and  South  Africa.   primarily   through  compulsory  credit  life.Country  experience  has  shown  that  cross-­‐selling  with  other  financial  services.  New  Delhi  –  110  019.  restrictions  on  intermediation  prohibit  banks  and  MFIs  from  receiving   a   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.

 New  Delhi  –  110  019.     ·∙ In  India.  India   costly  legal  structuring  to  avoid  regulation.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .commission  when  they  intermediate  insurance  products  to  their  clients.  This  ultimately  limits  the  value  that  the   client   may  have  received.  Regus.  distribution  opportunities  are  limited  because  the  definition  of   microinsurance   agents  (despite  recently  being  broadened  to  include  all  non-­‐profit  entities)   excludes  key   for-­‐profit  organisations    with  potential  as  distribution  channels  to  low-­‐income   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  The  result   is   that  these  channels  are  either  not  incentivised  to  distribute  insurance  or  it  results   in         15th  Floor.  It  also  undermines  one  of  the  few  available  distribution   networks  in   the  country  that  could  be  harnessed  for  microinsurance  distribution.

 Whether  the   regulatory   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   Cross-­‐selling  with  non-­‐financial  services  is  also  an  important  way  of  creating   (derived)   demand  for  microinsurance.g.  Eros  Corporate  Tower   Nehru  Place.  Furthermore.  but   also   does  not  qualify  for  microinsurance  agent  status.  The   person  who  sells  the  insurance  policy  is  therefore  not  an  employee  of  a  financial   institution   and  would  normally  not  be  a  registered  insurance  agent  or  broker.  Regus.  a  cellphone)  that  creates  the  demand  for  the   insurance.  New  Delhi  –  110  019.clients.g.  Such  entities  often  have  a  broad  customer  base  among  the  poor  and  in   rural         15th  Floor.  India   areas  that  could  be  leveraged  for  low-­‐cost  insurance  distribution.  a   funeral  service)  or  product  (e.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   bancassurance  is  an  important  distribution  channel  for  insurance  in  general.  The  insurance  policy  is  sold  with  the  underlying   service  (e.

 Regus.  clothing   retailers  and  cellphones  as  distribution  channels.  Eros  Corporate  Tower   Nehru  Place.  the  scope  for  cross-­‐selling  with  non-­‐financial  services  to  facilitate  market   development  is  limited.  alternative  distribution  is  allowed  as  part  of  the  “direct  sales”  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     ·∙ South  African  regulation  does  not  limit  intermediation  to  specific  models  but   instead   focuses  on  the  functional  requirements  that  any  intermediary  model  should  fulfil.system  allows  such  intermediary  models  will  shape  the  development  of  the   market.   This   has  supported  the  development  of  innovative  models  using.  New  Delhi  –  110  019.  for  example.     ·∙ In  Colombia.   such  as   Uganda.  India   ·∙ In  countries  where  insurance  distribution  is  limited  to  registered  brokers/agents.           15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

  CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.“insurance  agencies”  categories  of  intermediation.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  IRDA  in  2005  issued  a  set  of  Microinsurance  Regulations.  the  definitions  of  which  are   defined   fairly  broadly.  Regus.  India   intermediation  channels  and  subordinate  regulation  allows  distribution  via  non79   traditional  structures  such  as  utility  companies  whose  payment  infrastructure  can   be   used  for  premium  collection.  These   regulations  define   general  and  life  microinsurance  products  according  to  minimum  and  maximum   benefits.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Cooperative  insurers  are  also  allowed  to  use  non-­‐traditional         15th  Floor.    Regulations  for  microinsurance  intermediation  in  India   Microinsurance  regime:  In  the  quest  to  facilitate  low-­‐income  market  expansion  in   line  with   its  development  mandate  and  in  light  of  the  rural  and  social  sector  quotas  placed   on   insurers.

 All  sales  of  microinsurance  products  count   towards   insurers’  rural  and  social  sector  obligations.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  as   well  as   certain  simplicity  requirements.   The  regulations  then  create  a  specific  category  of  microinsurance  agents  who  may   only   distribute  microinsurance  products  on  behalf  of  registered  insurers.  New  Delhi  –  110  019.  the  demarcation   requirement         15th  Floor.  India   between  life  and  non-­‐life  insurance  is  relaxed  in  that  a  composite  microinsurance   product   may  be  provided  as  long  as  a  life  and  non-­‐life  insurer  respectively  underwrite  the   life  and   non-­‐life  risks  underlying  the  product.  For  this  category  of  products.minimum/maximum  term  of  the  policy  and  minimum/maximum  age  of  entry.  Regus.  Until  recently   such   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.

 They  may  also   perform   certain  functions.agents  were  limited  to  NGOs.  Regus.  Each  agent  may  only  enter  into  a  relationship  with   one  life   and  one  non-­‐life  insurer.  India   years  experience  working  with  low-­‐income  groups.  New  Delhi  –  110  019.  In  March  2008  the  category   was   extended  to  all  non-­‐profit  entities.   not   allowed  for  traditional  agents.     Restricted  space  limits  market  expansion:  Despite  the  concessions  granted  to   microinsurance   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  self-­‐help  groups  and  non-­‐profit  MFIs  with  a   minimum  of  three         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  such  as  the  routing  of  premiums  and  claims  through  their  books.  Microinsurance  agents  are  subject  to  lower   training   requirements  and  higher  commission  caps  than  traditional  agents.

 This  can  partly  be  ascribed  to  the  fact  that  the  space  opened  up  for   microinsurance  is  relatively  restricted:     ·∙ The  concessions  mostly  relate  to  intermediation  requirements  and  do  not   address  the   minimum  capital  constraint  to  the  entry  of  dedicated  micro-­‐insurers.  the  impact  of  microinsurance  regulations  on  market  expansion  has  been         15th  Floor.  Regus.  despite  the  recent  adjustment.     ·∙ The  definition  of  microinsurance  agents.  India   limited  so  far.     ·∙ The  fact  that  microinsurance  agents  may  distribute  only  microinsurance  products   may   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  which  are  large  potential  aggregators  of   microinsurance   clients.agents.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  still   excludes   for-­‐profit  MFIs  and  rural  banks.  Eros  Corporate  Tower   Nehru  Place.

 Eros  Corporate  Tower   Nehru  Place.  have   drawn   attention  of  the  market  for  microinsurance.  together  with  the  quotas.  provides  limited  incentive  for  selling  to  such  a  low-­‐premium  market.  and  even  though  the  relaxed  training   requirements  and  enhanced  functions  granted  to  microinsurance  agents  go  some   way  in   facilitating  this  category.  the  limited  scope  means  the  regulations  have  by  and   large  not  yet   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   ·∙ The  limit  on  the  number  of  insurers  that  a  microinsurance  agent  can  work  with   has   undermined  their  ability  to  offer  the  best  combination  of  products  to  clients.  and     ·∙ Commission  capping.  New  Delhi  –  110  019.   Even  though  the  microinsurance  regulations.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .           15th  Floor.  Regus.  while  at  a  higher  level  for  microinsurance  agents  than  for   other   agents.act  as  a  disincentive  for  existing  intermediaries  to  enter  into  this  market.

 IRDA  has   therefore  said  it         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.   however.  Regus.  In   practice.     When  enforcement  capacity  is  limited.  price  controls  may  be  counterproductive:   Commission  caps  are  typically  motivated  by  consumer  protection  objectives.  Commission  caps   also  only   control  one  aspect  of  the  cost  of  the  product  rather  than  the  total  cost  to  the   client.  India   is  willing  to  adjust  the  regulations  over  time  as  the  true  market  need  is  revealed.  With  increasingly   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  it  is  also  becoming   increasingly   difficult  to  distinguish  between  commission  and  other  charges.  This  leads  to  various  forms  of  legal   structuring  to   get  around  them  rather  than  reducing  the  cost  to  the  consumer.  such  caps  are  difficult  to  enforce.  With   the  blurring  of  various  institutions  and  intermediaries.become  a  vehicle  for  accelerated  outreach  to  low-­‐income  clients.  Eros  Corporate  Tower   Nehru  Place.

 New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  commissions  on  low-­‐premium   products  may   still  amount  to  a  small  fee  for  the  intermediary.   Experience  in   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  At  the  same  time.   In  Uganda.  international  groups  can   make   transfer  payments  within  the  group  but  outside  the  country.  South  Africa  and  India  caps  are  placed  on  the  level  of  commission  that   may  be   paid  to  intermediaries  for  selling  insurance  policies.complicated  group  structures  that  may  extend  beyond  the  jurisdiction  of  the   supervisor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  it         15th  Floor.  including  microinsurance.   realistic   commission  levels  are  required  to  incentivise  the  intermediation  of  low-­‐premium   products.  For  example.  India   may  be  very  difficult  to  enforce  the  caps.   Even  though  it  may  look  like  a  high  percentage.

  such  as   loading  the  “administration”  component  of  the  premium.   it  has   certainly  contributed  to  formal  players  providing  such  microinsurance.  thereby  undermining  its   intended   effect  while  penalising  compliant  players.     The  effect  of  market  conduct  regulation  on  transaction  costs  may  distort   intermediary   models:  Microinsurance.  While  this  is  not  the  only  reason  for  its  success.  Regus.  Furthermore  the  one  successful   insurance  product   in  South  Africa  in  the  microinsurance  market  –  funeral  insurance  –  is  also  the  only   product   exempted  from  commission  caps.  requires   large         15th  Floor.  New  Delhi  –  110  019.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  even  more  so  than  other  insurance  products.these  countries  shows  that  price  limitations  may  be  circumvented  in  various  ways.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.

 India   and  to  a  very  limited  extent  the  Philippines76  are  the  only  sample  countries  where   the   insurance  sales  process  (as  opposed  to  the  intermediary  itself)  is  directly   regulated.  The  way  that   products   should  be  sold.  Market  conduct  regulation  is  a  relatively  new  category   of   regulation  aimed  at  regulating  the  intermediation  process.   South  Africa         15th  Floor.  stipulations  on  who  should  register  to  intermediate   insurance  or   what  fit  and  proper  requirements  they  should  meet  may  apply.  New  Delhi  –  110  019.  In  the   other  sample  countries.  the  information  to  be  provided  in  the  sales  process  and  the  type  of   advice  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  which  undermines  the  scale  benefits  achieved  by  larger  volumes.volumes  to  be  sustainable.  It  risks  adding  costs  to   every   transaction.

    Compulsion  without  disclosure  and  appropriate  protection  risks  abuse:  While   there  are   risks  to  market  development  when  market  conduct  regulation  increases  the  cost   of   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   In  South  Africa  the  design  of  market  conduct  regulation.  This  has  had  a  major  impact  on  the  development  of  intermediary  models  in   the   microinsurance  market.  tick-­‐box  models.         15th  Floor.  has  increased  the  cost  of  advice  (as  defined   in  the   Act).  Regus.  advice-­‐ based   models  and  a  low-­‐end.be  provided  to  prospective  clients  are  however  generally  not  specified.  in  the  form  of  the   Financial  Advisory   and  Intermediary  Services  Act  of  2002.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  Essentially  it  has  split  the  market  into  high-­‐end.

 can  act  as  a  springboard  for  the  development  and  distribution  of   additional   products  suitable  for  the  low-­‐income  market.  New  Delhi  –  110  019.  insufficient  disclosure  and   limited   incentives  to  ensure  value  to  the  client  due  to  the  compulsory  nature  of  the   transaction  have   undermined  the  value  that  this  channel  may  offer  and  have  also  led  to  consumer   abuse.intermediation.  Regus.  Eros  Corporate  Tower   Nehru  Place.  However.      It  often  provides  the  first  point  of  contact  with  insurance  for  many  consumers   and.  India    Where  agents  or  brokers  are  required  to  explain  the  nature  and  provisions  of  the   contract  to  their  clients.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  in  particular  the   minimum  disclosure  requirements  printed  in  the  policy  contract.  if  applied   properly.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  This         15th  Floor.  there  are  also  risks  of  abuse  when  market  conduct  regulation  is   absent.

 Eros  Corporate  Tower   Nehru  Place.  Regus.  India   ·∙ In  South  Africa  credit  life  is  the  biggest  microinsurance  category  next  to  funeral   insurance.  These  problems  manifest  in  claims  ratios  of  less  than  10%  in   some   cases.  Concerns  about  consumer  abuse  and  opaque  selling  practices  in  credit   life   insurance  have.  reflecting  poor  value  to  the  consumer.  led  to  an  enquiry  into  practices  in  the  sector.  New  Delhi  –  110  019.  This   revealed   several  problems.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  microinsurance  market  is  dominated  by  compulsory   credit  life   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     ·∙ In  India  and  Uganda.         15th  Floor.  including  that  premiums  on  compulsory  credit  life  products  are   significantly  higher  than  those  of  voluntary  equivalents  and  very  few  people  are   aware   that  they  have  cover.  however.

 India   risk  of  the  borrower  (partly  due  to  the  unintended  consequences  of  regulation  as   described  in  Section  3.insurance  where  the  focus  is  still  on  the  risk  of  the  lender  being  insured  rather   than  the         15th  Floor.     ·∙ The  extent  to  which  credit  life  succeeds  in  triggering  voluntary  uptake  of  other   insurance   products  also  depends  on  the  extent  to  which  the  credit  provider  is  interested  in   crossselling   insurance  products  to  the  clients.  The  result  is  limited  incentive  to  disclose  this  cover  to   the   client  or  develop  additional  products  and  features  to  meet  consumers’  needs.5.  Eros  Corporate  Tower   Nehru  Place.4).   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  This  is  driven  by  the  fact  that  MFIs   and   MFI-­‐MBAs  which  are  sensitive  to  the  needs  of  their  clients  started  to  develop  new   insurance  products  to  ensure  continued  client  loyalty.  Regus.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  Philippines  is  a  good  example  of  the  growth   of  voluntary  uptake  off  the  back  of  credit  life.

 India   Regulatory  provisions  other  than  those  in  the  insurance  regulatory  framework  can   also  have   a  far-­‐reaching  impact  on  the  development  of  microinsurance  markets.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  anti-­‐money  laundering  controls  and  the   regulation  of   national  payment  systems.   4.  Differentiated  levels  may  also   be  biased   for  or  against  specific  models  or  products.6.   ·∙ In  the  Philippines.   Taxation  can  undermine  the  attractiveness  and  viability  of  microinsurance:   Taxation  may   affect  microinsurance  through  its  impact  on  costs.  Other  regulation         15th  Floor.   All   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  The  country   studies   reveal  the  potential  impact  of  tax  laws.4.  Regus.  insurers  claim  to  be  the  most  heavily  taxed  financial  entities.

 insurance  agents  have  been  subject  to  a  12.  India   insurance  premiums  are  taxed  at  5%  and  non-­‐life  insurance  premiums  are  subject   to   12%  VAT.  this  will  not   happen   unless  the  preferential  tax  treatment  of  friendly  societies  is  not  removed  or  at   least   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  however.  it  is  passed  to  the  client  by  adding  it  to  the  premium.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   MBAs   and  cooperatives  are  exempted  from  such  tax.36%  service  tax  since  2001.  all   life         15th  Floor.  New  Delhi  –  110  019.  However.  Documentary  stamp  taxes  are  also  applied.  friendly  societies  will  be  encouraged  to  move  to  the  proposed   new   microinsurance  space  that  offers  them  several  benefits.   In   practice.  In  addition  to  the  income  tax.   ·∙ In  India.insurers  are  subject  to  35%  corporate  income  tax  (to  be  reduced  to  30%  in  2009).   ·∙ In  South  Africa.  Regus.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   including  the  electoral  identity  card.           15th  Floor.  Regus.  ration  card  or  electricity  bill  required  as   “proof  of   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  however.  This   increases   transaction  costs  and  may  create  barriers  to  the  take-­‐up  of  insurance.  microinsurance  agents  have  expressed  concern  about  the  difficulties  of   obtaining  know-­‐your-­‐client  (KYC)  documents  from  prospective  clients  in  rural   areas.  be  subjected  to  a  country’s   general  antimoney   laundering  regime  without  recognition  of  its  potential  low-­‐risk  profile.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  India   Anti-­‐money  laundering  controls  may  create  barriers  and  increase  transaction   costs:   Microinsurance  typically  presents  low  money  laundering  or  financing  of  terrorism   risk.  microinsurance  may.   ·∙ In  India.mirrored  under  the  new  microinsurance  regime.  As  a   financial  service.

 In   South   Africa.  KYC  stipulations  until  recently  required  a  face-­‐to-­‐face   interview   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  life  insurance  is  exempted  from  the  AML  duty  to  identify  clients  and  keep   records.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  In  Colombia.  15  of  2007   lifted   or  reduced  many  of  the  KYC  requirements  for  low-­‐value  insurance  contracts.residential  address”.  India   ·∙ In  some  jurisdictions.  Though  insurance  is  subject  to  the  Anti-­‐money   Laundering  Act  of  2001.   This  is  the  case  in  the  Philippines.  Regus.  regulators  recognise  the  low  anti-­‐money   laundering/combating   the  financing  of  terrorism  (AML/CFT)  risk  posed  by  insurance  and  implement   measures   that  ensure  that  AML/CFT  legislation  does  not  hamper  insurance  market   development.  the  Insurance  Commission  Circular  Letter  No.  New  Delhi  –  110  019.         15th  Floor.

 India   barrier  to  insurance  uptake.  This  recent  regulatory  development  recognised  the   low   money  laundering  risk  posed  by  insurance  and  especially  insurance  targeted  at  the   lowincome   market.         CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  changed  in  June  2008   to   exempt  insurance  from  KYC  requirements  if:  the  insured  value  is  equal  to  or  lesser   than   135  times  the  minimum  monthly  wage  (about  US$35  000)  and  if  the  maximum   bimonthly  premium  does  not  exceed  one  twelfth  of  the  minimum  monthly  wage   (amounting  to  about  US$21).  This  stipulation  was.  Eros  Corporate  Tower   Nehru  Place.with  a  prospective  customer  as  well  as  the  filling  out  of  a  detailed  form.  however.   presenting  a         15th  Floor.  New  Delhi  –  110  019.

        15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  Until  recently  such  agents  were  limited  to  NGOs.  New  Delhi  –  110  019.  but  nonetheless  has  an  important   impact  on   the  development  of  the  insurance  market.  Eros  Corporate  Tower   Nehru  Place.  self-­‐help  groups  and  non-­‐ profit   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   Efficient  and  low-­‐cost  payment  systems  are  an  important  facilitator  of   microinsurance   development:  The  structure  and  efficiency  of  the  payment  system  is  usually   determined  by  a   combination  of  bank  and  dedicated  payment  system  regulation  but  may  also   involve  other   legislation  such  as  that  governing  the  telecommunications  industry.   Microinsurance  agents  must  enter  into  a  “deed  of  agreement”  with  one  life  and/or   one  nonlife   insurer.  It  is  mostly   not  within   the  direct  control  of  the  insurance  regulator.

 Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  a   microinsurance   agent  cannot  distribute  any  product  other  than  a  microinsurance  product.  However.   Agent  categories  other  than  microinsurance  agents  may  sell  microinsurance  but   do  not   benefit  from  the  concessions  allowed  for  the  microinsurance  agents.MFIs  with  a  minimum  of  three  years  experience  in  working  with  low-­‐income   groups.  Eros  Corporate  Tower   Nehru  Place.     A  lack  of  co-­‐ordination  may  unintentionally  undermine  microinsurance   development:  The   development  of  the  microinsurance  market  is  influenced  not  only  by  insurance   regulation   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  such  as   rural  banks  and  for-­‐profit  MFIs  remain  excluded  (they  are  classified  as  corporate   agents).  In         15th  Floor.  For-­‐profit   entities.  India   March  2008  the  category  was  extended  to  all  non-­‐profit  entities78.

 India   failures  of  these  entities.  Eros  Corporate  Tower   Nehru  Place.  Often  the  best   intentions   of  the  insurance  regulator  can  be  undone  by  seemingly  unrelated  regulations   passed  by  a   different  regulator.  increasing  the  distrust  of  insurance  in  general  among  the   lowincome   population.  For  this  reason.  and  the  development  of  the  microinsurance  market  is   hampered  by  a   failure  to  co-­‐ordinate.  there  are  pending  proposals  in  the  Congress  that   seek  to  incorporate  pre-­‐need  plans  under  the  oversight  of  the  Insurance   Commission.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.but  also  by  the  policies  and  regulations  of  several  other  regulators.  The  country  studies  revealed  a  number  of  instances  of  co-­‐ ordination   failure:   ·∙ In  the  Philippines  insufficient  supervision  of  pre-­‐need  companies  has  led  to   several         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  Regus.

 India   by  intermediaries  (that  is  defined  as  deposit-­‐taking  by  the  RBI)  prevents  insurance   intermediaries  from  bulking  premiums  on  their  books.  New  Delhi  –  110  019.  This  was  never  intended  to  hamper   the   premium  collection  activities  of  non-­‐banks.  many  potential  low-­‐income  intermediaries  are  not   benefiting   from  this  exemption.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  a  lack  of  co-­‐ordination  between  the  RBI  and  IRDA  on  the  receipts  of   premiums         15th  Floor.   This  restriction  was  lifted  for  microinsurance  agents.  Regus.  Each  premium  must  be  paid   over   individually  to  avoid  falling  foul  of  the  prohibition  on  deposit-­‐taking  under  RBI   regulation   for  entities  that  do  not  have  a  banking  licence.  but  has  been  the  unintended   consequence.  Eros  Corporate  Tower   Nehru  Place.·∙ In  India.  but  given  the  limitations  of   the   definition  of  such  agents.

·∙ Co-­‐ordination  failure  also  characterises  the  provision  of  insurance  by   cooperatives  in         15th  Floor.  the  provisions  for  cooperatives  to  provide   insurance   under  the  Cooperatives  Act  require  them  to  register  as  insurers.  This.  Whereas  the  intent  was  (i)  to  create  a  new  institutional  form  for   communitybased   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   South  Africa.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  however.  The  Cooperatives  Act  that  came  into  effect  in  2007  was  drafted   without   sufficient  engagement  with  the  National  Treasury.  requires  that  entities  be  public  companies.   cooperatives   would  therefore  need  to  sacrifice  their  cooperative  form  should  they  wish  to   provide   insurance.  In  effect.  As  a  result.  which  is  responsible  for   insurance   policy  and  regulation.  Eros  Corporate  Tower   Nehru  Place.  Regus.   under   the  Insurance  Acts.

 New  Delhi  –  110  019.   A  significant  co-­‐ordination  challenge  also  arises  when  a  government  wishes  to   formalise  a   mainly  informal  sector  of  insurance  providers  (e.  Blanket  law  enforcement  is  largely  beyond  the   capacity  of   the  insurance  regulator.g.  both  of  these  objectives  failed  as  there  was  a  lack  of   cooperation   between  the  Department  of  Trade  and  Industry.  India   community-­‐based  insurers.  and  the  Treasury  which  is  responsible  for  insurance  regulation.  Regus.  even  if  a  conducive   regulatory   environment  has  been  created  for  their  formalisation.  which  developed  the   Cooperatives  Act.  Dealing  with  recalcitrant  operators.  Eros  Corporate  Tower   Nehru  Place.  cooperatives  in  Philippines  or   funeral   parlour  insurers  in  South  Africa).  usually  requires  co-­‐ operation   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.insurers  and  (ii)  to  reduce  the  burden  of  functional  regulation  on  these         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 local  authorities  and  health  authorities  (where  funeral   insurance  is   involved).         15th  Floor.3.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  South  Africa  faces  this  challenge  as  it  seeks  to  clamp  down  on  its  large   informal   funeral  parlour  market.  Eros  Corporate  Tower   Nehru  Place.7.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.between  a  number  of  government  departments.4.  India   revenue  authority.4.  including  criminal  law   enforcement.  Regus.  when  high  capital  or  other  regulatory   barriers  that   make  it  difficult  for  players  to  enter  the  formal  market  are  combined  with  limited   enforcement  capacity  it  incentivises  the  development  of  an  informal  market.       4.  Impacts  related  to  supervision  and  enforcement   A  high  regulatory  burden  combined  with  limited  enforcement  capacity   incentivises   informality:  As  noted  in  Section  4.

 despite  legislation  that  has  created  the   option  for   formalisation  of  these  entities  as  cooperative  insurers.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  a  large  proportion  of  funeral  parlours  are   believed  to   offer  insurance  products  not  underwritten  by  regulated  insurers.  limited  enforcement  capacity  has  resulted  in  the  development   of  an   informal  cooperative  insurance  sector.  the  limited  formalisation  options  for  member-­‐based  entities  as   well  as         15th  Floor.   ·∙ In  the  Philippines.       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.·∙ In  South  Africa.  New  Delhi  –  110  019.  India   the  limited  capacity  of  the  regulator  have  spawned  a  large  informal  market.  Eros  Corporate  Tower   Nehru  Place.  Furthermore.  There   are   estimated  to  be  between  80  000  and  100  000  burial  societies  with  only  a  few   registered   as  friendly  societies.

 Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  This  has  allowed  the  development  of   new   models.  India   consequence  of  limited  capacity  in  the  sample  countries  is  that  some  parts  of  the   markets   (particularly  higher-­‐risk  segments)  receive  more  regulatory  attention  than  others.  but  has  in  some  cases  also  led  to  abuse.  New  Delhi  –  110  019.   Reduced   or  absent  regulation  and  supervision  have  (unintentionally)  given  some   components  of  the   microinsurance  market  the  space  to  evolve.   ·∙ Regulatory  forbearance:  Examples  include  burial  societies  in  South  Africa  or   informal   risk-­‐pooling  societies  (damayan  funds)  in  the  Philippines  that  do  not  provide   guaranteed   benefits  and  are  therefore  regarded  as  outside  the  scope  of  insurance  regulation   (as  it  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.Microinsurance  often  evolves  in  regulatory  and  enforcement  gaps:  The  natural         15th  Floor.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   Though  they  should  technically  fall  under  the  ambit  of  intermediation  regulation.  supervisory  forbearance  means  that  entities  technically   incorporated   under  regulation  are  not  in  practice  supervised.   their         15th  Floor.not  deemed  to  constitute  “insurance”).  New  Delhi  –  110  019.   ·∙ In  the  same  way.  Burial  societies  make  up  an  estimated  60%   of  the   total  market  (formal  and  informal)  for  funeral  cover.  This  is  the  case  when  burial   societies  act   as  intermediaries  selling  formal  insurers’  products  to  their  members  in  South   Africa.  Regus.  Some  of  the  largest  burial   societies   have  evolved  to  the  point  where  they  are  able  to  formalise  their  activities  as   friendly   society  insurers.  Eros  Corporate  Tower   Nehru  Place.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 Ironically.  Eros  Corporate  Tower   Nehru  Place.  Most  burial  societies  will  not  be  able  to  comply  with  the  FAIS   regulation  and   the  supervisor  does  not  have  the  capacity  to  enforce  this.  rather  than  a  regulatory  clampdown.  thereby  exempting  them  from   intermediation   supervision.  New  Delhi  –  110  019.  many  MFIs  still  conduct  self-­‐insurance  without  being  supervised  for   insurance   purposes.  that  has   put  a   damper  on  this  practice.  it  has  been  the  market.sheer  number  and  perceived  low  risk  of  consumer  abuse  (as  they  are  small   membermanaged   organisations)  have  prompted  the  supervisor  to  consider  them  as  “client   collectives”  rather  than  as  intermediaries.  through  MFI  ratings  systems.         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  India   ·∙ In  India.   ·∙ The  negative  experiences  of  some  of  the  focus  group  respondents  with  pre-­‐need   companies  in  the  Philippines  have  undermined  their  trust  in  the  insurance  sector.   It  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 Eros  Corporate  Tower   Nehru  Place.5.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  Regus.also  estimated  that  at  least  half  of  the  22  000  cooperatives  provide  some  kind  of   inhouse   insurance.  Impact  of  macro-­‐economic  conditions  and  infrastructure     The  development  of  microinsurance  is  also  affected  by  the  general  macro-­‐ economic   conditions  in  a  particular  country.       4.  once  again  outside  the  reach  of  insurance  supervision.  The  following  examples  from  the  country   studies  are   worth  noting:     Growth  stimulates  insurance  take-­‐up:  Economic  growth  can  lead  to  increased   income  levels         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 Since  1999  the  Indian   insurance   sector  has  grown  from  a  single  state-­‐owned  life  insurance  company  and  a  single   stateowned   general  insurance  company  (with  four  subsidiaries)  to  15  life  insurance  companies   and  12  general  insurance  companies.     Privatisation/liberalisation  may  increase  competition:      Insurance  growth  in  India  is  also         15th  Floor.  New  Delhi  –  110  019.  This  has  led  to  increased  competition  that   has  placed   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  India   driven  by  the  recent  privatisation  of  the  insurance  industry.  In  India  the  recent  strong  growth  in   the   insurance  sector  is  correlated  to  high  levels  of  economic  growth  and  increased   incomes.  Eros  Corporate  Tower   Nehru  Place.that  in  turn  can  stimulate  insurance  activity.

      CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.downward  pressure  on  prices  and  has  stimulated  innovation  and  new  products.  New  Delhi  –  110  019.  It  must  be  noted  that  privatisation  and  liberalisation  do  not  necessarily   lead  to   increased  financial  inclusion  as  it  depends  on  the  broader  economic  context  and   the  manner   in  which  liberalisation  is  managed.   The  effect  of         15th  Floor.  Regus.  where  the   financial   sector  liberalisation  efforts  of  the  early  1990s  increased  competition  to  such  an   extent  that   insurers  and  banks  started  to  target  the  lower-­‐income  end  of  the  market  in  search   of   expansion.  India   liberalisation  on  the  insurance  industry  can  also  be  seen  in  Colombia.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.

 New  Delhi  –  110  019.  India   not  designed  to  cope  with  this.  high  levels  of  inflation  will  undermine  their  value   proposition.  Regus.  This  was  the  case  when  Uganda  experienced  hyperinflation  in  the   1980s.   undermined  trust  in  the  insurance  industry.  leading  to  very  low  levels  of  uptake  of   insurance.High  levels  of  inflation  may  undermine  the  insurance  value  proposition:  When   policies  are         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   In  the  Philippines.  Eros  Corporate  Tower   Nehru  Place.  The   destruction  of  the  value  of  policies.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  this  has  greatly  damaged  the  reputation  of  the  general  insurance   industry.  combined  with  the  devaluation  of  the   currency.  the  failure  of  pre-­‐need  companies  to  manage  the  impact  of  high   inflation   on  school  fees  has  led  to  several  company  failures  in  this  market.  Apart  from  the   direct  loss   to  policyholders.

 the   availability  of   retailer  networks.  such  as  roads.  Eros  Corporate  Tower   Nehru  Place.  mobile  phone  network  coverage.  India   Crises  destroy  trust  but  may  lead  to  better  regulation  and  increased   competition:  The   financial  sector  crisis  in  Colombia  at  the  end  of  the  1990s  illustrates  that  a   financial  crisis  can   also  be  a  positive  force  in  shaping  the  microinsurance  market  by  forcing  a   “regulatory  cleanup”   and  the  strengthening  of  cooperative  regulation.  social  and  commercial  infrastructure  aid  microinsurance   development   ·∙ Physical  infrastructure.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         15th  Floor.  Regus.  a  widespread  post  office  or  post-­‐bank  network  and  the  general   level   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.       Strong  physical.

 The  sample   countries         15th  Floor.  where  insurance  evolution  is   made  all   the  more  difficult  by  the  fact  that  the  overwhelming  majority  of  the  population   live  in   rural  areas  where  the  physical  infrastructure  is  undeveloped.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  is  particularly  illustrated  in  Uganda.  India   exhibit  varying  degrees  of  urbanisation.  but  with  the  exception  of  the  Philippines   more   than  40%  of  the  population  in  all  the  countries  live  in  rural  areas.  Eros  Corporate  Tower   Nehru  Place.  the   level  of   urbanisation  is  an  important  indicator  of  the  likely  distribution  challenges  for   insurance   providers.  As  payment   system   and  other  financial  sector  infrastructure  tend  to  be  centred  in  urban  areas.  Regus.  New  Delhi  –  110  019.of  urbanisation  all  provide  opportunities  for  insurance  distribution.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 In  South  Africa  the   extensive  banking  infrastructure.  In  India  and  Uganda   premium  collection  in  cash  increases  the  cost  of  distribution.  This  includes  the  banking  sector  footprint  and  the  efficiency  of  the   payment  system.·∙ Non-­‐insurance  financial  infrastructure  plays  an  important  role  in  enabling   insurance         15th  Floor.  Regus.  as  well  as  the  microfinance  sector  footprint.  Eros  Corporate  Tower   Nehru  Place.  The  Opportunity   Banking   Policy  in  Colombia  is  making  it  possible  to  harness  small  traders  for  premium   collection   through  its  “non-­‐bank  correspondent”  initiative.   Alternative   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  widespread  POS  device  network  at  retailer   chains  and   deep  reach  of  mobile  phones  is  opening  up  innovative  distribution  channels.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   transactions.  Alternative  distribution  through   the   payment  system  of  utility  companies  has  also  proven  fruitful.  New  Delhi  –  110  019.

distribution  infrastructure  in  turn  creates  opportunities  for  microinsurance   expansion.  MBAs  in  the   Philippines   or  the  cooperative  insurers  in  Colombia).   The  level   of  cohesion  within  communities  influences  the  spread  of  mutual  organisations.  Approach  to  carving  out  a  microinsurance  space   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   ·∙ Social  infrastructure  can  also  determine  microinsurance  market  development.  In   most   of  the  sample  countries.g.         15th  Floor.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       5.  Eros  Corporate  Tower   Nehru  Place.  such  mutual  organisations  play  an  important  role:  either   in  the   spontaneous  development  of  an  informal  insurance  market  (for  example  burial   societies   in  South  Africa).  Regus.  or  in  the  formalisation  of  microinsurance  (e.

 Regus.  Eros  Corporate  Tower   Nehru  Place.   The  approach  is  illustrated  in  Figure  16.This  chapter  details  how  a  regulatory  space  for  the  provision  of  microinsurance   can  be         15th  Floor.  based  on  the  underlying  risk  of  providing  microinsurance.  The  objective  is  to  limit  risk  in  a  step-­‐by-­‐ step   approach  that  will  allow  supervisors  with  limited  capacity  to  effectively  supervise   the   microinsurance  market.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  While  this   study   clearly  illustrates  that  the  creation  of  specific  microinsurance  category  in   regulation  is  not  a   prerequisite  for  the  development  of  a  microinsurance  market.  India   carved  out.  New  Delhi  –  110  019.  most  of  the   countries  in  this   study  have  migrated  to  some  form  of  microinsurance  definition  in  their  regulation   to  foster   market  development.

 Regus.  India   Microinsurance  can  be  defined  to  reduce  risk:  Evidence  from  the  sample  countries   suggests   that  there  is  a  fair  amount  of  consistency  in  the  nature  of  microinsurance  products   that  have   emerged  and  that  the  features  of  these  products  tend  to  limit  the  underwriting   risk  of  these   products  (see  Section  4.  It  is.1).  That  these   features  have   Width  =  Risk   All  potential  insurance  products  and  providers   Technical  risk:  Reduce  risk  by  narrowing  product   definition.  New  Delhi  –  110  019.  possible  to  use  these  features  to   develop  a  set  of   regulatory  definitions  for  microinsurance  that  will  limit  the  risk.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  therefore.           15th  Floor.  Most  MI  products  can  be  defined  to  ensure   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.

 Eros  Corporate  Tower   Nehru  Place.  Because  of  lower-­‐risk  product   definitions.  India   Operational  risk:  Reduce  risk  by  limiting  providers  to  those  who   are  capable  of  managing  the  risks.  Regus.  Defined  set  of  lower-­‐risk  microinsurance   products   2.  the  regulator  can  allow  smaller  and  less  sophisticated   entities  to  underwrite  and  intermediate  these  products   Supervisory  risk:  Reduce  risk  by  limiting  market  to  those  that  can  be   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  MI  market   supervised   within   supervisory   capacity         15th  Floor.  Limitation  on  those  who   may  provide  or   intermediate  microinsurance   3.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .lower  risk  while  still  meeting  needs  of  the  poor   1.

 a   simpler   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   capacity  ultimately  sets  constraints  the  market  that  can  be  effectively   supervised.  This  allows  them  to  be  managed  in  a  simplified  manner  and  with   lower   capacity.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Supervisory         15th  Floor.  New  Delhi  –  110  019.   Limited  product  definition  reduces  operational  risk:  The  limited  underwriting  risk   resulting   from  the  restricted  product  definition  reduces  the  operational  risk  of  managing  a   portfolio  of   these  products.  Eros  Corporate  Tower   Nehru  Place.  Having  narrowed  down  the  risk  in  1  and  2  makes  it  easier   for  the  supervisor  to  manage  risk  within  capacity   evolved  without  explicit  regulatory  restriction  suggests  that  restricting  products  in   this  way   should  still  allow  insurers  to  meet  the  needs  of  low-­‐income  consumers.supervised  within  supervisory  capacity  constraints.  Managing  the  risk  of  a  portfolio  of  short-­‐term  products  is.  Regus.  for  example.

 However.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  As  result.  smaller  entities   may  be  able   to  underwrite  such  products.  New  Delhi  –  110  019.  it   also  allows  for  simplified  regulation  and  supervision.  Eros  Corporate  Tower   Nehru  Place.  the  supervisor  may   be  able  to   allow  a  larger  number  of  such  entities  to  enter  the  market  as  these  require  less   capacity  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.           15th  Floor.task  than  managing  the  risk  of  a  whole-­‐life  portfolio.  Regus.  it  must  be  noted  that  some  level  of   restriction  on   entry  will  remain  as  minimum  standards  of  risk  management  would  need  to  be   met  by  the   potential  insurers.  As  a  result.  India   Reduced  underwriting  and  operational  risks  in  turn  reduces  supervisory  risk:  In   the  same   way  that  the  reduced  operational  and  underwriting  risk  allowed  for  simpler   management.

supervise.  As  a   result.  Some  of  the  issues  and  potential  responses  are  highlighted  below:   ·∙ There  are  other  risks  that  need  to  be  monitored.  India   This  is  not  a  simple  solution  and  will  require  careful.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   the  insurance  supervisor  does  not  always  have  the  mandate  to  ensure  that  these   entities   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  risk-­‐sensitive  design  to   implement   effectively.  Eros  Corporate  Tower   Nehru  Place.         15th  Floor.  Regus.  cooperatives  are  in  some  cases   regulated  by  the  ministry  of  agriculture  or  ministry  of  trade  and  industry).  such  as  the  risk  from  a   geographically   concentrated  portfolio  for  microinsurers  operating  in  a  specific  region.   ·∙ Institutional  supervision  of  specific  types  of  entities  may  fall  beyond  the  mandate   of  the   insurance  supervisor  or  its  governing  ministry  (e.  This  could   be   addressed  by  reinsurance.  New  Delhi  –  110  019.g.

are  sufficiently  regulated  from  an  institutional  and  governance  point  of  view.   Managing  and  evaluating  the  basic  set  of  microinsurance  products  allowed  may   require   a  fair  amount  of  capacity.  delaying  product  approvals.  and  industry  associations   can   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   deal  with  this  is  to  include  some  aspects  of  institutional  regulation  in  the  insurance   regulation  (for  example  setting  minimum  governance  requirements  that  exceed   that   required  by  the  basic  institutional  regulation).  New  Delhi  –  110  019.   ·∙ Product  regulation  may  introduce  its  own  set  of  capacity  requirements  and   problems.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Capacity  constraints  may  frustrate  market  development   by.  Eros  Corporate  Tower   Nehru  Place.   for  example.  File-­‐and-­‐use  processes  can  avoid  bottlenecks.  Regus.  One   way  to         15th  Floor.  The  system  should  be  carefully  defined   to   avoid  this.

 It  has  also  come  to   Treasury’s  attention  that  the  institutional  form  for  formal  insurance  provision  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  has  been  two-­‐fold:   ·∙ Need  for  an  access-­‐facilitating  regulatory  framework:  On  the  one  hand.  driven  by   the   National  Treasury.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.be  tasked  with  developing  the  product  definitions.  The  motivation  for  this  policy  move.       The  proposed  new  regulatory  regime  for  microinsurance  in  South  Africa         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  which  can  then  be  ratified  by   the   supervisor.   government  is   committed  under  the  Financial  Sector  Charter  to  remove  any  regulatory  obstacles   that   may  undermine  industry’s  efforts  to  reach  its  Charter  targets.  India   Background  and  rationale:  South  Africa  is  in  the  process  of  designing  a  dedicated   microinsurance  regulatory  regime.  New  Delhi  –  110  019.

 Many  funeral   service   providers  are  alleged  to  provide  insurance  illegally  (i.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  premiums  as  extremely  high  and  many  policyholders   do  not   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.e.  there  have  been  numerous   reports  of  consumer  abuse  in  the  low-­‐income  insurance  market.  New  Delhi  –  110  019.  Regus.  Consumer  abuse  has  also  been  reported  in  the  credit  life  industry.  India   notably  burial  societies  registered  under  the  Friendly  Societies  Act  in  South  Africa)   currently  providing  informal  insurance  cover  from  formalising.   where   practices  are  often  opaque.   ·∙ Concerns  about  consumer  abuse:  On  the  other  hand.  Eros  Corporate  Tower   Nehru  Place.  without  an  insurance   licence)  and   not  to  practice  sound  risk  management  or  benefit  pay-­‐out  practices.currently  constrained  and  that  this  may  prevent  some  mutual-­‐type  organisations   (most         15th  Floor.  to  the   detriment  of   policyholders.

 Eros  Corporate  Tower   Nehru  Place.       Regulation  tailored  to  risk  of  microinsurance:  The  route  taken  for  creating  a   dedicated         15th  Floor.  New  Delhi  –  110  019.  These  concerns  have  prompted  Treasury  to   reconsider   the  regulatory  framework  with  a  view  to  extending  the  regulatory  reach  and   encouraging  formalisation.  Regus.  This  is  in  line  with  the  regulator’s  risk-­‐based  approach   and  ensures   that  no  regulatory  concessions  are  passed  that  will  lead  to  unsound  insurance   practices.even  know  that  they  are  covered.       Definition  to  limit  risk:  The  first  step  in  creating  such  a  framework  is  to  define   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   microinsurance  framework  has  been  to  tailor  regulation  to  the  risk  associated  with   microinsurance  provision.

 for  example  weather-­‐related   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  definition  is   crafted  so  as         15th  Floor.  the  proposed  definition  to  limit  both  the  associated   prudential  and   the  market  conduct  risk  is:   ·∙ Benefits  capped  at  +/-­‐  $7.microinsurance  as  a  product  category  for  regulatory  purposes.  In   the   South  African  context.  Regus.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  India   to  limit  the  product  space  to  those  products  exhibiting  lower  risk  characteristics.000   ·∙ Term  of  less  than  12  months   ·∙ Limited  to  risk-­‐only   ·∙ Allowing  both  life  and  non-­‐life  underwriting  in  a  single  entity   ·∙ Simple  terms  and  conditions     Not  all  low-­‐income  market  products  will  qualify  as  microinsurance:  Note  that   there  will  still   be  products  of  relevance  to  the  low-­‐income  market.

 and  that  will  entail  a  tailored  prudential  as  well  as  market   conduct  regime.       Proposed  dedicated  regulatory  framework  for  microinsurance:  Once  such  a   definition  is   established.  Regus.   independent  of   90   institutional  form.  A   dedicated   microinsurance  licence  is  proposed  to  facilitate  entry  and  competition.  New  Delhi  –  110  019.  based  on  their  risk  characteristics.  regulation  can  be  tailored  to  the  microinsurance  product  category.agricultural  insurance.  which  will  fall  outside  of  the  definition  of  microinsurance   for         15th  Floor.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  but  only  by  conventional  insurers.  These  products  can  still  be   provided   to  the  low-­‐income  market.  Eros  Corporate  Tower   Nehru  Place.  India   regulatory  purposes.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  as  well  as  with  the   regulator  and   industry  role  players:   Underwriting  requirements:   ·∙ Limited  to  microinsurance  products  as  defined   ·∙ Upfront  capital  of  +/-­‐  $0.  New  Delhi  –  110  019.           15th  Floor.  vs  current:  $1.   proposed  concessions  were  tested  on  actuarial  grounds.5m  life.  Eros  Corporate  Tower   Nehru  Place.  friendly  societies  and  cooperatives   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  In  defining  these  regulatory   parameters.  $750k  non-­‐life   ·∙ Reserving  based  on  simplified  standard  model   ·∙ Reduced  organisational  capabilities   ·∙ Minimum  set  of  corporate  governance  requirements   ·∙ Registration  open  to  public  companies.5m.  India   Details  of  the  proposed  regulatory  regime:  The  following  tailored  regulatory   framework  has   been  proposed  for  microinsurance  in  South  Africa.

 Eros  Corporate  Tower   Nehru  Place.  This  is  the  first   step  towards   the  implementation  of  a  dedicated  regulatory  framework  for  microinsurance.  India   ·∙ Similar  regime  to  current  funeral  insurance  intermediaries:   ·∙ Reduced  minimum  skills  level  in  favour  of  training  requirements   ·∙ No  advice  required  (but  incentivised  through  commissions)   ·∙ Simplified  and  clear  language  disclosure   ·∙ Uncapped  commissions   ·∙ Reporting  to  regulator  for  monitoring   Regulatory  review  process  underway.         CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  These  proposals  are  contained  in  a   discussion  paper   released  by  National  Treasury  for  public  comment  during  2008.·∙ Restricted  investments  of  assets  to  limit  risk   Market  conduct  requirements:         15th  Floor.  Regus.  New  Delhi  –  110  019.

1.  Emerging  guidelines  for  microinsurance  policy.  regulation  and   supervision         15th  Floor.  purpose  and  objectives   The  goal  of  these  guidelines.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .6.  Eros  Corporate  Tower   Nehru  Place.  followed  by  an  outline  of  the   general   regulatory  approach  underlining  the  proposed  guidelines.  regulation  and  supervision   based  on  the   cross-­‐cutting  findings  presented  in  the  preceding  sections.  regulators  and   supervisors   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  which  are  based  on  the  cross-­‐country  lessons   emerging  from   the  country  findings.  India   This  section  presents  a  set  of  guidelines  for  policy.  purpose  and   principles   such  guidelines  need  to  adhere  to  are  first  outlined.       6.  Goal.  is  to  assist  insurance  policymakers.  New  Delhi  –  110  019.  The  goal.

 Regus.  It   therefore   excludes  social  welfare  as  well  as  emergency  assistance  provided  by  governments.   The  purpose  of  growing  microinsurance  provision  is  to  extend  financial  inclusion  in   the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.(collectively  referred  to  as  regulators  if  not  specifically  distinguished)  to  design   policy  and         15th  Floor.   potentially  provided  by  a  variety  of  different  providers  and  managed  in   accordance  with   generally  accepted  insurance  practices.  This  means  that  it  should  be  funded  by   premiums   and  managed  according  to  generally  accepted  risk-­‐management  principles.  Eros  Corporate  Tower   Nehru  Place.  India   regulations  and  supervise  compliance  in  a  manner  that  will  facilitate  the  growth  of   a  microinsurance   market  in  their  countries.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.   Microinsurance  is  defined  as  insurance  that  is  accessible  to  the  low-­‐income   population.

 Regus.  Eros  Corporate  Tower   Nehru  Place.   particularly  low-­‐income  consumers  currently  excluded  from  using  formal  financial   sector   services.  The  objective  of  financial  inclusion  is  that  individual  consumers.  New  Delhi  –  110  019.   the         15th  Floor.  Although   informal   community-­‐based  risk  pooling  mechanisms  (those  not  registered  with  the   insurance   supervisor  to  provide  insurance  to  the  public)  provide  low-­‐income  clients  with  a   risk   mitigation  option  and  need  not  necessarily  be  formalised  if  they  present  low  risk.  must  be  able  to  access  and  on  a  sustainable  basis  use  financial  services   that  are   appropriate  to  their  needs  and  provided  by  registered  financial  service  providers.   Insurance  provides  clients  with  a  market-­‐based  means  to  mitigate  material  risks   that  they   face.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Microinsurance  must  do  the  same  for  low-­‐income  consumers.insurance  domain.

 that  are  particularly  focused  on  the  low-­‐income   market.approach  of  these  guidelines  is  to  grow  the  formal  microinsurance  market.   both  domestic  and  foreign.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  regulators  should  pursue  the  following   general   objectives:   ·∙ Facilitate  both  outreach  and  formalisation.  ensuring  a  level  playing  field  for  big   and  small   players  where  they  seek  to  serve  the  same  market.  or  (iii)  encouraging  new   entrants.  (ii)  encouraging  existing  commercial  insurers  to  reach  out  to  lower   market   segments  (referred  to  in  these  guidelines  as  outreach).  This   can  be  done   by  (i)  formalising  existing  informal  providers  of  insurance  (referred  to  in  these   guidelines  as         15th  Floor.   To  develop  microinsurance  markets.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   formalisation).

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   ·∙ Adopt  risk-­‐based  regulation  by  tailoring  regulation  to  the  distinctive  risks  posed   by   microinsurance  products  and  intermediation.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  providers  and  distribution  channels  that  will  trigger  the   favourable   introduction  of  low-­‐income  clients  to  insurance  and  its  benefits.  Guideline  1:  Take  active  steps  to  develop  a  microinsurance  market   Explanatory  notes:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.             15th  Floor.·∙ Promote  products.       6.2.   ·∙ Minimise  the  regulatory  burden  on  underwriting  and  intermediation.2.  Guidelines  relating  to  policy  on  microinsurance  and  financial  inclusion       6.  Regus.1.

 As  a  result  of  regulatory  drift  or   inadvertent   regulation.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  both  formal  and  informal.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.In  most  countries.  India   provision  to  client  groups  (notably  low-­‐income  client  groups)  that  are  not  currently   served   by  formal  insurers  and  with  limited  exposure  to  any  other  formal  financial   products.  Insurers   either  consider  these  client  groups  unprofitable  (or  less  profitable  than  other   opportunities)   or  have  not  investigated  serving  these  markets.  may  also  be  subject  to  a  high   regulatory   burden  that  imposes  regulatory  costs  that  make  it  unprofitable  to  offer  low-­‐ premium   products.  developing  a  microinsurance  market  requires  the  extension  of   insurance         15th  Floor.  New  Delhi  –  110  019.  Regus.  insurers.

On  the  other  hand  low-­‐income  clients  pose  distinctive  challenges  that  need  to  be   overcome   before  they  will  make  a  voluntary  purchase  of  an  insurance  product.  undermining   the  sales  of   life  policies  with  future  cash  benefits.  the   sales  process  and  claims  payment.  India   knowledge  and  awareness  levels  mean  that  few  low-­‐income  consumers  are  aware   of  the   potential  benefits  of  insurance.  Low-­‐income  clients  also  show  a   disproportionately   high  distrust  of  insurers  and  insurance.  requiring  particular  attention  to  product   design.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Among   others.  the  high  discount  rate  applied  by   low-­‐income   people  causes  them  to  place  a  low  value  on  future  cash  payments.  Eros  Corporate  Tower   Nehru  Place.  low         15th  Floor.  New  Delhi  –  110  019.  Furthermore.  Yet  poor  people  are  much  more  vulnerable  to   the  impact   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.

 have  to  be  triggered  or  made  and   will  not   arise  through  natural  market  dynamics.   microinsurance  markets.  more  often  than  not.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  To  overcome  these  behavioural   challenges.  Many  households  that   have  clawed         15th  Floor.of  debilitating  life  events.  India   their  way  out  of  abject  poverty  have  been  cast  back  into  the  most  severe  poverty   through  an   event  entirely  insurable  within  their  means.  New  Delhi  –  110  019.  This  enables  regulators  to  initiate  market  development  actions  without   falling   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  asset  loss  and  health  setbacks.     Guidance  notes:   (1)  Confer  a  market  development  mandate  on  regulators  on  top  of  their  normal   supervisory   mandate.  Regus.

 market.  regulators  should  be  required  to   consider   and  minimise  the  negative  impact  of  regulation  on  market  development.  Informal  products  and  providers   usually   indicate  needs  in  the  low-­‐income  market  segment  that  are  not  being  met  by  the   formal   market  and  reveal  regulatory  and  other  obstacles  to  formalising  their  operations.  as  well  as  the  potential.  Regus.  New  Delhi  –  110  019.  Create  general   public   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.foul  of  their  statutory  mandate.  both  the  served   and   unserved  sections  of  the  population.  within  the  public  domain.   (3)  Consider  both  formal  and  informal  providers.  At  the  least.   (5)  Make  a  public  commitment  to  the  growth  of  microinsurance.   (4)  Place  information.e.  India   (2)  Understand  the  existing.  especially  representative  market  surveys  about  the  extent   and   characteristics  of  unserved  market  segments.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .         15th  Floor.  i.

 Monitor  general  market  development  and  respond  with  appropriate   policy   statements  and  regulatory  adjustments.  Regus.2.  and  ways  to  secure.  India   (6)  Allow  space  for  market  experimentation  while  monitoring  risk  to  the  market   and   consumers.  New  Delhi  –  110  019.  Guideline  2:  Adopt  a  policy  on  microinsurance  as  part  of  the  broader  goal   of   financial  inclusion   Explanatory  notes:   Public  policy  expresses  the  intent  of  government.  Eros  Corporate  Tower   Nehru  Place.  Public  and  private  sector  actors   alike  take   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.2.   93         15th  Floor.  microinsurance.awareness  about  the  potential  for.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       6.

 on  the  other  hand.  These  objectives  can  be  supportive.their  cue  from  the  declared  policy  of  the  government  in  power.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  or  conflicting.  India   provide  market  players  with  the  necessary  security  and  guidance  to  invest  with   confidence   when  the  regulatory  framework  may  still  be  uncertain  or  in  the  process  of   development.   The  policy  formulation  process  also  forces  regulators  to  align  microinsurance   policy  with   other  government  policy  objectives.  such  as  imposing  specific  taxes   on   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  This   is  often  the  case  for  microinsurance.  are   sanctioned  by   public  policy  to  spend  public  resources  on  microinsurance  development  initiatives.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  such  as  a   general   policy  to  promote  financial  inclusion.  Public  officials.  Explicit  policy   objectives         15th  Floor.

 it  also  mitigates  major   risks  for  the   creditor.  Regus.         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  While  credit  insurance   assists   debtors  to  discharge  their  debts  in  time  of  need  or  death.  cost  effective  and.  New  Delhi  –  110  019.  India   The  relationship  between  microinsurance  policy  and  the  government’s  general   approach  to   financial  inclusion  is  particularly  important.  a  client-­‐orientated  channel  to  both   develop   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  At  the  same  time  the   microcredit  (or  microfinance)  sales  process  provides  a  ready.financial  transactions  or  even  publicly  funded  social  protection  measures  that   undermine  the   provision  of  market-­‐based  risk  mitigation  products.  thereby  making  the  extension  of  credit  more  viable.  in   the  case   of  community-­‐based  microfinance  institutions.  Experience  shows  that  the   development  of   microcredit  and  microinsurance  are  mutually  supportive.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

  (2)  Consult  formal  and  informal  market  players.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       Guidance  notes:   (1)  Formulate  a  microinsurance  policy  that  is  appropriate  to  the  circumstances  of   the   country.  Regus.  New  Delhi  –  110  019.and  market  additional  microinsurance  products  that  meet  the  needs  of  low-­‐ income  clients.  as  well  as  other  relevant   government   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Avoid  the  adoption  of  template  solutions  from  other  countries  unless   these   have  been  shown  to  meet  the  needs  and  resources  of  local  market  conditions.         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  transaction  banking  services  directed  at  low-­‐income   clients  and   money  transfer  services  facilitate  the  intermediation  of  microinsurance.  India   Similarly  micro-­‐savings.

 India   and  institutional  regulators  (those  responsible  for  the  regulation  and  supervision   of  legal   persons  such  as  companies  and  cooperatives).  Regus.departments.  to  the  extent  that  this  exists.  the  revenue   authority.   (3)  Locate  the  microinsurance  policy  within  the  government’s  broader  approach  to   financial   inclusion.  These  may  include  other  financial  sector  regulators.  supervision   and  law   enforcement  with  other  regulators  responsible  for  the  promotion  of  financial   inclusion.  Co-­‐ordinate  policy  initiatives.   (4)  Base  the  policy  on  sound  information  about  the  market  and  its  evolution.  Leave   enough   scope  for  the  regulator  to  respond  to  market  changes  and  demand-­‐side  challenges   and   to  facilitate  innovation.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.         15th  Floor.

 the  policy  should  facilitate  both   outreach  by   existing  registered  insurers  and  formalisation  of  informal  insurers.       6.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   Profitable  microinsurance  operations  therefore  depend  on  least-­‐cost  underwriting   and   distribution80.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.94         15th  Floor.  Guidelines  relating  to  prudential  regulation       6.1.3.  Guideline  3:  Define  a  microinsurance  product  category   Explanatory  notes:   Microinsurance  products  require  small  premiums  to  be  affordable  to  low-­‐income   clients.  Regus.  India   (5)  If  a  substantial  informal  market  exists.3.

 in  jurisdictions  where  existing  insurance  regulation   imposes  a   higher  compliance  burden  or  is  more  restrictive.  Regus.  but  will  still  require  active   government   encouragement.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  it  is  less  likely  that  least-­‐cost   underwriting   and  distribution  can  be  achieved  within  the  existing  regulatory  framework.  In   these   jurisdictions  a  reduced  compliance  burden  –  both  prudential  and  market  conduct  -­‐   may  be   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  development  of  a  microinsurance   market  may   then  require  limited  or  no  regulatory  intervention.  New  Delhi  –  110  019.  the  likelihood  of  achieving  least-­‐cost  microinsurance  operations   within  the   existing  regulatory  framework  is  good.  However.  India   conduct  –  is  low.In  jurisdictions  where  the  overall  insurance  regulatory  burden  –  both  prudential   and  market         15th  Floor.

 New  Delhi  –  110  019.  Such  a  reduced   compliance         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  (ii)   policy   terms  tend  to  be  shorter  –  often  one  year  or  less.   Microinsurance  products  tend  to  entail  lower  risk:  (i)  benefit  values  are  lower.  avoiding  complex  underwriting  processes.  (iii)  the  risk  events  covered  are   relatively   predictable  and  the  financial  impact  of  each  event  relatively  small.  Regus.  Invariably  this  requires   the   regulatory  definition  of  a  microinsurance  product  category  that  entails   systematically  lower   risk.  Most   microinsurance   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.necessary  to  trigger  or  accelerate  microinsurance  development.  and  (iv)  the   terms  of  the   policy  tend  to  be  simple.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   burden  can  be  justified  only  on  the  basis  of  reduced  risk.

 Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.   The  income  level  of  the  prospective  policyholder  is  not  considered  a  viable  element   of  a   microinsurance  definition  since  the  verification  of  individual  or  household  income   is  too   expensive  and  often  of  suspect  integrity.  most  do.policies  are  sold  on  a  group  basis  and  do  not  require  individual  underwriting.  But   using   these  parameters.   Although  not         15th  Floor.  a  microinsurance  definition  can  be  crafted  that  entails   systematically   lower  risk.  Regus.  India   all  policies  sold  to  low-­‐income  clients  answer  to  these  characteristics.  The  actual  income  levels  of  the   policyholders  will   become  relevant  only  if  the  policy  premiums  are  subsidised  by  the  state  to  a   significant   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 with  longer-­‐ term  policies   being  more  risky  than  short-­‐term  policies.  will  differ  from  country  to  country.         15th  Floor.  or  maximum   value  to  be   written  under  a  microinsurance  policy.  Eros  Corporate  Tower   Nehru  Place.extent.  In   setting  this   maximum  benefit.  New  Delhi  –  110  019.  India   benefit  cut-­‐off  level  and  types  of  risk  events  that  are  included.   Particularly  in   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  policymakers  must  take  care  not  to  set  the  level  too  low.   The  key  parameters  for  a  national  microinsurance  definition  are  the  policy   contract  duration.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Policy  contract   duration  has  a   significant  impact  on  the  underwriting  risk  of  a  particular  product.  The  benefit  cut-­‐off  level.  Under  these  circumstances  governments  will  normally  require  more   precise   targeting  of  state  support  to  the  poorest  sections  of  the  community.

 and   (iii)  the   market-­‐making  and  innovation  dynamics  prevalent  in  the  particular  insurance   market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .countries  where  most  of  the  population  is  unserved  by  insurance.  India   how  the  relevant  risks  are  generally  managed  or  underwritten  by  the  industry.  the  maximum   benefit   should  be  set  as  high  as  possible.  notably  (i)  the  key  risks  low-­‐income   households  face.  Regus.  Both   life  and  non-­‐life  risk  events  threaten  low-­‐income  households  and  both  should  be   included  in   the  microinsurance  definition.  Eros  Corporate  Tower   Nehru  Place.  (ii)         15th  Floor.  constrained  only  by  the  inherent  risk  posed  by   the  benefit   size  and  the  need  for  a  lower  compliance  burden.  New  Delhi  –  110  019.   The  types  of  risk  events  to  be  included  in  the  microinsurance  product  category   should  be   determined  by  a  number  of  factors.  Life  and  non-­‐life  microinsurance  policies  tend  to  be   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

  Many  low-­‐income  communities  use  informal  risk-­‐pooling  schemes  to  mitigate   risks.  funeral  insurance  and  insurance  for  mobile   phones)  should   be  included  in  the  microinsurance  definition.  Eros  Corporate  Tower   Nehru  Place.  for  example  a  mobile  phone  or  a  future  funeral.   especially  to  cover  funeral  expenses.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .underwritten  on  the  same  basis  (on  a  group.  New  Delhi  –  110  019.  Regus.  From  a  market-­‐making  perspective.  To  facilitate  market   making.   these  policies  (such  as  credit  life.  short-­‐term  basis)  and  thus  justify   similar   treatment.  India   policies  are  sold  on  the  back  of  other  microfinance  services  or  linked  to  the  sale  of   a  product   or  service.  As  long  as  these  schemes  do  not  provide   contractually   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  experience  shows  that  most   microinsurance         15th  Floor.

 This  includes  the  extent  of  informal  insurance  provision  and   obstacles  to  the  formalisation  of  informal  providers.  Unless  these  schemes  are  subject  to  large-­‐scale  abuse  or   fraudulent  practices.  Regus.  India   ambit  of  microinsurance.  they  should  remain  beyond  the  scope  of  insurance   regulation.  Eros  Corporate  Tower   Nehru  Place.guaranteed  benefits.  New  Delhi  –  110  019.  The   limited  supervisory  capacity  should  instead  be  focused  on  insurance  proper.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       Guidance  notes   (1)  Determine  the  extent  to  which  the  current  insurance  regulatory  burden  inhibits   the   underwriting  and/or  distribution  of  insurance  products  that  are  appropriate  for   the  lowincome   market  segment.  they  fall  outside  the  definition  of  insurance  and  thus  also   beyond  the         15th  Floor.

 New  Delhi  –  110  019.  The   actual  term  should  be  set  in  line  with  industry  practices  and  client  needs.(2)  If  the  regulatory  burden  inhibits  the  growth  of  microinsurance  (and  cannot  be   reduced   across  the  board).   Provide  an   easy  mechanism  to  adjust  benefit  levels  to  keep  track  with  inflation  and  market   changes.   (3)  Define  the  microinsurance  product  category  as  wide  as  possible  (in  terms  of   both  risk         15th  Floor.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   (4)  Restrict  the  contract  term  of  microinsurance  policies.  for  example  to  twelve   months.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  define  a  microinsurance  product  category  with  systematically   lower   risk  that  will  justify  reduced  prudential  and  market-­‐conduct  regulation.  India   events  covered  as  well  as  maximum  benefit  levels)  to  enable  maximum  extension   of   insurance  penetration  and  integration  into  the  rest  of  the  insurance  market.

 New  Delhi  –  110  019.  Guideline  4:  Tailor  regulation  to  the  risk  character  of  microinsurance     Explanatory  notes:   Establishing  a  microinsurance  product  category  with  lower  risk  (refer  guideline  3)   allows  the   regulator  to  tailor  both  prudential  and  market-­‐conduct  regulatory  requirements  to   allow  for   lower-­‐cost  underwriting  and  distribution  targeted  at  the  low-­‐income  market.   While  a  lower   compliance  burden  is  essential  in  a  number  of  jurisdictions  to  ensure  the  viability   of   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.3.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS         15th  Floor.2.  Eros  Corporate  Tower   Nehru  Place.  India   .       6.(5)  Set  requirements  to  ensure  simplicity  of  terms  and  easy  communication  thereof   in  the   languages  used  by  low-­‐income  clients.  Regus.

 India   inadequate  solvency  requirements.  commensurate  to  the  risks   covered.   ·∙ Prescribed  risk-­‐management  systems.   Regulators  must  consider  tailored  requirements.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   ·∙ Prescribed  standards  on  investment  activities.microinsurance  operations.  Eros  Corporate  Tower   Nehru  Place.  will  undermine  the  growth  of  a  microinsurance   market.   A  balance  needs  to  be  struck  between  a  necessary  reduction  in  the  compliance   burden  and   the  maintenance  of  sufficient  standards  to  protect  clients  and  maintain  trust  in   the   insurance  industry.  the  failure  of  such  operations  due  to  inadequate   regulation.  New  Delhi  –  110  019.  Regus.   complexity  and  size  of  proposed  microinsurance  operations.  solvency  and  technical  provisions.  e.         15th  Floor.g.  in  the  following  areas:   ·∙ Capital  adequacy.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 Regus.   Option  1  is  to  provide  exemptions  from  existing  obligations  for  a  microinsurance   line  of   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Generally  jurisdictions  follow  one  of  two   approaches.  including  commission  capping  (see  guideline  8   below).  Eros  Corporate  Tower   Nehru  Place.  India   ·∙ Demarcation  between  life  and  non-­‐life  lines  of  business.  especially  the  extent  to   which   insurers  can  underwrite  both  life  and  non-­‐life  policies  within  the  microinsurance   product   category.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   ·∙ Market-­‐conduct  regulation.  including  the  extent  and   frequency  of   actuarial  certification.  New  Delhi  –  110  019.         15th  Floor.·∙ Prescribed  underwriting  systems  and  processes.   Regulators  can  reduce  the  regulatory  burden  in  one  or  more  of  these  areas.   depending  on   their  existing  regulatory  framework.

 This  would  typically  include   marketconduct   concessions.  for  example  exempting  the  microinsurance  product  lines  from   commission  caps  applicable  to  other  lines  of  business.  This  is  often  chosen  if  the  existing  legislation  confers  sufficient  powers  on   the   regulator  to  promulgate  exemptions  or  wide-­‐ranging  subordinate  legislation   (removing  the   need  to  approach  the  Parliament  or  Congress  to  pass  amending  legislation).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  Regus.  The  limitation  of  option   1  is  that  it         15th  Floor.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.business.   Existing  insurers   or  new  insurers  able  to  comply  with  the  existing  entry  requirements  are  then  able   to  offer   microinsurance  products  under  the  reduced  regime.  Eros  Corporate  Tower   Nehru  Place.  or  allowing  more  and   cheaper   distribution  channels  to  be  used  for  microinsurance  sales.

  Tailored  capital.  The  regulator   can  prescribe         15th  Floor.  solvency  and  investment  requirements  can  be  stipulated  to   facilitate  the   entry  of  smaller  institutions  wishing  to  participate  in  this  market.   Option  2  is  to  create  a  second  tier  of  insurance  licence  with  entry  and  other   regulatory   requirements  tailored  to  the  provision  of  microinsurance  (referred  to  as  a   microinsurance   licence).  New  Delhi  –  110  019.tends  to  limit  the  universe  of  microinsurance  providers  to  insurers  that  are  already   licensed   or  new  insurers  who  can  comply  with  often  onerous  entry  requirements.  This  usually  requires  more  extensive  regulatory  intervention  than  option   1.  Regus.  Eros  Corporate  Tower   Nehru  Place.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  and  also   provides  more  scope  than  option  1  for  regulatory  intervention  to  promote   microinsurance.

 and  because  single  channel   distribution  reduces   cost  and  promotes  positive  insurance  discovery.  The  same  provider  is  then  allowed  to  underwrite  both  life  and  non-­‐life   microinsurance  policies.risk  management  and  underwriting  systems  that  are  less  costly  and  within  the   capacity  of   smaller  operators.  Regus.  some  jurisdictions  are  moving   towards  the   removal  of  the  strict  demarcation  between  life  and  non-­‐life  business  in  the   microinsurance   sphere.  since  life  and  non-­‐life  microinsurance  business  is   often   underwritten  on  the  same  short-­‐term  basis.  Moreover.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       Guidance  notes:         15th  Floor.  New  Delhi  –  110  019.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.

  (3)  Design  the  microinsurance  regulatory  tier  to  be  attractive  to  both  existing   registered   insurers  and  potential  new  entrants.(1)  Consider  the  specific  regulatory  provisions  (as  opposed  to  the  overall   regulatory  burden         15th  Floor.  setting  the  entry  requirements  as  low  as  is   feasible.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.   (2)  Decide  whether  appropriate  exemptions  to  the  key  provisions  will  be  sufficient   to  deal   with  the  material  restrictions  or  whether  there  is  a  need  to  create  a  new  or  second   tier   of  regulation  that  provides  specifically  for  microinsurance.  to  facilitate  new  entry.   (4)  Develop  risk-­‐proportionate  rules  for  microinsurance  providers  that  are   reflective  of  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   given  the  microinsurance  risk  profile.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   –  refer  Guideline  3(1))  that  restrict  the  growth  of  microinsurance  provision.

 Regus.3.  to  maintain  the  strict  demarcation  between  life  and  non-­‐life  insurers.  allow  a  microinsurance  licence  holder  to  underwrite  both  life  and  non-­‐life   business.   If   possible.   As  these   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.     6.3.  New  Delhi  –  110  019.   pooling  resources  to  mitigate  the  risks  of  members  (often  low-­‐income  at  the  time).  Guideline  5:  Allow  microinsurance  underwriting  by  multiple  entities   Explanatory  notes:   In  developed  countries  many  of  the  older  insurance  companies  started  out  as   mutuals.  India   (5)  Consider  the  need.         15th  Floor.limited  business  risk  and  will  enable  the  participation  of  smaller  players  that  do   not  have   the  capacity  to  comply  with  one-­‐size-­‐fits-­‐all  regimes.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  within  the  microinsurance  business  line  and  if  applicable  to   the   jurisdiction.

 Where  this  is   part  of  the   social  structure  of  the  country.  Eros  Corporate  Tower   Nehru  Place.  either  through  in-­‐house   schemes  or  as   intermediaries  for  registered  insurers.institutions  grew.  This  is  built  on  high  levels  of  trust  among   members  as   opposed  to  the  general  absence  of  trust  in  commercial  companies  that  seems  to   prevail  in   most  developing  countries.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  New  Delhi  –  110  019.   Over  time   many  of  them  converted  into  companies  with  shareholders  rather  than  member-­‐ based   mutuals.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  member-­‐based  mutual-­‐type  institutions  tend  to   fare  better   than  traditional  insurers  in  offering  microinsurance.  In  low-­‐income  communities  this  process  is  repeating  itself.  the  sophistication  of  the  regulatory  framework  grew  with  them.         15th  Floor.

 will  benefit  from  even   limited   levels  of  insurance  supervision  since  many  of  these  in-­‐house  schemes  are   unsustainable.  the  “new”  member-­‐based  institutions  must  make  their  way   within  an   already  sophisticated  regulatory  framework  that  imposes  high  compliance   barriers.  Existing   regulation  often  makes  it  too  onerous  for  these  community-­‐based  mutuals  to   register  as         15th  Floor.  most  member-­‐based  institutions  who  underwrite  their  own   policies   rather  than  obtaining  underwriting  from  registered  insurers.  however.   They  are   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  or  insurers  owned  by  primary  cooperatives.This  time.  Yet.  India   formal  insurers.  Regus.  New  Delhi  –  110  019.   Some  of  the  most  successful  microinsurance  operations  -­‐  run  by  large  registered   insurers  –   are  those  of  secondary  cooperatives.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.

 In  a  similar  way.  such  as  a  companies  act  or  cooperatives  act.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  refer   guideline  4(4)  above).   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  Corporate  governance  regulation  is  normally  contained  in   institutional   regulation.         15th  Floor.able  to  leverage  the  networks  and  member-­‐bases  of  their  owner  cooperatives  for   costeffective   distribution.  Eros  Corporate  Tower   Nehru  Place.  or  in  regulations  issued   by  the   institutional  supervisors  (as  opposed  to  the  functional  supervisor  responsible  for   insurance).  India   The  primary  weakness  of  member-­‐based  institutions  tends  to  lie  in  weak  corporate   governance  and  inadequate  risk-­‐management  practices  (for  guidance  on  the   latter.  member-­‐based  microfinance  institutions  use  their   98   networks  and  detailed  client  knowledge  to  develop  and  sell  some  of  the  most   innovative   microinsurance  products  around.

    Guidance  notes:         15th  Floor.  Regus.  India   (1)  Allow  multiple  legal  forms  to  underwrite  microinsurance.  New  Delhi  –  110  019.  This  may  require  co-­‐ordination  with  other  government   supervisors  where  the  functional  (insurance)  supervision  of  the  different  legal   forms  falls   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  but  also  cooperatives  and  other  mutual-­‐type  or  member-­‐ based   legal  forms  more  suitable  to  smaller  and  community-­‐based  insurance  operations.  Eros  Corporate  Tower   Nehru  Place.  This  must  include  not   only   share  capital  companies  (stock  corporations)  or  other  legal  forms  appropriate  for   large   commercial  insurers.  This  will  ensure  a  level  playing  field  conducive  to  a  more   competitive  environment.   (2)  Ensure  that  institutions  that  underwrite  the  same  products  are  subject  to  the   same   regulatory  requirements.

 the  necessary   standards  can  be  included  in  insurance  regulation.  Where  the  standards   contained  in   the  current  regulation  of  the  different  legal  forms  are  inadequate.under  different  supervisors.         15th  Floor.  accounting  and  public  disclosure  standards  that  are  adequate  to   ensure   compliance  with  the  applicable  insurance  regulations.  which  imply  that  they  may  not  fit  into   traditional  methods  of  accounting  (IAIS.   Appropriate   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  2007b).  liabilities.   197):   “This  does  not  preclude  the  necessity  of  well  considered  methods  for  determining   current  and  projected  values  of  assets.  India   (3)  Ensure  that  all  institutions  underwriting  microinsurance  are  subject  to   corporate   governance.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  income  and  expense.  However.  According  to  the  IAIS  (2007b.  Eros  Corporate  Tower   Nehru  Place.  par.  note  that   microinsurance   programmes  have  unique  characteristics.

      6.  Eros  Corporate  Tower   Nehru  Place.   (4)  Enable  all  microinsurance  providers  to  access  reinsurance.  especially  those  simplified  methods  permitted  for  small  and   medium  size  enterprises  in  their  jurisdictions.  the  purpose  of  the   accounts   should  be  a  conservative  and  prudent  presentation  with  a  primary  focus  on   policyholder   protection”.  Regulators  should   consider   the  possibility  of  combining  their  regulatory  approaches  with  other  forms  of   general         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .disclosures  should  be  considered  in  the  plan  of  operations.  Guideline  6:  Provide  a  path  for  formalisation   Explanatory  notes:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.4.  Generally.3.  Regus.  India   purpose  accounting.

  Formalising  these  operations  is  in  the  public  interest.   Although  they  serve  a  valuable  social  and  economic  function.  Eros  Corporate  Tower   Nehru  Place.  They  also  enjoy  the  trust   of  low  income   clients.  These  unlicensed  providers  have  normally  emerged  in   response  to  real         15th  Floor.Many  countries  have  a  high  incidence  of  informal  insurance  provision.  the  limited   resources  of   insurance  supervisors  usually  make  this  difficult  to  achieve.  India   needs  for  risk  mitigation  within  low-­‐income  communities.  informal  operations   may  be   the  source  of  consumer  abuse  and  operations  may  fail  due  to  inadequate  risk   management.  Regus.  as  opposed   to   informal  risk  pooling.  However.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   99   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.

 capacity  building   support.   Experience  has  shown  that  market-­‐based  organisations.  triggering  consolidation  activity  or   partnering   informal  operators  with  formal  underwriters.  This  may  include  the  extension  of  amnesties  or  grace  periods.  Eros  Corporate  Tower   Nehru  Place.  Regus.  especially  microfinance   rating   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   including  training  of  owners  and  managers.Experience  shows  that  the  best  way  forward  is  to  define  a  clear  evolution  path   whereby         15th  Floor.  including  minimum  capital  requirements.  Supervisors  will  in  all   likelihood  also   have  to  adopt  a  more  entrepreneurial  engagement  with  the  informal  sector  to  aid   them   along  the  way  to  formalisation  or  co-­‐ordinate  with  other  government  functions   tasked  to  do   so.  New  Delhi  –  110  019.  India   informal  institutions  can  gradually  and  realistically  meet  the  minimum  regulatory   requirements.

  Throughout  the  formalisation  process.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       Guidance  notes:   (1)  Define  an  evolutionary  path  whereby  informal  insurers  that  have  the  potential   to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.agencies  (which  tend  to  reduce  the  ratings  of  microfinance  institutions  with  self-­‐ insured         15th  Floor.  India   insurance  portfolios)  and  dedicated  microinsurance  support  institutions  can  play  a   major   role  in  formalising  informal  insurance  operations.  the  supervisor  must  be  careful  not  to   overreach  its   capacity  or  make  idle  threats.  Both  of  these  will  undermine  its  credibility  and  thus   the   commitment  of  informal  operators  to  regularise  their  operations.  New  Delhi  –  110  019.  Regus.

 New  Delhi  –  110  019.         15th  Floor.become  registered  entities  for  the  delivery  of  microinsurance  (refer  Guideline  4)   can   formalise  their  operations.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  whereby  insurers  are   also   allowed  to  graduate  to  the  minimum  capital  requirements  over  time  at  a   prescribed   rate.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   ·∙ Provide  a  tiered  minimum  capital  and  solvency  structure.  Such  a  regulatory  framework  for  formalisation  can   include   the  following  features:   ·∙ Allowing  new  institutional  forms  more  appropriate  for  the  informal  provider’s   operations  to  underwrite  insurance  (see  Guideline  5).  This  will  also  help  to  avoid  unintended  regulatory  drift.  Eros  Corporate  Tower   Nehru  Place.  Regus.   ·∙ Mandatory  underwriting  of  all  or  certain  lines  of  business  by  larger  insurers  or   reinsurers   coupled  with  capacity  building  requirements  pending  the  commencement   of  own  underwriting  operations.

      6.  capacity  building  and  the  catalysing  or   recognition  of  industry  support  organisations  and  market-­‐rating  agencies.  for  example  law   enforcement  agencies  and  revenue  authorities.   This  can   include  awareness  campaigns.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Guideline  7:  Create  a  flexible  regime  for  the  distribution  of  microinsurance   Explanatory  notes:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.4.  New  Delhi  –  110  019.4.         15th  Floor.  whose  support  is  required  to   ensure   compliance  with  the  formalisation  regime.  Guidelines  relating  to  market  conduct  regulation       6.1.  Eros  Corporate  Tower   Nehru  Place.(2)  Take  appropriate  steps  to  both  support  and  compel  the  formalisation  process.  amnesties.  India   (3)  Co-­‐ordinate  the  formalisation  drive  with  other  state  agencies.

  CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  be  that  a  retailer  with   a  trusted   brand.   However.  New  Delhi  –  110  019.  Experience  also  shows  that  microinsurance  uptake  increases  with  the   level  of   100   trust  that  potential  clients  have  in  the  distribution  channel.  or   another  institution  such  as  a  religious  group  or  trade  union  of  which  the  person  is   a  member.  cost         15th  Floor.  a  bank  with  which  the  person  has  an  existing  banking  relationship.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .Low-­‐cost  distribution  is  essential  for  successful  microinsurance  development.  Eros  Corporate  Tower   Nehru  Place.  a  public   utility.  Regus.  India   is  not  the  only  criteria.  Distribution  channels  should  be  able  to  actively  sell  policies   to  clients   (see  Guideline  8)  and  deliver  policies  as  close  as  possible  to  where  low-­‐income   clients  live   and  work.

 it  is   difficult  to   predict  what  new  models  are  going  to  develop  at  what  point.  new  technologies  are  also  being  used  for  client  communication.Not  all  of  these  intermediaries  fit  comfortably  into  the  traditional  broker/agent   regulatory   definitions.  Moreover.  data   collection.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Neither  can  the  traditional  regulatory  requirements  applied  to   insurance   intermediaries.  India   Increasingly.  be  transferred  to  these   channels  with   the  same  ease  and  in  a  manner  allowing  for  low-­‐cost  intermediation.         15th  Floor.   premium  collection  and  even  the  payment  of  claims.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  Regus.  Different   approaches   are  required.  with  the  rapid  evolution  of  the  financial  system.  These  can  include  mobile   telephone   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  such  as  fit  and  proper  requirements.

 India   new  distribution  methods  to  grow  and  intermediate  insurance  for  low-­‐income   clients.  Substantial  benefits  can  come  from   allowing  these         15th  Floor.  POS  networks  and  the  internet.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .     Guidance  notes:   (1)  Allow  multiple  categories  of  intermediaries.  Appropriate  measures  to  control  market   conduct   therefore  need  to  be  put  in  place.  these  technologies  also  pose   their  own   risks  of  consumer  abuse  and  mis-­‐selling.  Eros  Corporate  Tower   Nehru  Place.networks.  their  inability  to  actively  sell  the  product  to  the  client  restricts  their   ability  to   create  new  markets.  As  with  other  passive  models.  Regus.  New  Delhi  –  110  019.   However.  Particularly  encourage  models  that   are  able   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 India   (2)  Avoid  prescriptive  regulation  that  restricts  the  design  and  nature  of  potential   intermediaries  beyond  what  is  required  for  risk-­‐management  purposes.  Increasing  monitoring  and  reporting   requirements  can  be  utilised  where  the  impact  of  models  are  not  clear  (see   Guideline  9).   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  This  bestows   joint   responsibility  on  the  insurer  to  ensure  that  its  policies  are  sold  without  consumer   abuse.  New  Delhi  –  110  019.         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .to  actively  sell  products  (see  Guideline  8)  or  at  least  are  able  to  verbally  disclose   critical   product  information  to  the  client.  Regus.   (3)  The  underwriting  party  must  have  a  formal  contractual  relationship  with  the   intermediary  that  outlines  the  respective  obligations  of  the  parties.  Business   models   and  technologies  are  changing  at  an  increasing  pace  and  regulatory  systems  need   to  be   designed  to  accommodate  changing  models.

4.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Guideline  8:  Facilitate  the  active  selling  of  microinsurance   Explanatory  notes:   Microinsurance.         15th  Floor.       6.  At  the  very  least  the  customer  must  be   able  to   lodge  a  complaint  and/or  channel  enquiries  via  the  POS.  is  sold  rather  than  bought.  similar  to  insurance  in  general.  Regus.  The  underwriter/  intermediary  must   provide   an  acceptable  consumer  recourse  option.  not  be  restricted  to  only  one  contractual   relationship   with  a  life  or  non-­‐life  insurer.   Experience  shows   that  voluntary  microinsurance  uptake  is  highest  when  it  is  actively  sold.  Eros  Corporate  Tower   Nehru  Place.  India   (4)  There  must  be  ease  of  consumer  recourse.  however.An  intermediary  should.  New  Delhi  –  110  019.2.   particularly  with   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 It  is  imperative  to  avoid  market-­‐conduct  regulation   that  can   make  the  individual  sales  process  too  costly.  In   each  of  these   101   cases.  In  many  jurisdictions  the  traditional   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.   One-­‐on-­‐one  sales  processes  may  provide  clients  with  good  information  on  the   product  but   are  expensive  and  can  easily  push  already  thin-­‐margin.  such  as  credit.  India   services.  with  the  exception  of  compulsory  insurance.  Eros  Corporate  Tower   Nehru  Place.  low-­‐premium   microinsurance   products  into  unprofitability.another  product  or  service.  future   funeral         15th  Floor.  the  insurance  value  proposition   has  to  be   explained  to  the  client  and  an  active  sale  made  in  order  to  achieve  take-­‐up.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  mobile  phones  or  other  financial  services  such  as  banking  services.  Regus.  goods  purchased  on  credit.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .agent/broker  model  that  relies  on  dedicated  insurance  professionals  to  do  the   selling  will  be   too  expensive  for  microinsurance  products.   A  particular  challenge  in  the  microinsurance  sphere  is  overcoming  the  lack  of   knowledge         15th  Floor.  This  is   best   overcome  by  standardising  or  commoditising  microinsurance  products  with  simple   terms   and  conditions.  easy  Access  and  decent  Terms).  Regus.  Eros  Corporate  Tower   Nehru  Place.  with  which   microinsurance   products  can  be  branded  to  facilitate  easy  recognition  by  clients.  often   referred  to   as  CAT  standards  (fair  Charges.  Some  countries  are  developing  a  microinsurance  standard.  New  Delhi  –  110  019.  India   that  most  potential  clients  have  of  basic  insurance  concepts  and  products.   Some  jurisdictions  have  resorted  to  some  form  of  price  control  on  commissions   payable  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 New  Delhi  –  110  019.agents  and  brokers  for  services  rendered  in  the  intermediation  of  insurance   policies.  India   Whereas  a  conceptual  case  can  be  made  for  such  controls  in  markets  with  very   limited   competition.  commission  caps  can  be  particularly   restrictive  in  the   microinsurance  environment.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  Eros  Corporate  Tower   Nehru  Place.         15th  Floor.  Moreover.  A  capped  commission  on  a  small  premium  may  lead   to  so   small  an  actual  payout  to  the  agent/  broker  that  it  does  not  justify  his  or  her  going   out  to  sell   the  product.       Guidance  notes:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  experience  shows  that  institutions  find  many  ways  to  circumvent   overly   restrictive  commission  caps.

  Specifically  avoid  market  conduct  regulation  that  imposes  per  transaction  costs  in   favour   of  those  that  support  developing  the  scale  of  distribution  required  by   microinsurance.  New  Delhi  –  110  019.   (2)  Develop  standard.  This  does  not  only  simplify  the   sales   process  but  also  ensures  that  the  general  level  of  knowledge  and  awareness  based   on  a   standardised  vocabulary  is  raised  with  every  sales  transaction.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   (3)  Ensure  minimum  disclosure  of  product  and  supplier  information  to  the  client.  If   possible.  simplified  terms  and  conditions  for  microinsurance  or   catalyse  the   development  of  such  standards  by  the  industry.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   product  category  without  compromising  consumer  protection  (refer  guideline  4).  Eros  Corporate  Tower   Nehru  Place.  Regus.(1)  Apply  the  lowest  possible  levels  of  market  conduct  regulation  to  the   microinsurance         15th  Floor.

 New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  require   microinsurance  providers  to  disclose  agreed  commission  levels  to  the  supervisor.  As  an  alternative.   because  it  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.5.  The  latter  is  as  important  as  the  first.encourage  this  to  be  done  verbally.1.  in  terms   of   prudential  and  market  conduct  requirements).  India   (4)  Avoid  price  controls  on  the  intermediation  process.5.  as  well  as  (ii)  the  supervision  and   enforcement  of  such  a  compliance  regime.  where  necessary.         15th  Floor.  Guideline  9:  Monitor  market  developments  and  respond   Explanatory  notes:   A  regulatory  regime  tailored  to  microinsurance  risk  entails  (i)  a  compliance  regime   as  set  out   in  the  guidelines  above  (an  adjusted  regulatory  burden.   102       6.  Regus.  Eros  Corporate  Tower   Nehru  Place.  Guidelines  relating  to  supervision  and  enforcement   6.

 Regus.  Eros  Corporate  Tower   Nehru  Place.  India   market  at  the  same  time  needs  space  for  innovation.   it  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.only  through  supervision  and  enforcement  that  a  regulatory  regime  becomes   effective.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  while  at  the  same   time   responding  to  areas  of  abuse  through  careful  market  monitoring.   The  supervisor’s  task  is  therefore  a  balancing  act:  to  implement  enforcement  in   such  a  way   as  not  to  make  conditions  overly  onerous  on  market  players.  the   microinsurance         15th  Floor.   While  effective  enforcement  of  regulation  by  the  supervisor  is  needed.  new  players  (guideline  5)   and  new   distribution  channels  and  technologies  (guideline  7).  For  this  purpose.  New  Delhi  –  110  019.  A  microinsurance  regime   needs  to   allow  for  the  emergence  of  new  products  (guideline  3).

 India   reality  of  limited  capacity  may  also  mean  that  some  areas  of  the  market  may   remain   completely  unregulated.  Regus.  New  Delhi  –  110  019.important  that  minimum  levels  of  information  must  be  submitted  to  the   supervisor.  Eros  Corporate  Tower   Nehru  Place.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  be  the  only  option  available  within   resource   constraints.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  therefore.  Directing  capacity  to  high-­‐risk  areas  while  monitoring   unregulated   areas  for  changes  in  risk  profile  may.  The         15th  Floor.     Guidance  notes:   (1)  Base  the  regulation  and  supervision  strategy  on  a  careful  assessment  of  the   areas  of  risk  facing  the  consumer  and  the  industry.   (2)  Prioritise  supervisory  capacity  according  to  this  assessment  –  targeting  high-­‐ risk   areas  and  in  line  with  the  capacity  of  the  supervisor.

 India   forbearance  or  prioritisation  can  be  adapted  to  changing  circumstances  and  risk   experience.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.       6.  the  supervision  of  certain  market  players  (such  as   primary   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.(3)  Complement  this  strategy  with  careful  monitoring  to  ensure  that  supervisory         15th  Floor.2.  supervisory  approaches   drawing  in   the  capacity  of  market  participants  and  other  entities  may  enhance  supervision.  Regus.   This  may   take  several  formats  and  should  be  designed  around  the  specific  conditions  and   entities  in   the  market.  Eros  Corporate  Tower   Nehru  Place.  For  example.  Guideline  10:  Utilise  market  capacity  to  support  supervision  in  low-­‐risk   areas   Explanatory  notes:   In  an  environment  of  constrained  supervisory  capacity.5.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  Eros  Corporate  Tower   Nehru  Place.  The  incentive  of  being   able  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.cooperatives)  may  be  delegated  to  entities  such  as  secondary/umbrella   cooperatives         15th  Floor.  the  supervisor.  or  be  monitored  by.  New  Delhi  –  110  019.  agent   training)  the  additional  cost  to  the  insurer  could  be  limited.g.  The  supervision  of  tied  agents  may   also  be   delegated  to  insurers  when  they  have  the  incentive  to  ensure  that  agents  are   appropriately   trained  and  behave  in  an  appropriate  manner.  India   providing  services  to  primary  cooperatives.   Such  a  strategy  can  reduce  regulatory  costs  and  capacity  requirements  as  it  does   not  require   every  single  intermediary  to  register  with.  If   this  is   103   designed  to  use  existing  business  processes  that  are  also  in  the  insurer’s  interest   (e.

 New  Delhi  –  110  019.  India   where  required.  Regus.  the   authority  for   regulation  and  supervision  is  retained  with  the  regulator  and  only  some  functions   are   delegated  to  the  support  agency.  the  increased  responsibility   delegated  to   the  insurer  should  not  discourage  them  from  using  legitimate  distribution   channels.  at  the  same  time.use  a  wider  pool  of  agents  may  also  compensate  for  increased  costs.  care  should  be  taken  to  ensure  that  incentives  for   rigorous   supervision  are  in  place  while.  Combined   with   appropriate  reporting  to  the  regulator.  Self-­‐regulatory  systems  are  more  complicated  to   design   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   Delegated  supervision  is  not  the  same  as  self-­‐regulation.  Eros  Corporate  Tower   Nehru  Place.  this  will  allow  careful  monitoring  and   intervention         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  In  this  example.  With  the  former.

and  require  specific  criteria  and  incentives  to  be  in  place  to  ensure  effective   supervision.  New  Delhi  –  110  019.   (2)  Clearly  delineate  roles  and  responsibilities  and  ensure  that  delegated   supervision  is  part   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.           Guidance  notes:         15th  Floor.  Regus.  delegate  aspects  of  supervision   of   certain  players  (for  example  intermediaries)  to  certain  other  market  players  (for   example   insurers).  India   (1)  Where  feasible.  Eros  Corporate  Tower   Nehru  Place.  according  to  the  assessment  of  the  risks  posed  by  various   spheres  of   underwriting  and  market  conduct  (guideline  9  (1)).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 India   (3)  Ensure  that  the  strategy  followed  limits  the  increase  in  regulatory  burden  for   those   entities  entrusted  with  delegated  supervision  and  that  the  strategy  indeed   decreases   supervisory  costs  while  remaining  effective  in  communicating  breaches  to  the   supervisor.         15th  Floor.  Regus.of  a  coherent  supervisory  strategy  rather  than  applied  in  an  ad  hoc  manner.”         CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.   (4)  Monitor  the  situation  and  back  it  up  with  an  effective  consumer  recourse   mechanism   (refer  to  guideline  7)  to  ensure  that  a  delegated  supervision  strategy  does  not  put   the   consumer  at  risk.

 New  Delhi  –  110  019.      Although  based  on  South  Africa  it  has  relevance  for    all  countries  in  regard  to  the   intermediary  role  in  Microinsurance.  .  India   justified  and  viable  where  the  margins  are  low  and  attention  is  focused  on  access   and  reducing  the  costs  of  distribution.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .Microinsurance  also  needs  to  be  looked  at  in  the  context  of  the  broker.  Eros  Corporate  Tower   Nehru  Place.  Paying   particular  attention  to  the  role    of  the  intermediary  and  whether  such  role  is         15th  Floor.  Again  I    quote  verbatim  form  the  paper         CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.       In  this  regard  the  paper  :  Brokering  change  in  the  low-­‐income  market  The  threats   and  opportunities  to  the  intermediation  of  microinsurance  in  South  Africa   Prepared  for  FinMark  Trust  and  the  Ford  Foundation  12  October  2006    Authors:   Hennie  Bester  Doubell  Chamberlain  Ryan  Short  Anja  Smith  Richard  Walker    is   most  instructive.  Regus.

 The  insurance  sector  recently  started  to  act  upon  this   realisation  by  re-­‐examining  the  insurance  needs  of  low-­‐income  households.     “EXECUTIVE  SUMMARY         15th  Floor.  including  the  access  targets   set  in  the  Financial  Sector  Charter  (FSC).  This  study  was  commissioned  with  the  goal  of   identifying  and  reviewing  the  threats  to  and  opportunities  for  the  intermediation   of  insurance  to  low-­‐income  (LSM  1-­‐5)  households  in  South  Africa.   Although  product  development  for  this  market  can  prove  challenging.  Regus.  Eros  Corporate  Tower   Nehru  Place.  This   change  in  focus  was  triggered  by  a  number  of  factors.  finding   appropriate  and  efficient  distribution  mechanisms  in  serving  the  low-­‐income   market  seems  equally  challenging.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  terms  of   reference  of  the  study  included  a  specific  focus  on  the  broker  as  an  intermediary   category  and  an  assessment  of  the  broker‟s  ability  to  successfully  sell  insurance   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  non-­‐insurer  players‟  entry  into  the  low-­‐ income  space  for  insurance  and  an  increasingly  contested  high-­‐income  market.  India   South  Africa  is  faced  with  the  challenge  of  extending  insurance  products  to  low-­‐ income  individuals.

 Following  on   from  a  summary  of  the  findings  we  will  note  the  market  and  regulatory  trends         15th  Floor.  The  first  section  will  briefly  look  at  some  of   the  fundamentals  that  are  important  for  the  discussion  to  follow.  India   shaping  microinsurance  intermediation.   but  encompasses  a  variety  of  administrative  and  intermediation  activities   necessary  to  deliver  the  product  to  the  customer.  describe  the   intermediary  framework  that  was  developed  in  this  study  and  note  the   segmentation  of  the  low-­‐income  market  into  groups  with  similar  distribution   characteristics.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  policy  and  client  management.  Regus.  Eros  Corporate  Tower   Nehru  Place.  premium  collection.   Understanding  intermediation.  From  this  we  will  identify  three  drivers  of   successful  intermediation  of  microinsurance  and  finally  answer  the  question  “can   the  broker  re-­‐invent  themselves  to  serve  the  lower-­‐income  market”?     FUNDAMENTALS   In  this  section  we  will  briefly  discuss  what  intermediation  means.  sales.  These  activities  include   marketing.  Distribution  is  not  only  limited  to  sales  activities.  policy   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.products  to  the  low-­‐income  market.  New  Delhi  –  110  019.

 Eros  Corporate  Tower   Nehru  Place.   ·∙ Independent  multi-­‐function  intermediaries.  Regus.  Intermediary   framework.  New  Delhi  –  110  019.  and   ·∙ Organised  low-­‐income  groups.  intermediation  and  a  technology  platform.  these  distribution  activities  may   be  conducted  by  various   xi   entities  and  the  roles  of  specific  entities  may  vary  from  case  to  case.  the  first  part  of  the  study  developed  a   framework  within  which  to  map  various  types  of  intermediaries.         15th  Floor.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Taking  into   account  each  category‟s  distinctive  features.   ·∙ Captive  multi-­‐function  intermediaries.  In  addition.  In  order  to  assess  the  differential  impacts  of  market  and  regulatory   forces  on  different  intermediaries.  The  major   components  of  the  distribution  channel  are  identified  as  the  risk  carrier.administration  and  claims  payment.  five  categories  of  intermediaries   were  identified:   ·∙ Brokers.   administration.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   ·∙ Captive  agents.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   ·∙ easy  to  reach.  „consistency  and  source  of  income‟  and   „availability  of  formal  point  of  access  for  insurers‟  (e.  product   adaptations  will  be  required.  Two  key  factors.  India   the  characteristics  of  the  low-­‐income  market.  These  groups  varied   from  those  that.  On  the  demand-­‐side.  and   ·∙ hard  to  reach.  are:   ·∙ easy  to  reach.  the  study  considered         15th  Floor.  Regus.  workplace).  but  where  incomes  are  inconsistent  and.  as  a  result.  for  the  purpose  of   assessing  distribution  potential.  Eros  Corporate  Tower   Nehru  Place.  The  adult  LSM  1-­‐5  population  is  not   a  homogenous  group  (consisting  of  19m  individuals)  and  was.g.   ·∙ not  easy  to  reach.   These  groups  were  then  described  in  terms  of  a  number  of  characteristics  relevant   to  distribution.Segmenting  the  low-­‐income  market.  With  this  information  the  study  was  able  to  evaluate  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  divided  into  groups  with  consistent  distribution   characteristics.  but  where  incomes  are  consistent.  were  used  to   categorise  the  adult  LSM  1-­‐5  population  into  four  groups.  from  a  distribution  point  of  view.

  CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  premium  collection  is  not  the  main   constraint  to  reaching  the  uninsured  as  they  are  already  accessing  other  formal   and  informal  networks  that  could  serve  as  potential  payment  collection  systems.  as  well  as.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   ·∙ 1.  some  of  the   threats  and  opportunities  to  microinsurance  intermediation.4m  people  who  have  store  cards/accounts.3m  people  who  have  a  pre-­‐paid  cell  phone.   xii   SUMMARY  OF  FINDINGS   This  section  will  include  the  major  findings  of  the  report.  Regus.  for  a  large  proportion  of  LSM  1-­‐5.  India   unserved  markets  within  reach  of  existing  formal  and  informal  client  touch  points.  and   ·∙ 2.  In  LSM  1-­‐5  there  are  the  following  groups   of  people  who  do  not  have  formal  insurance:   ·∙ 4.  Eros  Corporate  Tower   Nehru  Place.2m  people  who  have  bank  accounts.  New  Delhi  –  110  019.   As  a  result.  Opportunity:  The   review  finds  that  a  large  number  of  unserved  clients  are  within  reach  of  existing   formal  and  informal  client  touch  points.distribution  potential  of  the  four  groups  and  provide  an  overview  of  the  size  of         15th  Floor.   ·∙ 3.2m  people  who  are  members  of  burial  societies.

The  significant  numbers  of  people  accessible  through  existing  client  touch  points         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  both  formal  insurers  and  other   organisations  are  actively  targeting  the  low-­‐income  market.  but  have  yet  to  show  results.  New  cost-­‐effective  distribution  models  are   emerging.  It  is  thus  an  increasingly   competitive  environment  and  multiple  delivery  models  are  emerging.  but  by   perceived  opportunities  for  profit  in  this  market.  In  addition.  This  leads  to   growing  pressure  on  insurers  to  produce  better  value  propositions  and  gain   ownership  of  customer  groups.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  Traditional  (and  particularly  advice-­‐based)   intermediation  models  have  not  been  able  to  extend  significantly  into  LSM  1-­‐5   (even  before  FAIS)  and  have  been  limited  to  the  banked  and  employed.  India   shows  that  the  FSC  targets  are  well  within  „distribution‟  reach.  Growing  focus  on   the  provision  of  microinsurance.  Regus.  This  is  not  only  driven   by  the  Financial  Sector  Charter  (which  only  applies  to  formal  insurers).   Furthermore  the  cost  modelling  conducted  as  part  of  this  review  suggests  a   limited  role  for  the  advice-­‐based  sales  model  of  brokers  in  LSM  1-­‐5.  Eros  Corporate  Tower   Nehru  Place.

 rely  on  passive.  emerging  that  are  able  to         15th  Floor.  India   reach  LSM  1-­‐5.  do  not  provide  advice.  cell  phone.  able  to  serve  a  large  proportion  of  LSM  1-­‐5.  these   xiii   distribution  channels  extend  beyond  banked  and  employed  clients  and  are.  i.  It  is  sold  as  a  commodity.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  trend  to  client-­‐centric  rather  than  broker-­‐channelled   communication  has  been  facilitated  by  low-­‐income  consumers  coming  “on  grid”.  however.  These  models  are  able  to  collect  cash  premiums.  therefore.  In   addition.  Experience  shows  that  significantly  better   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  This  means  that   the  insurance  product  is  no  longer  sold  within  a  relationship.   therefore.  there  is  a  move  to  multiple  contact  points  to  deal  with  the  distribution  of   the  same  product  –  personal  contact.  Eros  Corporate  Tower   Nehru  Place.   tick-­‐of-­‐the-­‐box  selling  and.  a  standardised  product.e.  retail  or  other   point  of  contact.  The  ability  to  communicate  directly  and   immediately  via  a  very  popular  medium  (SMS)  has  increased  the  viability  of  non-­‐ debit  order  premium  collection.  The  emergence  of  the  tick-­‐ box  approach  points  towards  the  commoditisation  of  insurance.  especially  a   relationship  with  a  broker.A  number  of  new  intermediary  models  are.  New  Delhi  –  110  019.   especially  via  cell  phone  uptake.  Regus.  contact  centre.  Importantly.

payment  performance  can  be  achieved  by  sending  SMS  reminders.  which  can  be   generated  at  very  low  cost.  The  entry  of  these  new  models  could   have  a  double  impact.  a  potential   regulatory  backlash.  the  lack  of  even   disclosure  in  some  models  runs  the  risk  of  mis-­‐selling  and.  but  no  advice.  In  addition.  New  Delhi  –  110  019.  it  could  have  negative  repercussions  for  the   market  as  a  whole.  However.  especially  for  those  models  currently  providing  policy   disclosure.  If  the  models  currently  providing  no  advice  are  allowed  to   continue  operating  in  this  manner.  Regus.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   innovations.  Most  critical  is  the  concern  over  the  level   of  disclosure  provided  in  the  sales  process  and  the  fact  that  these  models  employ  a   passive  sales  methodology  expecting  clients  to  approach  the  distribution  points  for   insurance  rather  than  the  other  way  around.  little  penetration  has  been  achieved  beyond  funeral  insurance  and  it   is  not  clear  whether  these  new  intermediary  models  will  achieve  take-­‐up  as  they   are  faced  with  a  number  of  limitations.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  despite  all  of  these  improvements  and         15th  Floor.  as  a  result.  but  due  to  a  passive  sales  methodology  is  not  replacing  the  market   making  function  previously  fulfilled  by  brokers/agents.  It  is  pushing  market  makers  (brokers/agents)  out  of  the   market.  Eros  Corporate  Tower   Nehru  Place.

 where  it  is  by  far  the  largest  category  of  insurance  being  used.  Regus.  Regulation  has  placed  the  cost  of  advice   beyond  that  which  can  be  afforded  in  the  low-­‐income  market.  Funeral  and  non-­‐funeral   products.   Unlike  other  types  of  insurance.  particularly  amongst  the  low-­‐ income  market.  require  very  different  intermediation  approaches  to  succeed   in  the  low-­‐income  market.  traditional  advice-­‐based  intermediation  models  had  not  been   able  to  extend  significantly  into  LSM  1-­‐5.  India   introduction  of  FAIS.  therefore.  Even  before  the         15th  Floor.  the  latter  requires  active  selling.  Given  the  cost  of  conducting  advice-­‐ CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  There  is  an  innate  culturally-­‐driven   demand  for  funeral  insurance  in  South  Africa.  Whereas  the  former  can  rely  on  some  form  of  passive   selling.  New  Delhi  –  110  019.  It  is  unlikely  to  have   achieved  the  same   xiv   penetration  if  it  has  been  sold  on  a  voluntary  basis.  Eros  Corporate  Tower   Nehru  Place.Major  risk  for  market  players  to  generalise  observable  trends  in  funeral  insurance   to  hold  for  non-­‐funeral  insurance  products.  funeral  insurance  is.   Products  such  as  credit  life  insurance  have  achieved  penetration  based  on   compulsion  and  by  being  bundled  with  other  products.  bought  not  sold.  therefore.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

based  intermediation.  This  leads  to  a  conundrum:  To  go  beyond   funeral  insurance  in  the  low-­‐income  market  requires  active  selling  (e.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  therefore.  therefore.  Does  active  selling  mean  the  same  as   providing  advice?  We  argue  that  it  does  not.  ruled  out  by  increased   regulatory  cost  of  providing  advice.  The  result  is.  given  the  lack  of  clarity  on  this   distinction  (due  to  conflicting  regulatory  signals  from  the  FSB  and  FAIS  Ombud).  the  regulatory  review   suggests  that  guidelines  issued  by  the  regulator  implicitly  also  differentiate   between  “selling”  and  providing  advice.  Regus.  there  has  been  little  commercial  incentive  for  advice-­‐driven   intermediaries  to  pursue  this  market  and  the  introduction  of  FAIS  combined  with   the  debate  on  commission  restructuring  is  likely  to  remove  the  little  incentive   there  was.  that  the  only  active   selling  models  operational  in  the  market  are.g.  Yet  regulation.  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  advice-­‐based  selling  or         15th  Floor.  advice-­‐less  selling.   the  market  has  effectively  bifurcated  into  active.  In  fact.  New  Delhi  –  110  019.  Cost  modelling  conducted  as  part  of  this  review  suggests  that  it  is   unlikely  that  advice-­‐based  sales  model  of  brokers  will  be  able  to  profitably  serve   any  significant  proportion  of  LSM  1-­‐5.  by  combining  active  selling  with  advice.  proactive   human  interaction).  India   completely  passive.  Eros  Corporate  Tower   Nehru  Place.  However.

 this  study  concludes  that  it  is  unlikely   that  any  take-­‐up  beyond  funeral  insurance  will  be  achieved  in  the  low-­‐income   market.  However.   microinsurance  in  other  countries  has  been  distributed  through  microfinance   xv   institutions  (MFIs).  including  becoming  insurers  themselves.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  In  addition.  India   market.  Eros  Corporate  Tower   Nehru  Place.  but  confirm  that  multi-­‐function  models  are   required  to  achieve  scale  and  viability  at  low  premium  levels.  international   experience  suggests  that  insurers  are  not  guaranteed  a  permanent  distribution   mechanism  through  MFIs  as  there  are  also  other  options  available  to  MFIs  to   mitigate  credit  risks.   which  does  not  equate  to  providing  advice.  MFI  models  have  not  achieved  success  in  distributing   voluntary  insurance  and  are  limited  to  their  members.  it  is  not   clear  that  the  regulatory  space  for  non-­‐advice  will  continue  to  exist.  Regus.  And  while  non-­‐advice  is  pushing  advice  out  of  the  low-­‐income.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   International  microinsurance  developments  have  not  revealed  any  silver  bullets   that  can  be  applied  in  South  Africa.making  active  selling  more  expensive  and  beyond  the  reach  of  the  low-­‐income         15th  Floor.  Unless  some  agreement  can  be  reached  on  a  definition  of  “active  sales”.  New  Delhi  –  110  019.  Traditionally.  Furthermore.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  impact  of  the  increased   costs  have  not  yet  resulted  in  an  exit  out  of  the  market  as  the  focus.  none  of  the  international  intermediation  models         15th  Floor.  India   reviewed  relied  on  passive  sales  methodologies  but  employed  varies  means  and   mechanisms  to  actively  sell  products  to  potential  clients.  has   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.   MARKET  AND  REGULATORY  TRENDS  SHAPING  MICROINSURANCE   INTERMEDIATION     Based  on  the  market  findings  and  regulatory  analysis.  Significantly.  Regus.reinsurers  are  finding  new  ways  of  linking  directly  with  microinsurance  client   groups  and  placing  further  pressure  on  the  insurer  to  establish  its  value   proposition.  three  trends  are  identified   that  are  currently  shaping  the  intermediary  market:       Trend  1:  Opposing  regulatory  forces  are  increasing  cost.  bifurcating  the  market   and  risk  closing  down  intermediation  to  low-­‐income  markets  Regulation   increases  costs  and  these  costs  manifest  particularly  on  channels  providing  advice   and  on  smaller  and  less  sophisticated  intermediaries.  Eros  Corporate  Tower   Nehru  Place.  to  date.

 particularly  by  non-­‐traditional  intermediaries  (e.   retailers).  New  Delhi  –  110  019.  that  a  large  proportion  of  the  Category  A  intermediaries  may  not  be  able   to  reach  compliance  by  the  time  the  exemption  period  expires.  Indications  from  the  industry  are.  India   however.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The   space  for  non-­‐advice  intermediation  has  seen  the  entry  of  a  number  of  new  and   innovative  approaches.         15th  Floor.   xvi   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  separation  of  advice  and  non-­‐advice  selling  and  the  increased  cost   and  difficulty  of  advice  selling  will  result  in  advice-­‐based  channels  being  crowded   out  of  the  low-­‐income  market  and  companies  pursuing  the  lower  cost  option  of   non-­‐advice  intermediation.  many  of  the  lower-­‐ income  intermediaries  operate  under  the  exemption  provided  to  Category  A   intermediaries  that  will  be  ending  in  2007.been  on  registration  and  not  yet  enforcement.   Regulation  bifurcates  the  market  by  allowing  the  option  of  non-­‐advice  selling.  Furthermore.  These  passive  sales  models  have  not  yet  been  proven   to  be  successful  and  may  result  in  mis-­‐selling  if  intermediation  does  not  at  least   include  verbal  disclosure  as  a  minimum  requirement  of  client  interaction.g.  Regus.  Eros  Corporate  Tower   Nehru  Place.

 Eros  Corporate  Tower   Nehru  Place.  Controlling   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the   rulings  of  the  FAIS  Ombud  are  much  more  focused  on  consumer  protection.  New  Delhi  –  110  019.  The  legal  precedent  set  by  current  rulings  of  the  FAIS   Ombud  (mostly  on  higher-­‐income  cases)  suggests  problems  for  the  non-­‐advice-­‐ based  intermediary  models  and  certainly  raises  questions  on  whether  non-­‐advice-­‐ based  models  will  pass  the  FAIS  test.Given  that  the  models  attempting  to  serve  the  lower-­‐income  market  are  largely         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       Trend  2:  Controllers  of  client  groups  are  entering  into  intermediary  and   insurance  markets  Control  over  access  to  clients  is  increasingly  emerging  as  a   determinant  of  success  in  the  low-­‐income  market  for  insurance.  India   non-­‐advice-­‐based  and  are  crowding  out  advice-­‐based  models  in  this  market.  Regus.  there   is  a  substantial  risk  that  regulatory  rulings  against  non-­‐advice  selling  may  close   down  the  only  channels  operating  at  the  lower  end  of  the  market.  As  the   interpreter  of  the  FAIS  Act  the  Ombud  may  not  have  the  freedom  to  include  access   considerations  in  his  rulings.  Although  the   FSB  has  shown  sympathy  to  the  issue  of  access  and  have  made  adjustments  to   regulations  to  minimize  the  unnecessary  costs  on  low-­‐income  intermediaries.

  Legalwise  and  Real  People  Life).institutions.  such  as  low-­‐income  groups.  Pep  stores).  are  moving  down  the  value  chain  by:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  There  is  evidence   that  both  client  groups  and  insurers  are  trying  to  gain  or  establish  ownership  of   the  low-­‐income  client  base.  India   provides  a  volume  proposition  to  insurers  wishing  to  serve  the  low-­‐income  market.  New  Delhi  –  110  019.  A  large  concentration  of  clients  at  one  location         15th  Floor.  in  turn.g.g.g.   which  could  lower  the  costs  of  serving  this  market.  In  addition.  have  the  power  to  negotiate  the  terms  of   the  relationship  with  insurers.  Eros  Corporate  Tower   Nehru  Place.   Insurers.  Evidence  of  client  groups  trying  to  reinforce  ownership   of  low-­‐income  clients.  using  a  trusted   brand  in  the  provision  of  insurance  can  help  low-­‐income  groups  to  overcome  the   unfamiliarity  and  insecurity  of  a  new  financial  services  product.  Regus.  burial  societies  like  Great  North   Burial  Society)  in  the  insurance  space.   ·∙ players  with  existing  infrastructure  and  low-­‐income  client  concentration  entering   the  insurance  intermediation  market  (e.  and   ·∙ various  institutions  applying  for  long-­‐  and  short-­‐term  insurance  licenses  (e.  include:   ·∙ the  rise  of  organised  low-­‐income  groups  (e.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

  ·∙ developing  broker  support  systems  (e.  it  is  clear   that  models  operating  in  the  low-­‐income  market  will  rely  on  partnerships  with   entities  that  control  access  to  client  groups.   Based  on  the  review  of  intermediation  models  operating  in  South  Africa.g.  Regus.g.   xvii         15th  Floor.  Momentum  buying  Sage).  To  ensure  their  relevance  in  such   relationships  insurers  will  need  to  offer  a  clear  and  appropriate  value  proposition   to  low-­‐income  clients  and  to  controllers  of  client  groups.  and   ·∙ changing  their  client  focus  from  brokers  to  clients.  The  distribution  of  insurance   products  in  South  Africa  developed  in  such  a  manner  that  brokers  have  become   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.·∙ buying  distribution  channels  (e.  Eros  Corporate  Tower   Nehru  Place.g.  New  Delhi  –  110  019.  India   ·∙ re-­‐establishing  or  broadening  agency  forces  through  franchising  and  call  centre-­‐ support  (e.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Metropolitan  Life‟s  Retail  Enhancement  Initiative).       Trend  3:  Brokers  and  advice-­‐based  models  retreating  to  higher-­‐income  markets   Brokers  currently  dominant  in  high-­‐income  market.  Masthead  initiative  launched  by  Old   Mutual).

 therefore.  Regus.  New  distribution  channels   emerging  that  impact  on  high-­‐  and  low-­‐income  markets.  Given  the  reliance  of  insurers  on  broker  distribution.  Such  actions  could  effectively  result   in  a  situation  where  insurers  start  losing  clients  as  brokers  are  able  to  simply  move   their  clients  to  other  insurers.  Technological  and   distribution  model  innovation  have  led  to  the  introduction  of  new  lower-­‐cost   captive  and  independent  intermediary  models.  It  is.  expected  that  insurers  will  introduce  new   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New   captive  models  (e.  New  Delhi  –  110  019.g.   insurers  cannot  easily  introduce  alternative  distribution  channels  or  decrease  the         15th  Floor.  where  they   can.  Given  the  broker  hold  on  the  higher-­‐ income  market.  These  models  are  likely  to  impact   differently  on  low-­‐  and  high-­‐income  markets:   ·∙ Broker  dominance  slows  impact  of  new  models  in  high-­‐income  market.  India   prices  of  products  sold  through  such  channels.  insurers  cannot  easily  switch  to  the  new  channels  and.  Eros  Corporate  Tower   Nehru  Place.  call  centres)  present  the  insurer  with  low-­‐cost  strategies  that   also  provide  control  over  access  to  the  client.the  dominant  intermediaries.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  they  are  not  able  to  reduce  prices  through  the  lower-­‐cost  channel  without   risking  channel  conflict.  This  is  particularly  the  case  in  the  higher-­‐income   market  where  broker  distribution  is  dominant.

 India   models  may  be  limited  to  the  lower-­‐income  market.  As  it  gradually  builds   up  a  client  book  in  the  new  captive  channels.  Eros  Corporate  Tower   Nehru  Place.  Initially  the  retail  distribution         15th  Floor.  In  the  long-­‐run.  In  addition.  These  models  are  unlikely  to  enter  into  the  low-­‐income  market.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  insurer  will  reduce  its   dependence  on  broker  distribution.  they  are  likely   to  extend  upwards  into  higher-­‐income  markets  (similar  to  where  they  operate  in   the  UK  market).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .channels  gradually  and  without  undercutting  broker  pricing.  Regus.  In  the  absence   of  dominant  incumbent  channels.  a  market  in  which  they  are  likely  to  find  it  easier  to  operate  as   people  are  familiar  with  insurance.  New  Delhi  –  110  019.  These  models   utilise  the  no-­‐advice  space  and  will  effectively  exclude  brokers  from  the  low-­‐ income  market  (the  little  penetration  they  had).   ·∙ New  multi-­‐function  models  rapidly  entering  low-­‐income  market.  the  proposed   xviii   move  to  fee-­‐based  independent  advisors  may  result  in  further  competition  to  the   broker  market.  low-­‐income  markets  are  rapidly  adopting  new   (particularly  multi-­‐function  retail  and  low-­‐income  group)  models.

 India   mentioned  trends  in  the  high-­‐  and  low-­‐income  markets  will  be  increasing  pressure   on  overall  broker  market  share.  Regus.  The  implication  of  the  above-­‐       15th  Floor.  three  key  drivers  of  successful   intermediation  of  microinsurance  can  be  identified:   ·∙ The  ability  to  cost-­‐effectively  collect  premiums.  being  multi-­‐functional  will  help  to  reduce  the  costs  by  piggy-­‐backing   on  existing  infrastructure.  especially  cash  premiums.  brokers  may  find  themselves   confined  to  serving  a  smaller.  which.  This  will  be  facilitated  through  the  “touch  points”  referred  to  in  the   report.  In  the  long-­‐run.   DRIVERS  OF  SUCCESSFUL  INTERMEDIATION  OF  MICROINSURANCE   Leading  on  from  the  identified  trends.  Eros  Corporate  Tower   Nehru  Place.  and   pay  benefits.   ·∙ Active  selling  through  trusted  personal  interaction.Long-­‐term  market  share  of  broker  under  pressure.  insurance  in  the  low-­‐income  market  (with  the  possible   exception  of  funeral  insurance)  has  to  be  sold.  more  specialised  segment  of  the  high-­‐income   market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  Even  more  so  than  in  the   high-­‐income  market.

 it  must  be  noted  that  some  low-­‐income  risks  cannot  be  insured  simply   because  it  is  not  possible  for  the  insurer  to  manage  within  the  low  premium  value.  the  product  must  be   sufficiently  commoditised  and/or  simplified.  need  to  be   effectively  communicated  as  part  of  the  intermediation  process.  As  a  counterpoint  to  meeting  the   xix   needs.   the  nature  of  the  product  cannot  be  completely  removed  from  the  debate  about         15th  Floor.   The  intermediary  often  has  to  play  a  role  in  selecting  and  managing  the  risk   underwritten  by  the  insurer  and  the  extent  of  risks  to  be  managed  is  often   inversely  related  to  the  size  of  the  premium.  Finally.  While  perhaps  beyond  the  definition  of  intermediation.  the   value  of  the  product  and  how  it  relates  to  risks  faced  by  the  poor.  three  aspects  of  the  product  will  impact  on  the  ease   and  effectiveness  of  intermediation.  India   intermediation.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .·∙ An  appropriate  product.  Eros  Corporate  Tower   Nehru  Place.  Essentially.  Firstly.  cover  must  reflect  needs  and.  In  particular.  Secondly.  The  structure  and  complexity  of   products  directly  impact  on  the  nature  of  intermediation  required.  it  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  risk   has  to  be  manageable.  Regus.

 may  be   too  costly  relative  to  the  benefit  provided  in  the  low-­‐income  market.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  as  defined  by  regulation.  Eros  Corporate  Tower   Nehru  Place.   ·∙ While  the  complete  absence  of  disclosure  will  not  be  in  the  long-­‐term  interest  of   the  market.  the  study  has  argued  that  advice.         CAN  THE  BROKER  RE-­‐INVENT  THEMSELVES  TO  SERVE  THE  LOWER-­‐INCOME   MARKET?         15th  Floor.  New  Delhi  –  110  019.  In  considering  this   question.  India   A  central  question  posed  in  this  study  is  whether  it  is  possible  for  the  broker  to  re-­‐ invent  themselves  and  operate  in  the  low-­‐income  market.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  it  is   argued  that  disclosure  should  be  set  as  the  minimum  standard  rather  than  advice.  this  study  has  shown  that:   ·∙ The  bifurcation  into  advice  and  non-­‐advice  selling  will  result  in  non-­‐advice  selling   in  the  low-­‐income  market  and  advice-­‐based  selling  in  the  higher-­‐income  market.argued  that  a  simplified  product  with  appropriate  (calibrated)  disclosure  can   substitute  for  advice.  Instead.

·∙ The  cost  modelling  exercise  showed  that  brokers  will  find  it  difficult  serving  the   LSM  1-­‐5  market.  as   there  are  more  promising  avenues  to  pursue  in  other  independent  or  captive   advice  models.  advice-­‐based  sales  model   is  used.         15th  Floor.  BACKGROUND   This  document  presents  the  findings  of  a  review  of  threats  and  opportunities  to   the  intermediation  of  microinsurance  in  South  Africa.  We  conclude.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   1   1.  Regus.   ·∙ Broker  models  are  not  playing  a  major  role  in  the  intermediation  of   microinsurance  internationally.  Eros  Corporate  Tower   Nehru  Place.1.  therefore.  INTRODUCTION   1.  that  it   may  not  be  necessary  for  brokers  to  reinvent  themselves  to  serve  this  market.  New  Delhi  –  110  019.  India   This  raises  the  question  of  whether  the  broker  model  is  relevant  to  the  low-­‐income   market.  If  the  definition  of  a  broker  as  an  independent.  this  document  argues  that  advice-­‐based  intermediation  is  not  necessary   and  not  feasible  for  the  largest  part  of  LSM  1-­‐5.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 New  Delhi  –  110  019.  One  of  the  key  constraints   has  been  finding  appropriate  and  efficient  distribution  mechanisms.  India   and/or  accessible  by  the  poor1.  due  to  its  low  premium  values  and  high  take-­‐up  by   the  low-­‐income  market  can  be  considered  a  form  of  microinsurance.  Approximately  15%  of  low-­‐ CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.Microinsurance  can  be  defined  as  any  form  insurance  that  is  targeted  at.  In  terms  of   the  provision  of  funeral  insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  the  South  African  insurance   industry  did  not  actively  focus  on  the  servicing  of  the  low-­‐income  market  (with   some  notable  exceptions).  Until  recently.  Regus.  Such  insurance  is  relevant  to  the  poor  as  they  face   many  risks.  microinsurance  amongst  South  African  low-­‐ income  households  has  quite  a  high  penetration.   South  Africa  is  no  exception  to  this.  insurers  globally  are  slowly  finding  ways  of   extending  their  services  to  lower-­‐income  households.  which  threaten  their  lives  and  their  possessions  and  results  in  costly   interruptions  to  the  difficult  process  of  asset  formation.  Funeral  insurance.  Although  largely  still   limited  to  higher-­‐income  consumers.  used  by         15th  Floor.  Formal  insurance  presents   one  risk  mitigation  mechanism  which  could  support  the  management  of  these   risks  and  smoothing  the  household  asset  formation  process.  although  it  has  always  served  the  low-­‐income  market   by  default.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   has  been  the  result  of.income2  individuals  in  South  Africa  have  some  form  of  formal  funeral  insurance.  secondly.  India   formal  funeral  cover  (FinScope  2005).  Regus.  has  triggered  a  re-­‐examination  of  poorer   households‟  financial  needs.  however.  penetration  of  funeral  insurance  in  the  low-­‐income  market  is   quite  high.  However.  The  entry  of  non-­‐traditional   and   1  Microinsurance  is  not  only  limited  to  insurance  for  individuals.   The  low  penetration  of  other  formal  insurance  products3  in  this  market.  which  delineates  the   financial  sector‟s  (including  the  insurance  industry)  obligations  towards  previously   disadvantaged  and  low-­‐income  groups.   compared  to  21%  of  all  adult  individuals  in  South  Africa  that  have  some  form  of         15th  Floor.  firstly.  Eros  Corporate  Tower   Nehru  Place.  Compared  to  the  take-­‐up  of  microinsurance   in  other  countries.  the  Financial  Sector  Charter  (FSC)4.  the  absence  of  glaringly  obvious  profit   opportunities.  but  also  includes   insurance  products  developed  for  and  used  to  manage  the  risks  of  small   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  a  limited  understanding  of  the  financial  needs  of   individuals  with  low-­‐incomes  and.  New  Delhi  –  110  019.  Other  factors  have  also  led  to  a  renewed  interest  in   the  insurance  market  for  lower-­‐income  households.

  4  See  Section  5.   2   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  commercial  entities  and  non-­‐profit  organisations.  New  Delhi  –  110  019.  LSM  1  is  the  lowest  LSM.  2005).  2  For  the  purpose   of  this  study.  containing  the   poorest  individuals  in  terms  of  the  composite  indicator.enterprises.  India   government.  It  uses   location  (urban  vs.  Regus.  3  Other  (non-­‐funeral)  life  insurance  and  short-­‐term   insurance.  while  LSM  10  is  the   highest  category  and  contains  the  wealthiest  individuals  if  ranked  according  the   composite  indicator.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  ownership  of  household  assets  and  access  to  services  to   group  individuals  into  one  of  ten  potential  LSMs  through  calculation  of  a   composite  indicator  (Eighty20.  rural).  Microinsurance  also  extends  beyond  the  provision  of  insurance  by   microfinance  organisations  and  could  include  all  categories  of  providers  –         15th  Floor.  low-­‐income  individuals  are  those  that  fall  in  the  Living  Standard   Measures  1-­‐5.  Eros  Corporate  Tower   Nehru  Place.  The  Living  Standard  Measure  (LSM)  is  a  tool  used  to  segment  the   wider  South  African  market  according  to  individuals'  living  standards.

 India   access  to  financial  services.non-­‐insurer  players  has  increased  competition  and  may  have  hastened  a  “race  for   the  market”.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  On  the  other  hand.  Eros  Corporate  Tower   Nehru  Place.   providing  the  search  for  new  markets  with  greater  impetus.  The  South  African  experience  presents  an   interesting  case  study  of  the  interplay  between  multiple  (and  sometimes   conflicting)  developmental  policy  objectives  and  commercial  initiatives  to  extend         15th  Floor.  equally  justifiable  regulatory  challenges  around   consumer  protection  and  other  distribution  challenges  are  limiting  the  reach  of   commercial  players  and  forcing  a  rethink  of  both  policy  and  commercial   strategies.  New  Delhi  –  110  019.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  the  Financial  Sector  Charter  and  new   market  opportunities  are  pushing  financial  institutions  into  the  lower-­‐income   market.  The  rest  of  the  document  is  structured  as  follows:   ·∙ Section  2  presents  basic  distribution  concepts  and  discusses  the  impact  of   product  nature  and  design  on  intermediation  models.  On  the  one  hand.  Similar  to   international  experience.  while  higher-­‐income  markets  are  potentially  becoming  saturated.  distribution  in  South  Africa  is  a  major  challenge  to   expanding  access  to  microinsurance.

        15th  Floor.   ·∙ Section  6  reviews  international  trends  in  microinsurance  intermediation.   highlighting  interesting  examples  and  drawing  lessons  for  South  Africa.  New  Delhi  –  110  019.  Regus.·∙ Section  3  provides  information  on  the  current  intermediary  market  in  South   Africa.  its  key  characteristics  and  distribution  features.   ·∙ Section  5  provides  an  overview  of  relevant  regulation  and  highlights  the  impact   of  these  regulations  on  the  intermediation  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  but  that  different   demand  segments  with  varying  product  needs  and  distribution  characteristics  can   be  identified.  Eros  Corporate  Tower   Nehru  Place.  Section  8  concludes  by  summarising  the  findings  and  highlighting  the   threats  and  opportunities  to  microinsurance  intermediation  identified.   ·∙ Finally.   ·∙ Section  7  presents  our  findings  on  the  major  market  and  regulatory  forces   shaping  the  intermediary  market  and  what  this  means  for  the  future  of   microinsurance  intermediation  in  South  Africa.  India   ·∙ Section  4  presents  the  findings  of  a  market  segmentation  analysis  illustrating   that  the  low-­‐income  market  is  not  a  homogenous  group.

  1.  the  purpose  of  this  study  is  to  expand  access  to  microinsurance  for   low-­‐income  households.  this  means  improving  the  link  between   formal  risk  carriers  and  low-­‐income  customers.  excluding   corporate  and  commercial  business  and  excluding  intermediaries  that  currently  do   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.2.  India   reviews  the  threats  to  and  opportunities  in  intermediating  microinsurance  in  South   Africa.  the  limits  of  the  project  had   to  be  clearly  defined  to  focus  on:   3   ·∙ Distribution.  Regus.  PURPOSE  AND  SCOPE   Ultimately.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .Before  commencing  with  the  analysis.  Eros  Corporate  Tower   Nehru  Place.  To  achieve  this  within  the  scope  of  the  project.e.  the  study         15th  Floor.  as  well  as  some  nomenclature  that  will  be  used  in  the  remainder  of  the   document.  In  simple  terms.  We  limit  our  focus  to   products  and  institutions  relevant  to  lower-­‐income  households  (i.  More  specifically.   ·∙ Intermediation  models  relevant  to  the  low-­‐income  market.  New  Delhi  –  110  019.  we  outline  the  scope  and  limitations  of  the   study.  This  is  done  within  the  context  of  the  overall  insurance  market  and   products  distributed  and  this  context  is  noted  where  relevant.

  ·∙ Focus  on  long-­‐term  and  short-­‐term  insurance  (South  African  nomenclature  for   life  and  general  insurance).  Further  note   that  the  terms  of  reference  of  the  study  also  required  a  particular  focus  on  the   ability  of  the  broker  to  serve  the  low-­‐income  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  future  of  the  emerging   broker  is  thus  given  special  consideration.  This  does  not  suggest  that  medical   insurance  is  less  important  for  low-­‐income  households.   ·∙ We  also  believe  that  black  (or  emerging)  brokers  operating  in  the  lower-­‐income   market  deserve  particular  attention  as  they  operate  at  the  cusp  of  the  market  and   are  likely  to  be  the  most  drastically  affected  by  regulatory  changes.  Regus.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  Although  we  acknowledge  that  government         15th  Floor.  India   does  play  a  significant  role  in  mitigating  the  risks  faced  by  low-­‐income  households.  but  rather  that  medical   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  analysis  is  limited  to  mainly   long-­‐  and  short-­‐term  microinsurance  products.  While  some  regulation  impacting  on  the   intermediation  of  medical  insurance  is  considered.not  serve  the  lower-­‐income  market5).   our  analysis  is  limited  to  the  distribution  of  microinsurance  by  commercial  entities   and  non-­‐profit  organisations.

  CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   1.  Embedded  insurance.  Eros  Corporate  Tower   Nehru  Place.  due  to  its  hidden  nature   and  the  way  it  is  sold  by  many  retailers  in  South  Africa.  Interviews  were  the  most  important  and  useful   source  of  information  for  this  study.  A  wide  range  of  industry  players.  The  study  considerers  insurance  for  individuals  (on  their   own  or  as  part  of  groups)  and  not  SME  or  business-­‐specific  insurance.   ·∙ Insurance  for  individuals.  Standalone  insurance  (in  contrast  to  embedded  insurance  products)  is   a  major  microinsurance  challenge.   Although  not  exclusively  focusing  on  voluntary  products.  this  was  a  particular         15th  Floor.insurance  is  a  complex  market  requiring  additional  research  that  falls  beyond  the   scope  of  the  current  project.  India   focus  area.3.  retailers.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  intermediary  industry  associations  (brokers  and  others).   Meetings  with  industry  players.  METHODOLOGY   The  information  contained  in  this  report  was  sourced  through  a  variety  of  means.  Regus.  New  Delhi  –  110  019.  is  also  not  necessarily   considered  appropriate   ·∙ for  the  needs  of  low-­‐income  individuals.   ·∙ Standalone  and  voluntary  products  rather  than  embedded  and  compulsory.  including   insurers.

 The  information  contained  in  the  international   review  was  sourced  with  the  support  of  Enterplan.  insurance  innovators  and  representatives  of  low-­‐       15th  Floor.  The  review  is  based  on  a  review   of  existing  literature  and  telephone  interviews  with  a  variety  of  experts  and   players  in  the  international  insurance  market.  FinScope  20056  survey  data  was  used  to  create  a  nuanced   picture  of  the  demand-­‐side  and  the  different  groups  within  the  low-­‐income   market.  India   income  groups.   5  Where  relevant.   4   Existing  data  sources.  were  interviewed  between  January  2006  and  June  2006.  The  FinMark  Trust  was  created  in  March   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  regulators.  Eros  Corporate  Tower   Nehru  Place.  Regus.administrators.  See   Appendix  E  for  a  complete  list  of  individuals  and  organisations  interviewed.  Inclusion  in  the  study  will   be  based  on  the  expression  of  any  intention  to  enter  the  lower-­‐income  market.  International  review.  we  shall  consider  the  potential  of  such  institutions  to  serve  the   lower-­‐income  market  even  if  they  do  not  do  so  currently.  New  Delhi  –  110  019.   6  FinScope  is  a  national  household  survey.  underwritten  and  coordinated  by  the   FinMark  Trust.  It  is  focused  on  measuring  financial  services  needs  and  usage   across  the  South  African  population.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 policy  administration  and  claims   payment.  New  Delhi  –  110  019.  Its  mission  is  “making  financial  markets  work   for  the  poor”.1.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  policy  and  client  management.  it  is  necessary  to  clarify  some  terminology   and  provide  basic  context.  premium   collection.  sales.  GENERALISED  MODEL  OF  INSURANCE  DISTRIBUTION   Before  proceeding  with  the  analysis.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.2002  with  funding  received  from  the  United  Kingdom  Department  for         15th  Floor.  Distribution  is  not  only  limited  to  sales  activities  and  encompasses  a   variety  of  administrative  and  intermediation  activities  necessary  to  deliver  the   product  to  the  customer.  UNDERSTANDING  INTERMEDIATION   2.  Figure  1  presents  a  general  model  of  insurance   distribution  as  a  basis  for  the  rest  of  the  analysis.  Regus.   Figure  1:  Functional  model  of  insurance  distribution  Source:  Genesis  Analytics   adapted  from  Leach.   5   2.  These  functions  include  marketing.  FinMark  Trust  2005  Distribution  encompasses  a  variety  of   functions.  India   International  Development  (DFID).

 In  addition.  the  risk  carrier  is  most  often  a  registered   insurer.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .g.  New  Delhi  –  110  019.  present  specific  challenges  with  regards  to  distributing   microinsurance.   ·∙ Risk  carrier:  In  the  above  diagram.  Regus.  a  retailer).  different  cost  structures  or  different  incentives  and   may.  The  major  components  of  the  distribution   channel  are  identified  as  the  risk  carrier.  intermediation  and  a   technology  platform.         15th  Floor.  Figure  1  presents  a  picture  of  the  generalised   structure  of  insurance  distribution.  which  is  a  separate  legal  entity  formed  by  joint   venture  between  a  registered  insurer  and  other  entity  in  the  distribution  channel   (e.  Eros  Corporate  Tower   Nehru  Place.  In  some   cases.  the  risk  carrier  may  also  be  a  protected  cell  company  (PCC)  (or  cell  captive   as  it  is  known  in  South  Africa).  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  relevance  of  the  breakdown  of  activities  and  institutions   presented  above  is  that  different  institutions  and  functions  may  be  subjected  to   different  aspects  of  regulation.Various  institutional  components  and  permutations.  This  is  the  entity  that  in  the  final  instance  is  liable  for  the  risk.  these  distribution   activities  may  be  conducted  by  various  entities  and  the  roles  of  specific  entities   may  vary  from  case  to  case.  therefore.  administration.

 retailers.  claims  payment.   ·∙ Technology:  The  technology  platform  may  include  a  variety  of  technologies   ranging  from  sophisticated  electronic  solutions  using  of  cell  phones  to  social   technologies  in  the  form  of  premium  collection  through  self-­‐help  groups.  Regus.  captive  or  independent  agents.  policy  origination)  and  may  take  a  variety  of  forms  including  a  direct   sales  division.   Combination  of  institutional  and  functional  options  determines  defining   characteristics.g.  etc.  In  South  Africa.  India   policy  administration.   significant  cost  reductions  have  been  achieved  by  the  insurer  outsourcing  the   administrative  functions  to  a  specialised  administrator  entity.         15th  Floor.   premium  collection.  servicing  by  third  partiesPolicy  origination.  sales.TechnologyRisk  carrierAdministrationIntermediationCustomerMarketing.   ·∙ Intermediary:  The  intermediary  is  responsible  for  the  activities  that  rely  on  client   contact  (e.  New  Delhi  –  110  019.  policy  administrationDistribution  channel   6   ·∙ Administrator:  Policy  administration  may  be  done  at  the  level  of  risk  carrier  or   intermediary  or  may  even  be  outsourced  to  a  specialised  entity.  Various  permutations  of  institutional  and  functional  make-­‐up  are   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.

 standalone  and  voluntary  products.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  most   common  example  in  the  South  African  low-­‐income  market  is  credit  life  insurance   on  credit  purchases  of  household  goods.  standalone  products  are  sold   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Embedded   products  refer  to  cases  where  insurance  products  are  seamlessly  (and  often   opaquely)  integrated  with  other  financial  products  or  commodity  sales.   2.  Regus.2.   ·∙ Embedded  and  compulsory  vs.  Although  there  is  no  dedicated  analysis  of  products  distributed  to         15th  Floor.  IMPACT  OF  PRODUCT  NATURE  AND  DESIGN  ON  INTERMEDIATION  MODELS   Even  though  the  focus  of  this  document  is  on  distribution.  New  Delhi  –  110  019.  The  characteristics  of  products   distributed  have  a  significant  impact  on  the  cost  and  nature  of  distribution   mechanisms  required  and  utilised.  product  information  is  documented  in   the  discussion  of  models  and  case  studies.possible  and  the  particular  combination  of  institutional  and  functional  structure   and  the  relationships  between  the  various  components  determine  the  ultimate   features  of  a  specific  distribution  model.  India   lower-­‐income  households  in  South  Africa.  In  contrast.  it  is  impossible  to   separate  distribution  from  the  industry  structure  and  the  nature  of  products   distributed.  Eros  Corporate  Tower   Nehru  Place.

 but  not  completely  integrated.  Clients  need  to  be  sold  on  the  value  of  the  product  and  the   insurer  faces  risk  of  anti-­‐selection.  Volumes  are  not  simply  achieved  on  the  back   of  other  product  sales.  Complex  products  require  more  costly  and  time   consuming  distribution  methods.  While  the  former  holds  particular  appeal  to  insurers   (easy  to  achieve  volume.  low  risk  of  anti-­‐selection  and  low  administration  cost7).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   purchase  of  another  product.  Voluntary/standalone  products  are   much  harder  and  costly  to  distribute.  undermining  the  value  it  may  have  offered.  more  complex  products  may  require   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  In  addition.   ·∙ Complexity  of  the  product.as  financial  products  in  their  own  right  and  do  not  have  to  be  combined  with  the         15th  Floor.  Such  insurance  is  often  sold  without  the  knowledge  of  the   consumer.  The   distribution  challenges  for  these  different  types  of  product  combinations  are  quite   different.  Regus.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  rather  than   the  consumer.  it   has  often  been  used  to  the  benefit  of  the  credit  provider  and  insurer.  Bundled  products  fall   somewhere  in-­‐between  these  two  categories  where  the  insurance  product  is   closely  associated  with  another  product.

 Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .     3.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.         15th  Floor.   rather  than  the  actual  complexity  of  the  product.  funeral  insurance  pays  a  fixed  benefit  on  the   death  of  the  policyholder  or  covered  person.  for  example.  THE  SOUTH  AFRICAN  INTERMEDIARY  MARKET   Key  findings  from  Section  3   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  as  well  as   retrenchment  benefits.   8  Care  needs  to  be  taken  in  classifying  insurance  products  and  complex  or  simple.  may  in  fact  be  a  much  more  complex  product  than  a  pure   life  policy  (usually  classified  as  complex).  Short-­‐term  insurance  products  may  experience  multiple   claims  over  the  life  of  the  product  and  each  claim  may  require  some  level  of   verification  and  the  benefit  paid  varies  depending  on  the  level  of  cover  and  the   level  of  damage  incurred.  Product  complexity.  in  some  instances.higher  levels  of  consumer  education  as  the  consumer  is  often  unable  to  gain   sufficient  information  and  compare  products.  credit  life  with  temporary  and  permanent  disability.  India   ·∙ Servicing  requirements.  In  contrast.   Thus.   may  refer  to  the  complexity  of  the  sale  (whether  advice  from  a  broker  is  required).

  ·∙ Captive  agents.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   ·∙ Captive  multi-­‐function  intermediaries.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  and   ·∙ Organised  low-­‐income  groups.   ·∙ Independent  multi-­‐function  intermediaries.  These  models:   ·∙ Can  collect  cash  premiums.  Eros  Corporate  Tower   Nehru  Place.   ·∙ A  number  of  new  intermediary  models  are  emerging  that  extend  beyond  the   banked  and  employed  and  are  able  to  serve  LSM  1-­‐5.  New  Delhi  –  110  019.·∙ The  intermediary  market  can  be  categorised  into  five  distinct  categories  with   distinctive  features.   ·∙ Rely  on  tick-­‐of-­‐the-­‐box  selling  and  the  brand  of  distribution  partners.   ·∙ Cost  modelling  suggests  a  limited  role  for  the  advice-­‐based  sales  model  of   brokers  in  LSM  1-­‐5.  reach  and  regulatory  impacts:   ·∙ Brokers.         15th  Floor.  India   ·∙ Traditional  (and  particularly  advice-­‐based)  models  have  not  been  able  to  extend   into  LSM  1-­‐5  and  have  generally  been  limited  to  the  banked  and  employed.  Regus.

 As  noted  in  Section  1.   ·∙ Claims  processes  lag  sales  and  premium  collection  innovations.   ·∙ Although  the  new  models  will  place  the  products  within  reach  of  low-­‐income   customers.  limited  membership.  but  effective  manner.  Eros  Corporate  Tower   Nehru  Place.  The  findings  are  presented  in  three  parts:         15th  Floor.  it  is  not  clear  whether  they  will  achieve  take-­‐up.  and   ·∙ Use  technology  in  a  simple.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   ·∙ Some  models  rely  on  existing.   This  section  provides  an  overview  of  the  current  and  emerging  intermediary   market  for  microinsurance  in  South  Africa.  and   ·∙ Models  employ  a  passive  sales  model.·∙ Place  control  over  access  to  the  client  group  with  the  distribution  partner  (rather   than  the  insurer).  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  review   focuses  on  current  or  emerging  models  that  are  relevant  for  microinsurance   distribution.  Regus.   ·∙ Models  provide  product  disclosure  on  demand  rather  than  by  default.   ·∙ Products  still  mostly  limited  to  funeral  policies.  New  Delhi  –  110  019.

1  introduces  and  categorises  various  intermediary  models.  but  also  to  consider   the  different  regulatory  and  market  characteristics  of  the  various  categories.3  concludes  with  an  evaluation  of  the  microinsurance  distribution   potential  of  the  models  reviewed.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  categorisation  of  intermediaries  will  assist  in   illustrating  how:         15th  Floor.   3.   ·∙ Section  3.  Eros  Corporate  Tower   Nehru  Place.  MAPPING  THE  INSURANCE  INTERMEDIARY  LANDSCAPE   In  this  section.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.1.  More  specifically.·∙ Section  3.  the  broad  intermediary  landscape  in  South  Africa  is  categorised   and  discussed.  The  purpose  of  the  categorisation  exercise  is  to  create  an   intermediary  framework  that  allows  for  a  more  granular  understanding  of  the   market.  New  Delhi  –  110  019.   9   ·∙ Section  3.2  presents  the  findings  of  a  cost  modelling  exercise  assessing  the   viability  of  the  emerging  broker  model  under  different  scenarios  and  testing  the   feasibility  of  distributing  the  new  Financial  Sector  Charter  short-­‐term  and  long-­‐ term  insurance  products  through  emerging  brokers.  The  purpose   is  to  clarify  the  terminology  used  in  the  rest  of  the  document.

  ·∙ Low-­‐income  impact  may  differ  across  categories         15th  Floor.  allowing  us   to  better  explain  changing  power  balances  in  the  market.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  have  also  started  distributing  insurance.  recently  a  host  of   other  intermediaries.  However.  Nevertheless.  2003:  14).  and   ·∙ Different  categories  may  have  different  drivers  of  behaviour.1.·∙ Regulatory  impacts  may  differ  across  categories.   These  changes  are  not  unexpected  as  they  mirror  international  trends  (see  Section   6).   3.  such  as  retailers.  Regus.   Traditional  brokers  and  agents  have  always  been  the  dominant  intermediaries  in   the  South  African  insurance  industry.  India   ·∙ The  relationships  of  the  various  categories  with  insurers  may  differ.  recent  changes  in  markets.  technology  and  the  regulatory   environment  warrant  a  re-­‐examination  of  the  various  intermediary  categories  and   specifically  what  they  imply  for  the  distribution  of  insurance.1.  A  2003  report  estimates  that  independent   brokers  and  tied-­‐agent  sales  forces  are  responsible  for  more  than  90%  of  total   new  insurance  business  production  (Uys.  CRITERIA  USED  TO  MAP  THE  MARKET   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 is  bound  to  one  insurer.   this  criterion  relates  to  the  decision  or  choice  of  an  independent  intermediary  to   establish  a  relationship  with  one  or  many  insurers.   ·∙ Client  ownership:  This  criterion  assesses  whether  the  intermediary  has  control   over  the  client  base  or  control  over  access  to  the  client  base.   ·∙ Captive/independent:  An  independent  intermediary  is  free  to  sell  the  products  of   different  product  providers.  A  captive  intermediary  is  one  that   is  either  owned  by  the  insurer  or.  through  a  joint  venture.  New  Delhi  –  110  019.  Client  ownership   mostly  resides  with  the  party  that  controls  access  to  the  client.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   ·∙ Relationship  with  one  insurer/many  insurers:  This  criterion  is  distinct  from  the   first  criterion  in  that  an  independent  agent  may  still  opt  for  a  relationship  with   only  one  insurer.  India   between  different  intermediary  categories  in  South  Africa.  Eros  Corporate  Tower   Nehru  Place.Six  criteria  were  used  to  categorise  the  intermediary  market  and  distinguish         15th  Floor.  While  the  first  criterion  relates  to  the  contractual  relationship.  Regus.  The  level  of  control   has  implications  for  strategic  actions  that  can  be  taken  by  intermediaries  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  while  a  captive  intermediary  is  limited  (by  contractual   terms)  to  the  products  of  one  product  provider.  The  criteria  and  their   various  meanings  are  explained  below.

g.  or  can  lead  to  the  generation  of   profits  for  private  benefit  (for  the  insurer  and/or  intermediary).   ·∙ Private  benefit/member  benefit:  Product  sales  and  any  income  earned  in  the   distribution  process  can  be  to  the  benefit  of  client(s)  (see  Category  5:  Organised   low-­‐income  groups)  and  thus  for  member  benefit.  India   product  providers.  Ownership  will  mostly  determine  who  drives   the  product  innovation  or  design  process.  New  Delhi  –  110  019.  Where  an  intermediary  „owns‟  its  client  base.  However.  Eros  Corporate  Tower   Nehru  Place.  the  provision  of  banking  or  other  financial   services.  This  is  relevant  for  low-­‐income   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  selling  of  general  retail  products).   ·∙ Multi-­‐function/sole  function:  Certain  intermediaries‟  sole  function  is  selling   insurance.  while  others  combine  the  selling  of  insurance  with  other  activities  (e.       15th  Floor.  certain  intermediaries  might   choose  to  be  involved  in  the  product  design  process  even  if  they  do  not  own  the   product.   the  provision  of  funeral  services.   10   ·∙ Product  ownership/innovation:  The  product  can  be  owned  by  either  the   intermediary  or  the  product  provider.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  it  could  move  to   a  different  insurer  and  take  the  client  base  with  it.

1.2.  one  can  divide  the  intermediary  market  into  distinct   categories.  CATEGORIES   Applying  the  criteria  discussed  in  Section  3.  Regus.  usually  at  most  one  or  two  criteria  are  important  in  distinguishing  one   category  from  the  others.1.intermediation  as  multi-­‐function  intermediaries  are  able  to  share  costs  amongst  a   broader  range  of  activities.   Using  the  above  criteria.  New  Delhi  –  110  019.  and   ·∙ Category  5:  Organised  low-­‐income  groups.   ·∙ Category  4:  Captive  multi-­‐function  intermediaries.         15th  Floor.   ·∙ Category  3:  Independent  multi-­‐function  intermediaries.1.   3.  the  following  categories  of   insurance  intermediaries  can  be  identified  in  the  South  African  market:   ·∙ Category  1:  Brokers.  It   is  important  to  note  that  although  certain  criteria  may  be  the  same  across  a  few   categories.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   ·∙ Category  2:  Captive  agents.  In  addition.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  categories  will  also  be  matched  with  potential   distribution  groups  emerging  from  the  demand-­‐side  segmentation  in  Section  4.  Eros  Corporate  Tower   Nehru  Place.

 they  are  therefore  not  discussed  as  a  separate   intermediary  category.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .These  categories  are  described  in  the  sections  to  follow.  In  this  section.  they  do  sometimes  (especially  in  the  provision   of  funeral  insurance)  form  part  of  the  intermediation  chain  for  each  of  the   categories.         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  India   A  note  on  the  position  of  third-­‐party  administrators  (TPAs).  since  administrators  can  assist  in  the  functioning  of  any  of   the  intermediary   11   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  where  examples  of  each   category  are  also  provided.  Regus.  It  is  important  to  note   that  although  third-­‐party  administrators  can  play  an  essential  role  in  the   distribution  of  insurance  products.  while  the  absence  of  such  a  line  indicates   independence.  a  dotted  rectangle  around  the  intermediary  and  product  provider   indicates  a  captive  relationship.  The  categories  are  visually  presented  in  Figure  2.  In   Figure  2.  The  number  of  functions  performed  by  an  intermediary  (one  or   multiple)  is  indicated  by  the  lines  connecting  the  intermediary  to  the  client  and   their  relevant  captions.

 In  some  cases   problems  have  been  experienced  where  the  administrator  illegally  (fully  or  partly)   self-­‐insures  the  client  base.  although  the  risk  is  underwritten   by  an  insurer.categories.  India   primary  purpose  of  third-­‐party  administrators  is  to  provide  efficient  and  low-­‐cost   administration  of  policies.  and  so  forth.  The  third-­‐party   administrator  may  also  design  the  product  and.  Eros  Corporate  Tower   Nehru  Place.  Regus.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   they  normally  provide  a  link  between  the  insurer  and  the  intermediary.  while  underwriting   management  agents  (UMAs)  operate  in  the  short-­‐term  insurance  environment.  These  services  include  managing  policyholder  records.   It  is  possible  to  distinguish  between  two  types  of  third-­‐party  administrators.  In  cases  where  administrators  form  part  of  the  intermediation  chain.  New  Delhi  –  110  019.  In   contrast  to  administrators  that  tend  to  handle  purely  administrative  functions  on   behalf  of  insurers.  payment  of  claims.  the  functions  of  the  UMA  go  beyond  that  of  the  administrator   as  the  UMA  sometimes  accepts  risk  and  pays  claims  on  its  own  (not  merely  on   behalf  of  the  insurer)10.   Administrators  operate  in  the  life  insurance  environment.  effectively  manage  access  to  the  client  base.9  The         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   receiving  premiums.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  2005).  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  India   reach  of  each  of  the  intermediary  categories  is  indicated.Defining  likely  reach  of  the  categories.  rural).  while  the  blocks  containing   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  reach  is   defined  in  terms  of  specific  LSM  categories.   We  distinguish  between  two  types  or  levels  of  reach.  It  is  important  to  note  that  while  more   tailored  segmentation  tools  such  as  the  Financial  Services  Measure  (FSM)11  are   available  and  would  have  been  more  applicable  to  this  exercise.  In  each  instance.  The  Living  Standard  Measure  (LSM)  is   a  tool  used  to  segment  the  wider  South  African  market  according  to  individuals‟   living  standards.  The  shaded  grey  blocks  in   Figure  2  indicate  reach  in  a  post-­‐FAIS  environment.  while  LSM   10  is  the  highest  category  and  contains  the  wealthiest  individuals  if  ranked   according  to  the  composite  indicator.   containing  the  poorest  individuals  in  terms  of  the  composite  indicator.  In  the  following  sections  and  Figure  2.  ownership  of  household  assets   and  access  to  services  to  group  individuals  into  one  of  ten  potential  LSMs  through   calculation  of  a  composite  indicator  (Eighty20.  It  uses  location  (urban  vs.  we  have  stated   reach  in  terms  of  the  LSM  as  the  FSC  uses  this  segmentation  tool  to  set  its  access   targets12.  the         15th  Floor.  LSM  1  is  the  lowest  LSM.

 12  The  FSC  specifies   access  targets  in  terms  of  LSM  1-­‐5.  India   1998c).  2005:  32).   10  According  to  South  African  legislation  (Republic  of  South  Africa.  Regus.  CATEGORY  1:  BROKERS   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.1.  only  registered  insurers  and  reinsurers  can  carry  risk.  11  The  FSM  is  a  composite  measure  which  divides   individuals  into  one  of  eight  tiers  based  on  financial  penetration  (or  take-­‐up  of   financial  services).  Eros  Corporate  Tower   Nehru  Place.2.diagonal  lines  (in  addition  to  post-­‐FAIS  reach)  indicate  LSM  groups  that  were  also   reached  in  a  pre-­‐FAIS  environment.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   3.  attitudes  to  money.  however.  as  sometimes  done  by  an  underwriting  management   agent  (UMA).  physical  access  to  banks  and  their   connectedness  and  optimism  (FinMark  Trust.  Thus.  New  Delhi  –  110  019.  do  not  retain  their  traditional  role  and  may   evolve  to  become  intermediaries  or  insurers  in  their  own  right.  1998a  and         15th  Floor.  blocks  with  diagonal  lines  indicate   uncertainty  about  whether  the  intermediary  category  will  be  able  to  reach  into   that  LSM  group  in  a  post-­‐FAIS  environment.  raises  concerns.   9  Some  administrators.1.  The  acceptance  of  an   unregulated  risk  component.

 the  broker  represents  the  interest  of  the  client  and.  Products.  The  LSM  reach  of  brokers  is  dependent  on  specific  broker  examples.  Consequently.Description.  The  broker  is  an  independent  intermediary.  Access  to  the  client  is  usually  controlled  by  the  broker.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  Brokers  can   intermediate  any  type  of  insurance  or  financial  product.  while   the  product  provider  or  insurer  is  responsible  for  product  development  and   innovation  and  also  owns  the  product.  Category  examples  and   LSM  reach.   therefore.  e.  based  on  the  client‟s  specific  needs  and   the  characteristics  of  the  various  products  available.  Regus.  It   is  important  to  note  that  large  corporate  brokerages  are  not  included  in  this   discussion  as  they  are  not  currently  serving  the  low-­‐income  market  and  not  likely   to  do  so.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Income  is  usually  received  in  the  form  of   commission.  short-­‐term  insurance.  provides  independent  advice.g.  able  to  have  relationships   with  as  many  insurers  as  it  chooses  to  and  with  the  sole  function  of  selling   insurance  to  clients.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  discussion  is  limited  to  mainly  smaller  brokerages  and         15th  Floor.  although  some  choose  to   specialise  in  a  product  type.  See  Box  7  for  a  brief   discussion  on  the  issue  of  broker  independence.  Furthermore.

 below.  Eros  Corporate  Tower   Nehru  Place.  Box  1:  Case  Study:  Cre8  and   iKhaya  Protector  The  example  of  Cre8‟s  iKhaha  Protector  illustrates  the  impact  of   distribution  challenges  on  attempts  by  the  industry  to  create  innovative  products   for  the  low-­‐income  market.   ·∙ the  emerging  broker.  In  contrast.  Nature  of  the  organisation.  describes  the  difficulties  of   finding  a  distribution  mechanism  for  low-­‐income  products  and  the  inability  of  the   broker  to  successfully  distribute  these  products.  Cre8.  Box  1.  Four  broker  examples  are  briefly  discussed  in  the  following   paragraphs:   ·∙ the  traditional  broker.  New  Delhi  –  110  019.  the  research  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   ·∙ the  shared  brokerage.  and   ·∙ networked  brokers.standalone  brokers.  India   requirements  of  FAIS.  the  emerging  broker  often  derives  from  a  low-­‐ income  community.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   The  traditional  broker  serves  middle-­‐and  higher  income  clients  on  an  individual   basis  and  generally  is  able  to  quite  easily  comply  with  the  educational         15th  Floor.  has  fewer  or  lower  qualifications  than  the  traditional  broker   and  generally  sells  simpler  products.  Regus.

 iKhaya  Protector.  India   (actuarial)  information  that  can  be  utilised  in  insurance  product  development.  Creating  a  low-­‐ income  product.  ·∙ Managing  a  database  of  loss         15th  Floor.  2005).  including:  ·∙ Creating.development  division  of  Alexander  Forbes.  The  product.  and   ·∙ Providing  skills  development  services  in  the  area  of  underwriting.  New  Delhi  –  110  019.  iKhaya   Protector.000  and  a  maximum  insurable  value  of  R100.  Cre8  has  for  the  last  18  months  actively  been  trying  to  enter  the   LSM  1-­‐   15   3  market  with  an  appropriate  product.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  2006).  as  the  risks  associated  with   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.000  (Cre8.  is  specifically  targeted  at  the  owners  of   government  subsidised  entry-­‐level  homes  with  a  minimum  insurable  value  of   R30.  Eros  Corporate  Tower   Nehru  Place.  can  best  be  described  as  an  insurance   innovator  delivering  a  range  of  services.  It  designed  a  home  owners‟  insurance   product  specifically  for  this  market  and  has  used  local  municipality  facilities  to   assist  with  the  placement.  Regus.  marketing  and   managing  insurance  products  and  services.  The  main  challenge  has  been  successfully  distributing   the  product  –  to  date  only  6  policies  have  been  sold  (Botha  &  Small.  The  iKhaya   Protector  provides  insurance  for  house  structure  only.

 New  Delhi  –  110  019.this  product  first  need  to  be  thoroughly  tested  in  the  low-­‐income  market  before   venturing  into  other  insurance  product  categories  (such  as  household  content).  the  brokers  had  limited  success  as  the  policies  have  to  be   paid  upfront  and  in  cash.  Regus.         15th  Floor.  the  owners  of  government-­‐subsidised  housing  still  had  to   pay  a  certain  percentage  of  the  market  value  of  the  house  to  purchase  it  and   therefore  had  to  have  some  source  of  income.  Originally  the  product  was  distributed  through  the  KWASA   Development  &  Housing  Resource  Co.  2006a).  India   Whereas  two  years  ago.  2006).000)  with  them  (Botha.  that  acted  in  the  capacity  of  a  brokerage.  In  many  cases.  this  distribution  channel  is  no  longer  utilised.  payment  is  no  longer  required   (Botha  &  Small.  After  consultation   with  various  municipalities.  However.  the  owners  are  unemployed  and  often  also   unbanked.  the  product  was  sold  at  local  ward   meetings.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  allowing  brokers  to  reach  many  individuals  in  one  location  (Botha  &   Small.  Upfront  meetings  was  problematic  as  ward  meetings   were  held  in  townships  and  all  attendees  were  aware  of  the  fact  the  brokers   carried  cash  (as  much  as  R30.  Distribution.  In   order  to  limit  sales  and  transaction  costs.  2006).  A  key   obstacle  in  distributing  the  product  to  lower-­‐income  clients  was  the  absence  or   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.

 during  the  first  five  years  of   residency.  2006b).  As  the  houses  only   officially  belong  to  the  individuals/owners  after  they  have  resided  in  it  for  five   years.  India   entered  into  negotiations  with  the  national  government‟s  Department  of  Housing   about  the  possibility  of  the  Department  purchasing  the  product  on  behalf  of   government  subsidised  homeowners  (Botha  &  Small.  However.  the  houses  remain  the  asset  of  national  and  provincial  government  for  the   first  five  years.  2006c).  Cre8  was  recently  informed  that  the   Department  of  Housing  will  not  be  making  any  financial  contribution  to  the  rollout   of  this  insurance  product  (Botha.  The  idea  underlying  Cre8‟s  negotiations   with  the  Department  of  Housing  was  to  gradually.  Government  thus  has  an  insurable  interest  in  these  houses  for  their   first  five  years  of  existence.  It  was   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  shift  insurance  payment  responsibility  from  government  to  the   homeowner.  Regus.  Eros  Corporate  Tower   Nehru  Place.  This  period  of  migration  would  have  provided  an  opportunity  for   consumer  education.  2006).  Cre8.  New  Delhi  –  110  019.  subsequently.  2006).limited  realisation  (due  to  limited  financial  education)  by  low-­‐income  individuals   that  the  product  offers  them  real  value  (Botha.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Homeowners  would  have  been  familiarised  with  the  idea   and  importance  of  household  structure  insurance  (Botha  &  Small.         15th  Floor.

 Regus.  Auto  &  General  and  Sanlam  are  now  also   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  established   with  support  from  an  insurer13.  cash  collection  without  the  necessary  infrastructure   can  be  very  expensive.  but  Metropolitan  Odyssey.  brokers  are  also  clustering   to  share  in  regulatory  compliance  costs.  Eros  Corporate  Tower   Nehru  Place.  2006).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  it  would         15th  Floor.  Brokers  belonging  to  a  shared  brokerage   form  part  of  an  institutional  network  of  brokers.   Although  cash  collection  of  premiums  is  more  suited  to  the  economic  profiles  of   the  product‟s  target  market.   Communication  with  clients  (also  for  claims  resolution)  would  have  occurred   through  a  contact  centre.  New  Delhi  –  110  019.  India   mean  that  the  providers  of  iKhaya  Protector  would  have  access  to  a  database  of   homeowners  with  whom  it  could  interact  after  government‟s  responsibility  for   ensuring  appropriate  risk  cover  on  these  houses  ended  (Botha  &  Small.   16   In  addition  to  the  lone  traditional  and  emerging  broker.thought  that  if  the  deal  was  successfully  negotiated  with  government.  such  as  Masthead.  Cre8  is  continuing  its  search  for  appropriate  distribution   channel(s)  for  iKhaya  Protector.  but  premium  collection  remained  an  unresolved  issue.  Masthead  was  originally  launched  by  Old  Mutual   in  June  2004.

 Like  the  shared  brokerage.   However.  Asia.  Opportunity  International  is  a   network  of  microfinance  organisations  assisting  low-­‐income  individuals  in  the   elimination  of  poverty  through  the  provision  of  financing  for  income-­‐generating   activities.  New  Delhi  –  110  019.  Such  networks   allow  brokers  to  share  in  and  thus  limit  the  final  impact  of  compliance  cost.  the  Americas  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  It  has  operations  in  29  countries  in  Africa.  Eros  Corporate  Tower   Nehru  Place.   another  version  of  the  shared  brokerage  is  networked  brokers  who  independently   (without  insurers‟  involvement)  cluster  together  to  share  the  costs  of  certain   compliance  expenses  and  backroom  administration  activities.  brokers  have  to  pay  a  certain  percentage  of  their  income  to  the   network.  Regus.  In  order  to  share  in   these  benefits.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  network  limits  the  negative  financial   impact  of  regulation  such  as  FAIS.  India   negotiating  the  possibility  of  joining  Masthead  (Gunnion.  the  impact  of  the  shared  brokerage  on  the  broker‟s  independence  needs   to  be  questioned.   Whereas  the  shared  brokerage  is  mainly  driven  and  sponsored  by  insurers.participating  in  the  initiative.  Box  2:  Opportunity  International’s  Micro   Insurance  Agency  Opportunity  International.  Liberty  Life  is  still         15th  Floor.  According  to  media  reports.  2006).

 It   has  been  explicitly  articulated  by  these  organisations  that  a  type  of  catalyst   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  It   currently  has  an  outstanding  loan  portfolio  of  $180m.  Opportunity  International  is  currently  setting  up  a  Micro   Insurance  Agency  (MIA)  office  in  South  Africa.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .1.  the  Micro  Insurance   Agency  fulfils  a  more  permanent  role  in  the  economy  where  it  acts  as   broker/intermediary.  New  Delhi  –  110  019.  MIA  to  position  itself  as  innovative   intermediary  focused  on  low-­‐income  market.  South  African   microfinance  organisations  often  find  it  difficult  to  negotiate  directly  with  insurers   due  to  limited  experience  in  the  insurance  industry  and/or  lack  of  insurer  intent.  In  2002.  Rather  than   developing  insurance  products  on  a  once-­‐off  basis  for  MFIs.  Regus.  2006).  Opportunity         15th  Floor.  The  Micro  Insurance  Agency  in  South   Africa  will  facilitate  the  brokering  of  deals  between  micro-­‐finance  organisations   and  other  commercial  organisations  wishing  to  provide  insurance  to  their  clients.Eastern  Europe  and  has  managed  to  reach  850.2.5.   and  insurance  companies.  India   International  started  developing  insurance  products  as  a  response  to  the  needs  of   MFI  clients  in  Africa  (Leftley.  Opportunity  International  established   the  Micro  Insurance  Agency.  2006).  Eros  Corporate  Tower   Nehru  Place.  As  discussed  in  Section  3.  with  offices  in  a  few  countries.000  borrowers  (Leftley.  In  2005.

 removing  the   administrative  burden  from  both  the  MF  or  other  organisation  and  the  insurer.   management  information  system  (MIS).  Eros  Corporate  Tower   Nehru  Place.  India   would  be  very  useful  and  eliminate  many  difficulties.  Regus.  In  addition.  with  smaller  eMBUs  servers  placed  in  the  country  of   operation.   Competitive  advantage.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  However.2).  It  will  also  be  involved  in  the  market  research   process  to  identify  the  insurance  needs  of  various  organisations‟  clients  and  to.  create  products  able  to  fulfil  these  specific   needs.(organisational  or  individual)  in  making  the  initial  connection  with  an  insurer         15th  Floor.  MIA„s  function  will   not  be  limited  to  mere  negotiations.  Opportunity  International  has  invested  in  the   development  of  a  sophisticated   Insurers  form  the  main  drive  behind  shared  brokerage  initiatives  as  these   initiatives  generally  enable  them  to  regain  some  control  over  the  independent   broker  network  (see  Section  7.  Possible  clients  for  the  Micro  Insurance  Agency  NGO  microfinance   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  it  will  handle  all  policy  administration.  that  facilitates  the  easy  and  central   management  of  all  policies  issued  to  MFIs  and  other  partners  through  an  eMerge   server  placed  in  Denver.   with  the  cooperation  of  the  insurer.

 to  potentially  utilise  the  services  of  MIA.  As  mentioned  in  Opportunity  International‟s  business  case  for  a   microinsurance  intermediary  in  South  Africa.  India   sector.  the  NGO  microfinance  sector  in   South  Africa  is  relatively  small.  Regus.   SEF  has  decided  to  self-­‐source  its  insurance  (see  Box  6)  and  will  be  starting  the   roll-­‐out  of  insurance  projects  in  September  2006.  This  only  leaves  one  other   microfinance  organisations.  Once  the  client  base  of  this  MFI  has  been   successfully  established.       15th  Floor.  with  only  two  financially  sustainable  organisations   with  sufficient  scale  for  the  provision  of  insurance  two  clients.  SEF  and  Marang.  A  lack  of  possible  partners   in  the  NGO  microfinance  sector  will  require  the  MIA  to  move  beyond  its  traditional   business  model  and  create  partnerships  outside  of  the  MFI  sector  if  it  is  to  be   successful.  Large  commercial  microfinance   providers  such  as  African  Bank  and  Capitec  will  most  likely  be  able  to  broker  their   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  Commercial  microfinance  sector.   However.  Marang.  MIA  will  sell  insurance  policies  to  the  clients  of  the  MFI.  MIA  staff  members  do  not  see  the  success  of  MIA  being  dependent  on   the  take-­‐up  of  policies  by  the  commercial  MFI‟s  clients.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.   Opportunity  International  also  intends  launching  a  commercial  MFI  in  South  Africa   around  the  end  of  2006  or  early  2007.

 However.  This   makes  it  very  difficult  to  distribute  funeral  and  non-­‐credit  life  insurance  to  the   MFIs  clients.  Eros  Corporate  Tower   Nehru  Place.  India   their  product  offering.  Retailers  and  cell  phone  banks.   Wizzit  Bank  or  MTN  Bank.  A  further  risk  or   difficulty  in  servicing  the  commercial  microfinance  sector  is  the  fact  that  most  of   the  loans  issued  by  these  organisations  are  for  a  term  of  only  one  month.  New  Delhi  –  110  019.  as  well  as  partnering  with  retailers.  In  the  latter  case.  it   is  argued  that  while  large  retailers  such  as  Edgars  and  Shoprite  most  likely  have   the  capacity  to  broker  their  own  deals  with  insurers.own  deals  with  insurers  and  would  not  want  to  add  an  additional  cost  layer  to         15th  Floor.  Consolidation  implies  achievement  of  economies  in  scale.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  e.  Regus.  The  same   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   Opportunity  International  mentions  the  risk  of  consolidation  amongst  the   medium-­‐sized  MFIs.  The  business  case  for  MIA  also   mentions  the  possibility  of  partnerships  with  banks  using  mobile  technology.  in  its  business  case  for  MIA  in  South  Africa.   Under  such  circumstances.  other  small  retailers  (no   examples  provided)  might  be  more  in  need  of  assistance  for  the  MIA.  This  leaves  the  medium-­‐sized  MFIs14  as  potential  clients  for   the  Micro  Insurance  Agency.g.  the  resultant  MFI(s)  will  not  require  the  services  of  MIA   and  will  be  able  to  negotiate  its  own  deals  directly  with  insurers.

 Regus.  CATEGORY  2:  CAPTIVE  AGENTS   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  It  is  not  clear  where  the  MIA         15th  Floor.  It  seems   as  if  MIA.  this   selling  approach  and  thus  also  the  viability  of  the  MIA‟s  partnerships  are  at  risk   until  the  regulatory  uncertainty  around  tick-­‐of-­‐the-­‐   box  style  selling.  New  Delhi  –  110  019.  Although  MTN  Bank  does   not  currently  provide  insurance  to  its  clients.  like  most  of  the  retailer  insurance  models.  unless  it  is  able  to  assist  with  policy  administration   at  much  lower  prices  than  the  current  administrators.  India   would  fit  into  such  a  structure.  Eros  Corporate  Tower   Nehru  Place.  for  example.  will  be  relying  on  the   regulatory  gap  that  has  been  created  for  tick-­‐of-­‐the-­‐box  selling.     3.argument  that  applies  to  retailers  can  also  be  made  applicable  to  the  banks  using   mobile  technology.1.2.  its  Standard  Bank  affiliation  means   that  it  will  have  access  to  all  Standard  Bank  insurance  products  and  will  not   necessarily  require  a  third  party  to  help  broker  deals.  However.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Treatment  of  FAIS.  is  already  distributing  funeral   insurance  (obtained  from  African  Life)  to  the  Apostolic  Church  and  use  two   administrators  to  handle  all  policy  administration.2.  Wizzit  Bank.

 The  agent  provides  limited  assistance   with  administration.  Captive  agents  generally  receive  commission  on  products   sold.  India   with  the  client  through  the  agent.  Eros  Corporate  Tower   Nehru  Place.  The  LSM  reach  of  the  intermediary   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  although  some  insurers  have  salaried-­‐agent  forces.  The  nature   of  the  employer  company  will  determine  in  which  insurance  area  the  agent   specialises.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  insurer  owns  the  product  and  is  responsible   for  product  innovation  and  administration.  Captive  agents  are  intermediaries  that  have  an  exclusive  relationship   with  one  insurer  (i.  Depending  on  the  insurance  company  by  which  the   captive  agent  is  employed.Description.   once  they  have  built  up  a  large  enough  client  book.  Category  examples  and  LSM  reach.  The  insurer  is  able  to  access  the  client15.  gradually  start  to  transform   themselves  into  brokers.  New  Delhi  –  110  019.  Regus.  Most  brokers  start  their   careers  as  captive  agents  for  a  specific  insurance  company  and  after  a  few  years.  Products.  captive  agents  sell  any  form  of  insurance.  while  also  providing  them  the  chance  to   establish  relationships  with  a  sufficient  number  of  clients  before  establishing  their   own  businesses.e.  but  generally  only  interacts         15th  Floor.  contractually  bound)  and  whose  sole-­‐function  is  selling   insurance.  This  allows  agents  initial  exposure  to  and  learning  within   a  supportive  insurance  environment.

 worksite)  and  who  then.   ·∙ the  tiered-­‐agency  force.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  tries  to  sell  a  policy  to  the  prospective  client.  Regus.  and         15th  Floor.   ·∙ the  call  centre  agent.  Eros  Corporate  Tower   Nehru  Place.category  of  captive  agents  is  dependent  on  specific  agent  examples.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   recently  implemented  by  Metropolitan  Life)   Agents  can  sell  their  policies  through  a  variety  of  communication  channels.  India   ·∙ the  call  centre-­‐support  agency  force  (e.  The  reach  of  the   traditional  agent  is  generally  limited  to  LSM  6-­‐10.  Four   agent/agency  examples  (and  their  various  LSM  reach)  are  discussed:   ·∙ the  traditional  agent.   ·∙ the  franchised  agency.  the  Retail  Enhancement  Initiative  (REI).  New  Delhi  –  110  019.  Liberty  Life.  although  the  agent  (especially   in  a  pre-­‐FAIS  environment)  would  also  be  able  to  serve  banked  and  employed   individuals  in  LSM  5.  through  face-­‐to-­‐ face  interaction.g.  The   traditional  or  doorstep  agent  is  an  individual  who  visits  the  prospective  client‟s   home  or  another  venue  of  choice  (e.  e.g.g.

 the  relationship  continues  and  the  insurer  can  initiate   sales  of  other  products  to  the  client  without  going  through  the  same  agent.  in  most  cases.  Insurance  companies  are  currently  helping  to  establish  a  new  form  of   agent  –  the  owner  of  the  franchised  agency.  rather  than  the  insurer.  with  initial  interaction  with  the  prospective  client  often  initiated  over  the   internet  (e.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  If  the  agent  leaves.  New  Delhi  –  110  019.   19   Call  centre  agents  are  selling  policies  telephonically  from  in-­‐  and  out-­‐bound  call   centres.  Given  current  regulatory  requirements.  Eros  Corporate  Tower   Nehru  Place.  call  centre  agents   have  the  ability  to  serve  banked  and  employed  individuals  in  LSM  4-­‐10.  although   call  centre  agents  could  probably  also  serve  banked  and  employed  individuals  in   LSM  3.  India   client.  the  client  prefers  to  continue  the  relationship  with  the   agent.  Franchised  agencies  receive  financial   support  from  insurance  companies  to  either  exclusively  sell  their  policies  or  reach   an  insurer-­‐specified  sales  target  while  allowed  to  also  sell  the  policies  of  other   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  agents  that  work  for  direct  insurers  such  as  Outsurance.  Dial   Direct  and  1LifeDirect).15  The  insurer  has  full  information  on  the  client  and  contracts  directly  with  the         15th  Floor.   However.g.  Regus.

 Primary  agents  will  be  FAIS  registered  and  compliant  and  will   be  allowed  to  provide  advice.  India   broker.   Franchised  agencies  operate  from  infrastructure  situated  outside  the  insurance   company  and  mainly  serve  higher-­‐income  clients.  Franchised  agencies  are  provided  with  more  independence  than  traditional   agents.  A  South  African  funeral  insurer  with  a   chain  of  captive  funeral  parlours  is  currently  planning  to  create  a  tiered-­‐agency   force  to  support  funeral  insurance  sales  in  and  outside  its  funeral  parlours.  while  secondary  agents  will  not  be  FAIS-­‐registered   agents  and  will  simply  be  presenting  a  tick-­‐of-­‐the-­‐box  sales  option  to  prospective   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  These  agencies  are  currently  serving  LSM   7-­‐10.   The  tiered-­‐agency  force  is  a  direct  reaction  to  the  financial  impact  of  FAIS   legislation  on  insurance  intermediaries.  Regus.  Eros  Corporate  Tower   Nehru  Place.  The   tiered-­‐agency  force  will  operate  through  a  distinction  between  primary  and   secondary  agents.  Insurer  systems  and  compliance   support  allow  one-­‐time  brokers  and  former  insurance  agents  to  better  handle   increased  regulatory  compliance  costs.  This  agent  example  can  be  considered  a  hybrid  between  an  agent  and  a         15th  Floor.insurers.  New  Delhi  –  110  019.  but  more  system  and  compliance  support  than  the  traditional  brokerage.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 The  insurer  intends  having  one  primary         15th  Floor.clients.   phone  the  call  centre  to  provide  the  company  with  client  information  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Some  uncertainty  around  the  tiered-­‐ agency  force‟s  ability  to  reach  LSM  2  has  been  indicated  in  Figure  2  with  a  lined   block  (rather  than  full  shading).  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The   basic  premise  of  the  model  is  that  centralised  call  centre  support  to  traditional   insurance  agents  will  decrease  the  time  spent  with  clients  and  increase  the   efficiency  with  which  client  details  are  captured.  As  regulatory   compliance  will  be  less  onerous  and  costly  for  the  secondary  agent.  Regus.  New  Delhi  –  110  019.1).  In  principle.  Although  originally  targeted  at  retailers  and  other  intermediaries  using  tick-­‐ of-­‐the-­‐box  selling.  as  well  as  collecting  premiums.  The  agents  visit  prospective   clients  at  their  homes  or  other  venues  and  after  the  policy  sale  has  been  closed.  India   agent  per  funeral  parlour.   The  call  centre-­‐supported  agency  force  is  a  recent  innovation  by  insurers.  this  idea  is  supported  by  a  recent  guidance   note  issued  by  the  FSB  on  intermediary  services  and  representatives  (see  Section   7.  this  type  of   agent  will  probably  be  able  to  serve  LSM  2-­‐5.  the  interpretations  contained  in  the  guidance  note  are   potentially  just  as  applicable  to  the  idea  of  the  tiered-­‐agency  force.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   More  details  on  this  agency  example  are  provided  in  Box  3.  This  support  is  intended  to  help  intermediaries  more  easily  comply  with   regulatory  requirements  in  order  to  limit  the  negative  impact  of  legislation  on   intermediaries.  it  has  broadened  its  scope   to  include  a  range  of  financial  services.  In   addition.  Regus.  India   products.  Box  3:  Case  Study:  Metropolitan  Life’s  Retail  Enhancement  Initiative   Metropolitan  is  one  of  South  Africa‟s  three  biggest  insurance  companies.  Eros  Corporate  Tower   Nehru  Place.  the  REI  is  also  of  interest  because  it  serves  as  illustration  of  insurers‟   attempts  to  gain  greater  control  over  the  client  base  (see  Section  7.  thus   allowing  agents  to  serve  lower  LSM  categories  than  they  normally  would.  New  Delhi  –  110  019.  The  REI  has  the   potential  to  limit  the  negative  impact  of  regulations  on  intermediaries.  Metropolitan  provides  life  insurance.   Whereas  originally  it  was  focused  on  life  insurance  only.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.1  for  more  on   this  force).immediately  effect  policy  cover.  The  REI  also  allows  for  underwriting  to  take  place  telephonically.  The  Retail  Enhancement  Initiative  (REI)  provides   call  centre  support  (during  the  sales  process)  to  brokers  and  agents  selling   Metropolitan  Life   20         15th  Floor.

 2006a).  The         15th  Floor.   the  first  such  initiative  in  the  world.   recently  launched  a  Retail  Enhancement  Initiative  (REI).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  It  assists  agents   and  brokers  in  registering  a  client‟s  acceptance  of  a  policy  quote  at  head  office   and  collecting  detailed  client  information.  provides  call  centre  support  during  the  sales   process  to  brokers  and  agents  selling  Metropolitan  Life  products.  The  ACE  Centre  captures  all  policy  details  through   information  provided  by  both  the  intermediary  and  the  client.  Regus.  it  is   also  completed  telephonically.  According  to  Metropolitan.employee  benefits.  asset  management  and  health  management  services.  This  will  help  to  decrease  the  number  of  medical   examinations  and  other  tests  required  and  will  also  assist  Metropolitan  in   reaching  clients  in  areas  where  these  services  might  not  be  available   (Metropolitan  Life.  What  is  the  REI?  The  REI.  a  wholly-­‐owned  subsidiary  of  Metropolitan.  New  Delhi  –  110  019.  India   retail  division  of  Metropolitan  Life.  In  cases  where  underwriting  is  required.  international  research  has   demonstrated  that  clients  are  more  open  and  forthcoming  about  their  health   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  request  for  a  new  policy  is  made   telephonically  by  the  broker  or  agent  phoning  the  Metropolitan  Area  for  Customer   Enrolment  (ACE)  Centre.  This  process  takes   place  at  no  cost  to  the  intermediary.

 The  final  policy  is  accepted  telephonically  and  on  completion  of   the  call  (after  acceptance  of  the  policy).  Regus.  The  intermediary  first  visits  the  client  and  conducts  a  financial   needs  analysis  (FNA).  It  is  thought   that  it  will  lead  to  improved  intermediary  and  customer  service.  Upon  completion  of  the  FNA.   Benefits.  India   communication  processes  (Metropolitan  Life.  the  policy  is  issued  and  cover  starts.  a  decrease  in  policy  issuing  time16  and  a   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  REI  process   seamlessly  integrates  into  the  broker  or  agent‟s  normal  interaction  with  the   insurance  client.status  and  other  personal  information  if  the  risk  is  assessed  through  verbal         15th  Floor.  2006b).  the  broker/agent  telephonically  contacts  the   ACE  Centre.  improved  underwriting.  the  intermediary  presents  a   policy  option(s)  and  quote(s)  for  the  relevant  policy  selected.  The  client  talks  to  the  call   centre  agent  after  the  agent/broker  has  spoken  to  the  call  centre.  The  policy  details  and  client  information  are  captured  by  the  staff  in   the  ACE  Centre  and  all  information  is  voice-­‐recorded.  Once  the  client  has   accepted  the  generated  quote(s).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  Metropolitan  Life  and   the  broker/agent.  New  Delhi  –  110  019.  REI  process.  The  REI  holds  a  number  of  benefits  for  Metropolitan  Life.  The  voice   recording  acts  as  proof  of  the  contract  between  the  client.  better  compliance   enforcement.

 it  implies  10%   growth  in  earnings  (Metropolitan  Life.  thus  allowing  them  to  serve  more  clients.  2005).  sales  will  increase.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  New  Delhi  –  110  019.  India   Life.  the  REI  had  a  negative  impact  on  direct  writer  business   volumes.  Implementation  challenges.  2006b).  Using  the  assumption  that   25%  of  the  time  savings  could  be  used  to  write  more  business.  REI  was  only   incorporated  in  the  general  intermediary  channel  during  the  first  quarter  of  2006  –   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  With   the  initial  implementation  of  the  REI  in  Metropolitan  Life‟s  direct  writer   distribution  channel.  “policy  issue  time   decreased  form  an  average  of  seven  working  days  to  less  than  a  day  from   completion  of  the  purchase”  (Metropolitan  Holdings  Limited.reduction  of  the  administrative  burden  placed  on  intermediaries  (Metropolitan         15th  Floor.  The  latter  will  enable  brokers  and  agents  to  spend  less  time   with  clients.  Metropolitan  estimates  that   brokers  will  spend  (on   16  In  cases  where  all  client  information  was  available.  2006a  &  2006b).   21   average)  up  to  40%  less  time  with  any  specific  client.  This  is  thought  to  be  the  result  of  change  resistance  and  implementation   challenges  and  it  is  expected  that  as  REI  stabilises.

 Although  the  REI  does  not  reinvent  the  role  of  the  agent.  India   negative  sales  experience  as  the  direct  writer  channel  (Metropolitan  Holdings   Limited.  This  is  achieved  through  better  collection  of  client  information  and  the   establishment  of  telephonic  contact  with  the  client.  2006).  it  is  possible  that  it  is  an  attempt  by  the  insurer  to  gain  greater   control  over  the  client  base  (see  Section  7.  to  see  more  prospective  clients.  Eros  Corporate  Tower   Nehru  Place.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   consequently.it  is  expected  that  the  general  intermediary  channel  will  have  the  same  initial         15th  Floor.  New  Delhi  –  110  019.2  for  a  discussion  on  this  identified   force).  agents  and  brokers  selling   Metropolitan  policies  will  now  be  able  to  serve  even  very  rural  areas  (Metropolitan   Life.  This  allows   agents  to  spend  less  time  processing  each  client‟s  policy  application  and.  Assessment.   it  assists  agents  in  more  easily  complying  with  FAIS  requirements.  The  REI  will  enable  Metropolitan  to  serve  low-­‐ income  clients  in  a  more  cost-­‐effective  manner.  Although  it  seems  obvious  that  the   motivation  behind  this  initiative  is  to  better  deal  with  the  impact  of  legislation   such  as  FAIS.  Low-­‐income  market.  As  the  REI  enables  Metropolitan  to   overcome  geographical  and  infrastructural  constraints.  2006b).  The  client  is  thus  given  a   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

 Eros  Corporate  Tower   Nehru  Place.  Since   the  client  only  interacts  with  the  intermediary  and  often  also  views  the   intermediary  as  the  product  provider17.  This  intermediary  is  multi-­‐functional  in  that  it   not  only  sells  insurance.  Independent  multi-­‐function  intermediaries  are  free  to  have   relationships  with  as  many  insurers  as  they  deem  to  offer  adequate  value  and   appropriate  products  to  their  clients.  India   3.3.  such  as   retail  products  (clothing.  multi-­‐function  intermediaries  actively   participate  in  the  product  design  and  are  often  initiators  of  products  that  suit  their   client  base.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  funeral  services  and  banking  services.  but  also  sells  a  range  of  services  or  products.2.  Regus.  the  intermediary  controls  access  to  the   client  and  thus  also  owns  the  client.better  idea  of  the  face  of  the  insurer  as  he/she  not  only  deals  with  the   representative  (i.).  the  agent  or  broker)  of  the  insurer.  CATEGORY  3:  INDEPENDENT  MULTI-­‐FUNCTION  INTERMEDIARIES   Description.  food.  New  Delhi  –  110  019.  etc.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Although  product  ownership  and  innovation   may  still  be  handled  by  the  insurer.             15th  Floor.e.1.

 e.  New  Delhi  –  110  019.  Standard  Bank.g.  e.  Shoprite  (a  low-­‐  to  middle-­‐income  retailer).  Eros  Corporate  Tower   Nehru  Place.   Retail  staff.   ·∙ banks.   ·∙ retailers.  Regus.  In   1999.Products.  was  introduced  at  Money   Market  counters  in  all  Shoprite  stores.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Shoprite  is  a  low-­‐  to  middle-­‐income   retailer  with  a  target  market  of  LSM  3-­‐8  (Shoprite  Holdings  Limited.  and   ·∙ independent  funeral  parlous  and  funeral  parlour  associations.g.  The  branding  of  the   multi-­‐function  intermediary  could  confuse  the  client  about  who  the  actual  product   provider  is.  who  also  perform  other  functions.  India   product  only  (such  as  the  funeral  insurance  policy  sold  by  Shoprite)  or  to  offer  a   variety  of   17  Multi-­‐function  intermediaries  have  their  insurance  policies  underwritten  by   insurers  and  some  use  their  own  branding  on  the  policies  sold.  a  funeral  policy  underwritten  by  the  HTG  Life  Ltd.   The  general  retailer  model  utilises  over-­‐the-­‐counter  selling  of  insurance  products.  Independent  multi-­‐function  intermediaries  can  decide  to  sell  one         15th  Floor.  The  Money  Market  counters  are  intended   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  2005b).  are  responsible  for  the  selling  of   policies  and  premiums  are  collected  in-­‐store.

 claims  management  and  payout  (Bates.  Money  Market  staff.  2005).5  for  more  discussion  of  what  advice  and  disclosure  entails).  as  well  as  the  absence  of  financial  incentives  related  to         15th  Floor.  The   passive  selling  approach.  Shoprite  is  responsible  for  the  marketing.  while  HTG  Life  handles   policy  administration.  The  product  is  not  actively  marketed  to  clients  in-­‐store   and  clients  are  expected  to  ask  for  the  product  at  the  Money  Market  counter.  which  imply  that  even  unbanked   individuals  are  able  to  purchase  the  policy.to  increase  shopping  convenience.   Shoprite  earns  a  fee  on  each  policy  sold.  Customers  can   contact  the  HTG  Life  call  centre  to  report  claims  and  if  they  have  any   queries/policy  changes.  Eros  Corporate  Tower   Nehru  Place.   selling  and  premium  collection  associated  with  the  policy.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  has  not  facilitated  high  policy  sales  –  to  date.  facilitate  customer  loyalty  and  provide  a  range   of  transaction  services.  2005b).  cannot  provide  advice  (see  Section   5.  including  payment  of  television  licenses  and  municipal   accounts  with  approximately  220  third  parties  represented  at  the  counters   (Shoprite  Holdings  Limited.  who  sell  the  policy.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   policies  sold  for  Money  Market  staff.  Premiums   are  collected  at  the  Money  Market  counters.   are  not  FAIS-­‐registered  agents  and.  therefore.  Regus.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  Independent   funeral  parlours  and  funeral  parlour  associations  (similar  to  a  large  retailer  with  a   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  theoretically.  See  Genesis  (2006)  for  more   background  on  the  HTG/Shoprite  initiative.   This  specific  intermediary  is  of  interest  due  to  its  ability  to  easily  reach  some  low-­‐ income  individuals  with  funeral  insurance.  Although.  Bank  brokerages  serve  the  upper-­‐middle  to  high-­‐ income  market  and  are  staffed  by  brokers  able  to  provide  advice  to  prospective   client.  they  only  sell  policies  to  bank  account  holders  and  deduct   premiums  via  debit  order.  India   targeted  at  a  lower-­‐  to  middle-­‐income  market  and  insurance  sales  to  this  market   normally  take  place  when  a  client  opens  a  bank  account  or  performs  another   transaction  in  the  bank  branch.000  policies  have  been  sold  (Bates.  banks  should  be  able  to   collect  cash  premiums.  Together  these  two  sales  channels  are  able  to  serve  LSM  4-­‐10.  specifically  those  with  bank   accounts  at  Standard  Bank.  2005).  See  Box  4  for   a  detailed  discussion  on  funeral  insurance  products  sold  through  Standard  Bank.   Banks  sell  insurance  policies  over  the  counter  in  bank  branches  and  through   separate  bank  brokerages.  Regus.  The  over-­‐the-­‐counter  sales  in  bank  branches  are         15th  Floor.  Claims  are  also  paid  into  bank  accounts.only  6.

 every  small  town  has  at  least  one  funeral   parlour)  and  ability  to  collect  premiums  in  cash.  see  the  discussion  on  the   Private  Funeral  Directors‟  Association  (PFDA)  in  Genesis  Analytics  (2005).number  of  outlets)  sell  funeral  insurance.  SBIB  sells  short-­‐term   insurance  directly  to  customers  in  the  high-­‐income  market.  They  do  not  view   the  insurance  policy  as  a  separate  financial  service.  whereas  funeral  and   credit-­‐life  insurance  are  sold  in  cooperation  with  Standard  Bank  branches  and  are         15th  Floor.  but  simply  a  way  of  prepaying   (and  locking  in  clients)  for  their  services.  they  are  often  not  skilled   or  educated  in  financial  services  and  will  find  it  difficult  to  comply  under  the  FAIS   Act.  independent  funeral  parlours  are   able  to  sell  funeral  insurance  down  to  LSM  2.  Credit  life  insurance  is  a  compulsory   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  For  this  reason.  funeral  and  credit-­‐life  insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  For  more  information  on  funeral  parlour   associations  and  their  role  in  negotiations  with  insurers.  New  Delhi  –  110  019.  funeral  parlours  tend  to  see  themselves   as  selling  funeral  service  and  not  necessarily  funeral  insurance.e.  Box  4:  Case  Study:  Standard  Bank  Standard  Bank  Insurance  Brokers  (SBIB)   distributes  short-­‐term.  It  is  important  to  note  that  funeral   parlours  sell  only  funeral  insurance.  Regus.  Due  to   their  extensive  geographic  reach  (i.  India   generally  targeted  at  the  low-­‐income  market.  Also.

 2006a).  On  average.  Approximately  860.  Since  this  product  is   only  offered  to  individuals  with  bank  accounts.  Standard  Bank  sells   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  E  Plan  and  Plus  Plan  accounts  are  targeted  at  individuals  in  LSM  4-­‐7.   earning  an  income  between  R1.200  to  R6.  the  mere  fact  that  the  insurance   company  can  utilise  debit  orders  as  premium  collection  mechanism  does  not  imply   that  premiums  are  always  regularly  paid.       15th  Floor.   Standard  Bank  actively  targets  funeral  insurance  at  the  low-­‐income  market.  2006).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   2006).  However.000   policies  are  currently  active  (Jawuna.  There  often  is  no  money  available  in   clients‟  accounts  and  the  policies  are  characterised  by  a  25%  lapse  rate  (Brooke.  India   product  sold  to  individuals  that  have  loans  from  Standard  Bank‟s  Low-­‐income   Housing  unit.  For  the  purpose  of  this  discussion.2  for  an  explanation  of  why  we  exclude  credit  life   or  embedded  insurance  from  our  focus).  The  advantage  of  this  collection  mechanism  is  that  it  decreases  collection   costs  and  ensures  some  regularity  of  premium  payment.  Regus.  SBIB  is  guaranteed  a  premium   collection  mechanism  (debit  order).  Distribution  to  low-­‐income  clients.  Eros  Corporate  Tower   Nehru  Place.500  (Jawuna.  New  Delhi  –  110  019.  Its   funeral  plan  is  sold  to  Standard  Bank  clients  that  have  E  Plan  and  Plus  Plan   accounts.  we  focus  on  the  distribution  of   funeral  insurance  (see  Section  1.

 which  means  that  they  meet  the   necessary  FAIS  Fit-­‐and-­‐proper  Requirements  applicable  to  Category  A18  agents.  working  in  Standard  Bank‟s   branches.   but  with  severe  restrictions  on  the  type  of  products  that  can  be  sold  (only  funeral   insurance).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  are  accredited  to  sell  and  provide   advice  on  funeral  and  credit  life  products  sold  directly  to  customers.1.  The   funeral  plan  is  sold  by  consultants.  assessed  and.500  policies  per  day  (Brooke.  Eros  Corporate  Tower   Nehru  Place.  The  consultants  are  trained  to  ensure  that  they  understand  the         15th  Floor.  2006).  Category  A  is  subject  to  the  lowest  fit-­‐and-­‐proper  requirements.  New  Delhi  –  110  019.  The  computer  system  will  prompt  the  consultant  to  offer  the  product   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   products.   When  clients  open  an    The  FAIS  Act  distinguishes  between  various  categories  of  insurance   intermediaries.  they  are  offered  the  option  of  purchasing  the   funeral  plan.  The  funeral  insurance  sales  process.     E  Plan  account  at  the  bank  counter.  if  proven  competent.  normally  responsible  for  the  opening  of   accounts  and  general  retail  banking  queries.  The  staff   members  are  registered  as  Representatives.

 2006b).  Telephonic  communication  decreases   the  need  for  face-­‐to-­‐face  interaction  during  the  claims  process.  Eros  Corporate  Tower   Nehru  Place.  2006b).  The  consultant  will  tick  the  relevant  box  according  to  the  customer‟s   response.       15th  Floor.  Once  a  claim  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Clients  can  change  policy  information  in  bank   branches  with  the  assistance  of  a  bank  consultant  or  through  the  call  centre   (Jawuna.  New  Delhi  –  110  019.  The  call  centre  is  manned  by  SBIB  staff.  The  consultant  will  also  conduct  a  simple  financial  needs  analysis  (FNA)   for  every  prospective  client  to  determine  whether  the  client  can  afford  the  policy   and/or  whether  the  client  already  owns  other  funeral  insurance  products.  as  well   as  talk  the  client  through  the  policy  wording  (Jawuna.  India   to  the  client.  Standard  Bank  frequently   utilises  telephones  and  cell  phones  in  its  interaction  with  clients.  Technology.  the  call  centre  also  undertakes  outbound  telephone  campaigns  during  which   it  attempts  to  sell  the  funeral  plan  to  existing  E  Plan  clients  who  have  not  yet   purchased  the  policy  (Jawuna.  In  addition  to  in-­‐branch   sales.  Clients  can  enact   policy  changes  through  the  contact  centre.  Upon   finalisation  of  the  sale.  All  contact  centre  agents  are  registered  as   representatives  of  the  FSP  (Jawuna.  2006b.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  the  client  receives  a  policy  membership  card  with  the  call   centre  number  printed  upon  it.  2006b).  Regus.  2006c).

 India   insurance  through  other  more  traditional  channels  such  as  independent  brokers  or   agents.  it  has  quite  an  extensive  geographic  reach  and   infrastructural  spread  in  urban  and  peri-­‐urban  areas  due  to  Standard  Bank‟s   network  of  746  branches  (Standard  Bank.  all  documentation  required  is  explained  to  the  client  over  the  telephone  so   that  the  client  will  not  need  to  visit  a  bank  branch  more  than  once  (Brooke.  Cross-­‐selling  helps  lower  the  cost  of  sales  through  greater   client  penetration  rates.  The  easy  access  to  individuals‟  bank  accounts   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.lodged.  The  most  costly  components  of  selling  insurance  through   this  intermediary  are  the  creation  and  maintenance  of  a  call  centre  and  claims   department  (Brooke.  Insurance  sales   through  a  network  of  bank  branches  is  characterised  by  lower  costs  than  selling         15th  Floor.  The  bank  model  is  only  able  to  reach   banked  individuals.  Costs.  2006a).  New  Delhi  –  110  019.  Clients  can  then  respond  by  ensuring  that  there  is  sufficient   money  in  their  accounts  available  for  a  premium  payment.  although  it  does  not  allow  for  the   servicing  of  deep  rural  areas.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  However.  Regus.  Eros  Corporate  Tower   Nehru  Place.   An  SMS  is  also  sent  to  the  customers  to  provide  notification  of  unpaid  debit  orders   etc  (Jawuna.  2006).  2006).  Assessment.  The  client  is  reached  through  a  process  of  bank  referrals  and  low-­‐advice   selling  is  employed.  2005).

 Since  all  policyholders  have  bank  accounts.1.2.  there  is   no  inconsistency  between  the  way  premiums  are  collected  and  the  manner  in   which  claims  are  paid.  New  Delhi  –  110  019.  Regus.   Furthermore.  the   inclusion  of  advice  on  sales  makes  this  an  appropriate  model  for  selling  to  the   lower-­‐income  market  and  the  combination  with  bank  processes  makes  this  cost-­‐ effective  for  the  intermediary.  India   mechanism  –  the  debit  order.  clients  are  provided  some  advice  (covering  both  needs  analysis  and   disclosure)  by  the  bank  consultant  upon  the  purchase  of  their  funeral  plan  and  can   also  contact  the  call  centre  for  additional  product  and  process  disclosure.  Policy  claims  are  simply  paid  into  the  bank  account  of  claimants.  CATEGORY  4:  CAPTIVE  MULTI-­‐FUNCTION  INTERMEDIARIES   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Successful  claims  can  simply  be  paid  into  the  client‟s  bank   account.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .provides  Standard  Bank  with  a  convenient  and  inexpensive  premium  collection         15th  Floor.4.   Although  this  model  is  limited  to  individuals  banking  with  Standard  Bank.  Eros  Corporate  Tower   Nehru  Place.       3.

 some   captive  multi-­‐function  intermediaries  have  chosen  to  actively  participate  in  the   product  design  process  (e.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  call  centre).  funeral  services  or  banking  services.  New  Delhi  –  110  019.  By  entering  into  a  captive  agreement   with  the  insurer.Description.  Regus.  This  intermediary  is  multi-­‐functional  in   that  it  not  only  sells  insurance.  etc.  food.  but  also  sells  a  range  of  services  or  products  such   as  retail  products  (clothing.  Pep  Stores).  this  only  applies  to   existing  clients  and  the  intermediary  will  remain  important  for  future  sales.).  Although   product  ownership  and  innovation  may  still  be  handled  by  the  insurer.  Products  could  include   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  However.  India   the  insurance  products  of  only  one  insurer.  the  intermediary  partly  gives  up  his  ownership  of  access  to  the   client  as  the  insurer  will  have  full  access  to  client  details  and  can  use  this  to  sell   products  through  other  channels  (e.  In   some  cases.g.  Captive  multi-­‐function  intermediaries  are  contractually  bound  to  sell         15th  Floor.   Products.  Eros  Corporate  Tower   Nehru  Place.  Captive  multi-­‐function  intermediaries  may  sell  one  product  only  (such  as   funeral  insurance  sold  by  Wizzit  Bank  or  captive  funeral  parlours)  or  offer  a  variety   of  insurance  products  (Pep/Hollard  and  Edcon/Hollard).g.  the  captive  relationship  takes  the  form  of  a  joint  venture  where  the   intermediary  has  a  vested  interest  in  the  success  of  the  selected  product.

 New  Delhi  –  110  019.  India   manifestations  of  this  intermediary.  and   ·∙ banks.   ·∙ captive  funeral  parlours.  Eros  Corporate  Tower   Nehru  Place.   Retailers.g.  Category  examples  and  LSM  reach.  This  example  is   interesting  due  to  its  ability  to  serve  low-­‐income  clients  through  cash  collection  of   premiums  and  its  extensive  branch  network.  Wizzit  bank.  e.   The  LSM  reach  of  captive  multi-­‐function  intermediaries  is  dependent  on  specific         15th  Floor.g.  It  is  important  to  note  that  there  are  distinct  differences  between  the   Pep/Hollard  and  Edcon/Hollard  examples.  Regus.  long-­‐term  and  short-­‐term  insurance.  formally  launched  in  March  2006.  established  in  June  2001.  In  the  case  of  Pep.funeral.  Three  examples  of  the  captive  multi-­‐function   intermediary  (and  their  various  LSM  reach)  are  discussed:   ·∙ retailers.  servicing  even  small  towns  in  rural   areas.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Pep/Hollard  and  Edcon/Hollard.  a  cash  clothing   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  and  the   Edcon/Hollard  joint  venture  (Edcon  Insurance  Services).  e.   Two  interesting  retailer  examples  of  this  intermediary  category  are  provided  by   the  Pep/Hollard  joint  venture.   The  Pep/Hollard  joint  venture  is  discussed  in  more  detail  in  Box  5.

 Since  Pep  has  no  client  information  available  (due   to  its  cash-­‐only  nature).  insurance  products  are  sold  on  a  cash  basis  to  clients  and  clients  are  not   obligated  to  buy  any  other  product  in  order  to  obtain  the  insurance.  India   accountholders.  New  Delhi  –  110  019.  sell  insurance  only  to         15th  Floor.  two  clothing   retailers  that  form  part  of  the  Edcon  retail  group.  Collectively.  This  implies  that  clients  have  to   be  willing  to  purchase  retail  goods  on  credit  before  being  able  to  purchase   insurance  products.  Pep  thus   utilises  a  stand-­‐alone  insurance  model.  Edgars  and  Jet.retailer.  utilising  an  accountholder  model.  Edgars  and  Jet  are  able  to  reach  LSM  3-­‐10.  In  contrast.  Edgars  and  Jet  have   detailed  client  information  available  before  selling  insurance  to  clients.  This   26   “screening”  of  insurance  clients  has  probably  led  to  better  premium  persistency   (than  will  be  achieved  by  Pep).  Regus.  As  clients  have  to  fill  in  a  detailed  application  form  on  which  a   credit  score  is  calculated  before  qualifying  for  a  store  account.  Eros  Corporate  Tower   Nehru  Place.  Client  information  collected  during  this  process  can  be   utilised  in  the  cross-­‐selling  of  other  insurance  and/or  financial  products  and  in  the   design  of  better  products.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  selling  insurance  affords  them  an  opportunity  to  get  to   know  their  client  base.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 young   individuals  from  low-­‐income  communities.  Regus.   Banks.  Due   to  these  factors.  captive  funeral  parlours  are  able  to  sell  funeral  insurance  to  LSM   2-­‐6.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   parlours  have  vast  geographic  reach  and  are  able  to  collect  premiums  in  cash.  Wizzit  Bank  is  a  virtual  bank  that  provides  cell  phone  banking  services   specifically  targeted  at  all  unbanked  individuals  (16m)  in  South  Africa.  The  Wizzit  bank  account  is  opened  by  Wizz  Kids.while  Pep  is  able  to  reach  LSM  2-­‐10.  As  the   majority  of  unbanked  individuals  fall  in  LSM  1-­‐5.  As  mentioned.  However.  Although  it  is   expensive  to  set  up  funeral  parlours.  Wizzit  includes  these  individuals   within  its  target  market.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  Funeral  parlours.  their  product  range  is  limited  to  funeral  insurance.  2006)  and  should  thus  be  able  to  meet  the  general  fit-­‐and-­‐ proper  requirements  of  category  A  agents19  (as  required  by  FAIS)  quite  easily.  funeral         15th  Floor.  their  core  function  (the  provision  of  funeral-­‐ related  services)  allows  potential  cross-­‐subsidisation  of  the  distribution  of  funeral   insurance.  The  average  Wizz  Kid  has  completed   matric  (Richardson.  The   Wizz  Kids  are  currently  offering  the  funeral  insurance  product  as  part  of  the  sale  of   the  Wizzit  bank  account  (to  increase  their  earning  potential  on  each  transaction)   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

  Wizzit  is  potentially  able  to  reach  Wizzit  bank  account  holders  across  LSM  1-­‐10.  Pep  has  a  branch  network  of  942  stores   distributed  across  South  Africa  (Müller.  2006).  New  Delhi  –  110  019.  Three  products.  Regus.  is  the  Financial  Intelligence   Centre  Act  (FICA).  2006a).  of   which  many  members  have  opened  Wizzit  bank  accounts  (Richardson.  were  launched  in  the  form  of         15th  Floor.  Pep   partnered  with  Hollard  Insurance.  Pep.  where  this  Act  is  discussed).and  are  also  selling  the  products  to  a  large  affinity  group.   Box  5:  Case  Study:  Pep  and  Hollard  Insurance  Nature  of  organisations  and   relationship.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   specifically  targeted  at  individuals  in  LSM  2-­‐6.  thus  also  of  insurance  products.  Wizz  Kids  find  it  very  difficult  to  deal  with  the  address   verification  requirements  of  the  Act  (see  Section  5.  a  company  offering  both  short-­‐  and  long-­‐term   insurance  through  an  array  of  distribution  channels.  Through  a  joint  venture.  Their  products  and  joint  venture  was  formally  launched  on  21  March   2006  (Gunnion.  Eros  Corporate  Tower   Nehru  Place.  Target  market  and  products  offered.  is  a   wholly-­‐owned  subsidiary  of  Pepkor.  the  Apostolic  Church.  One   large  obstacle  to  the  extension  of  bank  accounts  (especially  to  low-­‐income   individuals)  and.  to  provide  insurance  to  its   customers.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  2006).  a  cash  clothing  retailer  targeted  at  the  low-­‐income  market.

 up  to  the  value  of  R1.insurance  “starter-­‐packs”.  Clients  do  not  have  to  purchase  all  three  products  and  only   have  to  buy  the  product(s)  that  they  require.  India   ·∙ Family  funeral  insurance  (R5.  The  products  have  a  monthly  premium  of  R19.  are   simply  placed  on  the  shelves  of  all  Pep  stores.   he/she  is  not  required  to  be  a  FAIS-­‐registered  agent.  ·∙ Family  personal   accident  insurance  (R5.  less  for   children)  ·∙ Cell  phone  insurance  (if  the  cell  phone  was  purchased  at  Pep  it  is   replaced  with  the  same  model.         15th  Floor.000).   The  insurance  policies.  New  Delhi  –  110  019.  Marketing  and  sales.99  each   (Gunnion.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  Hollard  call  centre  will   phone  the  client  within  36  hours  to  capture  and  verify  all  client  information.  When  the  customer  pays  for  the   package  at  the  till.  The  initial  product  offering  (it  is   possible  that  it  will  be  expanded)  includes  the  following  products:    Category  A  agents  are  only  licensed  to  sell  funeral  insurance.  less  for   children  and  double  the  benefit  in  the  case  of  accidental  death).000  cover  for  the  main  member  and  spouse.000  cover  for  the  main  member  and  spouse.  2006a).  the  cashier  captures  the  policy  number  and  a  telephone   number  for  the  client.  with  similar  packaging  to  cell  phone  “starter  packs”.  As  the  cashier  is  simply  performing  an  administrative  duty.  Regus.  Eros  Corporate  Tower   Nehru  Place.

 The  client  is  also  able  to  phone  the  call  centre  on  a  call   share  number  (at  the  cost  of  a  local  call).  Hollard  insurance  will  pay  all  valid  claims  on  the   funeral  insurance  product  to  a  nominated  bank  account  or  (for  unbanked   individuals)  through  a  nationwide  network  of  burial  societies/funeral  parlours   (Inglis.  2006).  India   completed.  2006).  New  Delhi  –  110  019.  The  personal  accident  insurance  is  paid  out  in  exactly  the  same   manner  as  the  funeral  insurance  (Inglis.  a  financial  needs  analysis  (FNA)  is  not         15th  Floor.  the  claimant  can  collect  a   replacement  phone  from  their  nearest  or  most  convenient  Pep  store  (Inglis.  Eros  Corporate  Tower   Nehru  Place.  A  cool-­‐off  period  of  30  days  applies  during  which   the  client  can  still  decide  to  cancel  the  policy  and  claim  the  first  premium  back   (Inglis.  Claims  payment.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  cell  centre/helpline  is  staffed  by  FAIS   compliant  personnel  that  are  able  to  disclose  product  and  process  information   upon  request  (Edwards.  All  claims  on  the  cell  phone   insurance  product  are  settled  through  Pep  stores.  Regus.During  this  interaction  with  the  call  centre.  2006).  2006).  but  the  client  can  request  disclosure  or  explanations  on  certain  aspects   of  the  policy  (Inglis.  When  the  claim  has  been   assessed  and  deemed  valid  by  Hollard  Insurance.   The  cell  phone  insurance  policy  does  not  offer  the  option  of  a  cash  payout  as  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  2006).  2006).

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  2006).intention  behind  the  insurance  is  to  ensure  that  the  claimant  is  in  exactly  the  same   position  after  the  loss  as  before  it  (Inglis.  This  retail  model  is  not  burdened  with  high   distribution  costs.  customers  receive  an  SMS   reminding  them  to  pay  their  premium.  New  Delhi  –  110  019.  A  30-­‐day  grace  period  is  provided   (Edwards.  with  staff  being  rewarded  with  bonuses  when  certain  targets  are  met   (Edwards.  2006).  Premium  Collection.  The         15th  Floor.  2006).  Costs.  As  all  Pep  infrastructure  has  already  been  established20  and   sales  staff  are  already  in  place.  2006).  while  also   recording  the  details  of  the  client.  Pep  receives  a  retail  commission  on  all  policies  sold  and  the   underwriting  profits  are  shared  with  Hollard  according  to  the  arrangements  of  the   joint  venture  (Edwards.  During  the  transaction.  Financial  incentives  are  set  in  terms  of  the  overall  sales  of  a  specific   Pep  branch.  Clients   receive  a  policy  card  with  their  purchase  and  are  required  to  pay  their  monthly   premium  at  a  Pep  store.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  only  real  cost  (to  Pep)  is  the  addition  of  the   three  new  products  to  the  total  Pep  inventory  of  products  (Edwards.  If  premiums  are  late.  the  card  with  the  policy  number   has  to  be  displayed  by  the  client  and  the  cashier  collects  the  money.  Pep  sales  staff  do  not  receive  remuneration  for   policies  sold.  2006).  Regus.  Remuneration.  Eros  Corporate  Tower   Nehru  Place.

 thus  not  implying  additional  display  costs  (Edwards.  it  is  important  to  note  that  shelf  space   carries  a  particular  premium  in  retail  stores  and  that  there  might  be  some   opportunity  cost  associated  with  placing  the  insurance  product  directly  on  the   shelves.  India   structured  in  such  a  manner  that  disclosure  is  provided  upon  request.  The  model  is  characterised  by  low  distribution  costs  as   the  only  real  cost  associated  with  the  roll-­‐out  of  the  insurance  product  is  the  one-­‐ time  addition  of  the  three  products  to  Pep‟s  inventory  of  products.  Assessment.  Regus.  However.   2006).  Eros  Corporate  Tower   Nehru  Place.  Although   the  ability  of  the  model  to  collect  premiums  in  cash  and  its  infrastructural  reach   augers  well  for  its  success  as  a  low-­‐income  model.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .products  are  not  allocated  a  special  position  in  the  store  and  are  simply  placed  on   some  of  the  open  shelves.  the  client   has  to  contact  the  call  centre  to  clarify  confusing  aspects  of  the  policy.  Furthermore.  New  Delhi  –  110  019.  i.  Pep‟s  infrastructural  capacity  allows  it  to  collect  premiums   in  cash  at  any  Pep  store.  placing  the  onus  of  payment  on  the  client  by   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.e.  The  model  is         15th  Floor.  it  only  provides  disclosure  on   request  and  therefore  cannot  be  considered  totally  appropriate  for  the  needs  of   low-­‐income  individuals.

 CATEGORY  5:  ORGANISED  LOW-­‐INCOME  GROUPS   Description.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       3.5.g.  e.2.  New  Delhi  –  110  019.  not  owned  by  the  members  and  all   profits/surplus  derived  is  reinvested  to  serve  its  members  in  the  best  possible   manner  (e.  but  in  most  cases  focused  on  the  provision  of  credit  (microfinance   organisations)  or  the  facilitation  of  savings  (savings  and  credit  cooperatives)  or   other  financial  services.  India   members  has  recently  established  itself  as  a  new  intermediary  category.g.  stokvels.  These  groups  are  all  client-­‐ facing  and  the  intermediation  of  insurance  is  initiated  as  a  client  collective  process   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Some  of  these  groups  are  member-­‐owned  and  all   monetary  surplus  derived  from  their  activities  is  used  to  the  benefit  of  group   members.  The  basic   reason  for  the  existence  of  the  low-­‐income  groups  is  often  not  related  to   insurance21.  however.  The  organised  low-­‐income  group  that  distributes  insurance  to  its         15th  Floor.expecting  him/her  to  come  in-­‐store  to  pay  the  premium  could  lead  to  high(er)   lapse  rates.  the  Small  Enterprise  Foundation  (SEF)).1.  Others  are.  Regus.

 it  can  move  to  another  insurer.  the  group  is         15th  Floor.  the  low-­‐income  group  takes  responsibility  for   policy  administration.  thus  owns  the  clients.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Although  these   groups  normally  have  a  relationship  with  only  one  insurer.  These  groups.  administration  is  handled  by  an  external   administrator  while.  The  management  staff  of   the  group  drives  the  product  innovation  process  (with  the  help  of  the  insurer)  and   products  are  tailored  to  meet  the  needs  of  the  group  members.  microfinance  institutions.  including   burial  societies.  trade  unions  and  even  the  apex  body  for   a  number  of  savings  and  credit  cooperatives.rather  than  by  an  existing  intermediary  or  product  provider.  identify  the  need  for  insurance   amongst  their  members  and  react  by  establishing  a  relationship  with  the  insurer   of  their  choice.  Low-­‐income  groups  often  experience  great  difficulty  in   establishing  a  link  with  the  appropriate  insurer.  In  some  cases.  The  group  members  form  the  clients  of  the  intermediary  and  the   group  (acting  as  intermediary).  New  Delhi  –  110  019.  India   independent  in  the  sense  that  if  the  products  of  a  specific  insurer  no  longer  meet   the  needs  of  its  clients.  Regus.  in  other  cases.   Low-­‐income  groups  receive  an  intermediation  fee  from  insurers  for  their  role  in  the   intermediation  process.  They  do  not  always  have  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.

  such  as  burial  societies.  this  might  be  the  result  of  the  inability  of  insurers  to  see   low-­‐income  groups  as  profitable  clients.  it   seems  as  if  insurers  may  lack  the  interest  and  intent  to  actively  try  and  meet  the   needs  of  such  groups  despite  large  member  numbers.  Some  low-­‐income  groups.  Eros  Corporate  Tower   Nehru  Place.g.  Regus.  New  Delhi  –  110  019.  India   groups‟  clients.  India)  has   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  International  experience  (e.necessary  skills  to  negotiate  the  terms  of  a  contract  with  an  insurer.  In  addition.  they  have  limited  reach  in  terms  of  number  of  clients  as  their  insurance   offering  is  restricted  to  members.  It  is  important  to  note  that  the   intermediation  role  of  low-­‐income  groups  can  evolve.   Although  organised  low-­‐income  groups  (through  their  intermediary  function)  can   catalyse  consumer  education  processes  and  fulfil  insurance  needs  amongst  their   members.  In  some  cases.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  can  move  from  a  role  where  it  provides  informal  insurance   to  its  members  to  an  intermediary  role  where  it  sells  formal  insurance  policies   underwritten  and  structured  by  a  formal  insurer  to  its  members.  However.   the  low-­‐income  group  can  even  evolve  from  an  intermediary  role  to  become  an   insurer  in  its  own  right.  Insurers  generally  find  it   difficult  to  create  products  innovative  enough  to  suit  the  needs  of  low-­‐income         15th  Floor.

 Lesaka)  also  offer  short-­‐term  and  legal  insurance.   ·∙ apex  bodies.  For  the   examples  discussed.  while  others   (e.  Some  of  these  groups  offer  credit  life   insurance  to  cover  loans  taken  out  from  the  group  or  sub-­‐groups.g.  Products.  this  means  first  offering  funeral  insurance  before  extending   the  range  of  insurance  products  offered.g.1).   ·∙ a  union-­‐owned  third-­‐party  administrator.  Regus.demonstrated  that  although  these  organisations  have  some  initial  role  to  play  in   opening  up  the  low-­‐income  market  to  insurance.  A  number  of  examples   of  organised  low-­‐income  intermediaries  can  be  identified:   ·∙ burial  societies.  they  are  not  optimal  in  the         15th  Floor.  Lesaka.  New  Delhi  –  110  019.  e.  Eros  Corporate  Tower   Nehru  Place.  the  Great  North  Burial  Society.  The  Savings  and  Credit  Cooperatives  League  of  South  Africa   (SACCOL).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .g.  e.  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.2.  Category  examples  and   LSM  Reach.g.  India   distribution  of  voluntary  insurance  over  the  longer  run  and  are  replaced  by  formal   insurers  selling  directly  to  their  members  (see  Section  6.  Low-­‐income   groups  try  to  fulfil  the  most  basic  insurance  needs  of  their  clients  first.  The  LSM  reach  of  the  intermediary  category  of  low-­‐income  groups  is   dependent  on  specific  manifestations  of  this  intermediary.  e.

 it  is  compulsory  for  members  (savings  and  credit   cooperatives)  of  SACCOL  to  buy  credit  insurance  from  SACCOL  to  cover  the  full   loan  book.  Eros  Corporate  Tower   Nehru  Place.  providing   cover  to  between  15.  is  now  considering  becoming  an  insurer  in  its  own   right.         15th  Floor.  Due  to  the  nature  of  its  membership.  Of  these  individuals.  It  provided  funeral  cover   underwritten  by  a  formal  insurer  to  its  members.  The  Great  North  Burial  Society  is  a  large  burial  society.000  and  20.   representing  15  000  individuals.  In  addition  to   voluntary  funeral  insurance.  See  Genesis  Analytics  (2005)  for  more  information  on   the  Great  North  Burial  Society.000  have  opted  to   purchase  funeral  insurance.g.  but  due  to  regulatory  constraints   affecting  this  arrangement.  2.  New  Delhi  –  110  019.  An  informal  client  survey  in  2003  found  that  the   average  monthly  personal  income  of  the  individual  SACCO  members  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  Great  North  Burial  Society‟s  reach   probably  extends  to  LSM  1.  e.  India   Burial  societies.  SACCOL  has  40  savings  and  credit  cooperates  as  members.  Regus.  the  Small  Enterprise  Foundation  (SEF).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .·∙ microfinance  organisations  (MFIs).000  members.  The  Savings  and  Credit  Cooperatives  League  (SACCOL)  of  South  Africa   provides  funeral  and  credit  life  insurance  to  its  members.   Apex  bodies.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  which  have   contributed  to  lower  premiums  (Genesis.  LSM  4-­‐ 7.e.  2005).  similar  to  a  bargaining  group   through  which  the  union  members  can  negotiate  underwriting  with  formal   insurers  and  provide  their  own  administration  to  reduce  costs.  This  implies  that  SACCOL‟s  insurance  probably  reaches   individuals  in  the  higher  low-­‐income  to  low  middle-­‐income  categories.  It  is.  Lesaka  does  not  see  itself  as  an   intermediary.  also  benefit  from   the  compulsory  nature  of  the  schemes  provided  through  the  unions.  India   approximately  R3.  Third-­‐party  administrators  are  typically  not  member-­‐governed.  since  it  designs  its  own  products   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  This  setup  has   ensured  that  the  efficiencies  gained  through  the  administrator  have  been  applied   to  the  benefit  of  the  client  and  has  resulted  in  lower  cost  premiums  to  members   than  generally  available  in  the  open  market.  Lesaka  is  owned  by  a  number  of  unions   (essentially  low-­‐income  employed  groups).  It  does.       15th  Floor.  but  operate  to   generate  profit.  of  course.  Eros  Corporate  Tower   Nehru  Place.  with  the   clients  being  both  „owned‟  by  the  administrator  (i.  i.000.  One  exception  to  this  rule  is  Lesaka  Administrators.  therefore.  New  Delhi  –  110  019.  but  rather  as  a  product  provider.  not  under  the  control  of  the   insurer)  and  owners  of  the  administrator.e.  of  which  the  union  members  form  the   client  base  of  the  administrator.

 for  example.  involvement  in  microinsurance  in  Uganda.(funeral  and  legal  insurance)  and  then  finds  an  underwriter  who  is  willing  to   underwrite  them.  of  which  it   is  estimated  that  80%  have  bank  accounts  (Le  Roux.  Premiums  are  collected  in  one  of  three  possible  ways:  the         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  MFIs  may  want  to  cover  the  risks  associated  with   unsecured  lending.  From  an   international  perspective.  AIG‟s.  Secondly.  private  sector  payroll  deduction  systems  or   through  debit  orders.  Lesaka  has  700.  India   government  payroll  deduction  system.  This  has  been  the  main  impetus  behind  the   insurer.  Firstly.  Its  products  are  currently  underwritten  by  SAfrican  and  Old   Mutual.   International  experience  has  demonstrated  that  microfinance  institutions  (MFIs)   often  form  the  initial  catalyst  for  the  provision  of  microinsurance.  insurers  may   want  to  partner  with  MFIs  in  situations  where  regulation  mandates  them  to   provide  cover  to  a  certain  percentage  of  poor  individuals.  there  have  been  two  main  reasons  why  microfinance   organisations  have  partnered  with  insurance  companies  to  provide  insurance  to   their  members/clients.  2006b).  through  the  provision  of  insurance  such  as  credit   life  and  medical  insurance  for  clients.  Regus.  as  the  Insurance   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.000  employed  members  spread  over  LSM  4-­‐7.  Eros  Corporate  Tower   Nehru  Place.

 the  Small   Enterprise  Foundation  (SEF).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .Regulatory  and  Development  Authority  (IRDA)  forces  insurers  to  do  in  India  (see   Section  6.  the   MFI  seeking  to  provide  additional  value  to  its  members.  the  MFI  sector  is  much  smaller  than  in         15th  Floor.  is  discussed  in  Box  6.  The  main  driver  of  the  relationship  is.  SEFs  interaction  with  insurers  demonstrates  the   difficulties  that  lower-­‐income  groups  experience  in  connecting  with  insurers  and   issues  that  have  to  be  addressed  when  developing  products  for  the  low-­‐income   market.  It  is  focused  on  the  elimination  of  poverty  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  SEF  is  currently  in  the  process  of   finalising  negotiations  with  an  insurer  that  will  allow  it  to  distribute  insurance   products  to  its  members.  This  implies  that  even  though  South  African  MFIs  could  assist  in   distributing  insurance  to  lower-­‐income  individuals.  however.  their  impact  will  be  limited  to   the  number  of  existing  clients.  Eros  Corporate  Tower   Nehru  Place.  therefore.     An  interesting  example  of  a  South  African  microfinance  institution.2.  Box  6:  Case  Study:  The  Small  Enterprise  Foundation  (SEF)  Nature  of  the   organisation.  India   Uganda  and  India.  New  Delhi  –  110  019.1).  The  Small  Enterprise  Foundation  (SEF)  is  a  non-­‐profit  microfinance   institution  based  in  Limpopo.  In  South  Africa.

 the  second  programme  targets  women  who  live  below  half  the   poverty  line  and  are  not  already  involved  in  business.   These  groups  are  rigorously  tested  before  being  recognised  as  official  groups.  This  is  achieved  through  two   programmes  –  the  Micro-­‐credit  Programme  (MCP)  and  the  Tshomisano  Credit   Programme  (TCP).  Eros  Corporate  Tower   Nehru  Place.  India   completion  of  the  exercise.  SEF  field  staff  visit  the  poorest  households  to  motivate   women  to  start  income  generating  enterprises.  As  these  women  do  not  have   sufficient  funds.  The  need  for   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  After         15th  Floor.  although  the  majority  of  its  clients  can  be   classified  as  LSM  1-­‐3.   Upon  achieving  official  group  status.  but  existing   enterprises.  Regus.  2006).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  loans  are  issued  (Lampe.  but  who  want  to  start  their   own  enterprises.  While  the  first  targets  micro  loans  at  very  small.  SEF  starts  its  work  within  a  specific   community  by  first  conducting  a  participatory  wealth  ranking  (PWR).  microcredit  becomes  the  means  through  which  businesses  are   started.  Given  the  nature  of  its  credit  programmes.  SEFs  insurance  offering  will  be   targeting  individuals  in  LSM  1-­‐5.  SEF  utilises  the  Grameen  Bank‟s  loan  methodology  by   requiring  potential  members  to  form  themselves  into  groups  of  five  members.unemployment  through  the  provision  of  microcredit.  In  the  case  of  the  TCP.

 while  a  funeral  parlour  policy  provides  for  the  funeral  services.  As   households  often  need  cash  for  the  funeral  itself  or  to  sustain  them  after  a   breadwinner‟s  death.  Whereas  burial  societies  do  provide  a  small  cash   payout  in  the  event  of  death.  it  was  identified  that  the         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.  Regus.  India   primary  insurance  need  of  SEF  clients  is  for  funeral  insurance.insurance.  2006):   ·∙ Address  the  economic  vulnerability  of  clients  and  prevent  decline  into  poverty   upon  the  death  of  a  spouse  or  child.  ·∙ Improve  client  retention  over  the  longer-­‐term   as  SEF  will  be  able  to  provide  another  service  or  benefit  in  addition  to  microcredit   provision.  The  benefits  of  insurance.  their  main  function  is  the  provision  of  emotional  and   other  support.  Through  focus  groups  with  SEF  clients.  It  was  discovered   that  although  clients  require  emotional  and  non-­‐financial  support  (such  as   assistance  with  food  preparation)  at  the  time  of  a  family  member‟s  death.  it  was  thought  that  a  formal  funeral  insurance  policy  would   help  address  this  need  (Lampe.  they   also  require  a  cash  payout.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  ·∙ Mitigate  the  risk  of  debt  arrears  in  the  case   of  death  in  the  immediate  family.  and  ·∙ Create  an  additional  revenue  stream  for  SEF  to  improve  its   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  SEF  concluded   that  the  provision  of  funeral  insurance  to  clients  would  help  to  (Lampe.  2006).

 but  found  that  products  already  available  in  the  market  had  too   many  drawbacks  for  both  SEF  members  and  SEF  as  an  intermediary  (Lampe.  SEF  decided  that  it   wanted  to  offer  insurance  products  to  clients  through  acting  as  an  intermediary   that  also  performs  some  administrative  functions  (client  information         15th  Floor.   During  the  focus  group  process.  At  a  later   stage.  and  ·∙ Product  price  structure  allowed  too  small  an  administrative  fee  for   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  spouse  and  children).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  SEF  clients  indicated  that  they  initially  want  a   product  that  only  covers  the  core  family  (member.e.financial  sustainability.  i.  there  was  too  large  a   difference  between  benefits  offered  to  adults  and  children.   2006):  ·∙ Products  generally  were  too  expensive  for  SEFs  clients.  ·∙ Some  products   offered  a  too  drastic  tiered-­‐structure  in  terms  of  benefits.  Product  requirements.  Regus.  ·∙ Products  had  too   many  exclusions  and  restrictions  (such  as  age  restrictions)  and  too  long  waiting   periods.  It  approached  a  number  of  insurers  for  quotes  on   existing  products.  they  would  consider  adding  other  family  members  (such  as  parents  and   extended  family)  to  the  policy.  India   collection  and  processing)  and  handles  premium  collection.  Eros  Corporate  Tower   Nehru  Place.   packaged  in  a  simple  product.  New  Delhi  –  110  019.  Upon  completion  of  the  focus  groups.  SEF  wanted  as  few  restrictions  as  possible.

 SEF  would  still  have  to  do  most  of  the   administrative  work  and  a  further  consideration  was  the  protection  of  client   confidentiality.  as  negotiated  with  the  insurer   that  will  be  providing  the  funeral  insurance.  It  experienced  that  many   insurers  were  not  receptive  to  offering  products  to  low-­‐income  groups.  2006).  Although  SEF  was  aware  of  the  fact  that  they  could  have  utilised  an   intermediary  such  as  a  broker  in  finding  the  right  insurer.SEF  to  make  the  provision  of  insurance  financially  viable  to  the  organisation  as   premium  collection  is  an  expensive  process.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  A  broker  would  also  have  added  an  additional  cost  layer  to  the   final  insurance  premium.000  cover  for   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  The  product.   2006).  Linking  with  an  insurer.  spouse  and  all  legal  children):  ·∙ Level  1:  R3.  It  found  that  an  individual  or  organisation   acting  as  a  catalyst  in  finding  the  right  insurer  would  have  been  useful  (Lampe.  Regus.  India   individuals  within  insurance  companies  to  connect  with.  with  some  never  even  replying  to   its  request  for  quotes  and/or  a  meeting.  it  felt  that  this  was  not  a   feasible  option  (Lampe.  New  Delhi  –  110  019.  will  offer  three  levels  of  cover  for  the   core  family  (member.  SEF   approached  a  number  of  insurance  companies.  SEF   experienced  many  difficulties  in  finding  the  right  insurer  and  also  the  right         15th  Floor.  The  product.

 India   14  or  younger.  Eros  Corporate  Tower   Nehru  Place.  This  entails  a  monthly  premium  of  R20.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Premiums  will  be  collected  in  cash  by  loan  officers  or  staff  collecting   monthly  loan  repayments.  This  entails  a  monthly  premium  of  R45.  half  the  amount  for  children  aged         15th  Floor.  Claims  will  be  paid  in  the  form  of  a  cheque.  spouse  and  children  aged  15  or  older.000  cover  for   member.  Distribution  process.000  cover  for   member.  ·∙ Level  2:  R5.  This  entails  a  monthly  premium  of  R25.  ·∙ Level  3:  R10.  deposited   directly  into  a  bank  account  of  the  recipient‟s  choice  or  will  be  received  through  a   Post  Bank/MTN  wire  transfer.  half  the  amount  for  children  aged  14   or  younger.member.  it  is  concerned  that  individuals  within  the   communities  in  which  it  is  operating  will  try  to  access  its  microcredit  products  in   order  to  access  the  insurance  offered  (Lampe.  New  Delhi  –  110  019.  Other  considerations.  It  was  therefore  decided  that   clients  will  not  be   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  premium  collection.  As  SEF  will  not  be  offering  the   funeral  policy  to  non-­‐clients.  spouse  and  children  older  than  15.  2006).  All  claims  will  be  lodged  through  loan  officers.  Regus.  spouse  and  children  aged  15  or  older.  claims  assessment  and  also   payout.  half  the  amount  for  children  aged   14  or  younger.  SEF   will  be  responsible  for  sales.  who  will   also  assess  the  claims.

 Dealing  with  FAIS.  This   implies  that  the  client  will  not  always  have  to  be  in  debt  in  order  to  keep   participating  in  the  insurance  offering.   international  experience  has  demonstrated  that  MFIs  often  fail  as  insurance   intermediaries  due  to  the  difficulty  of  integrating  insurance  processes  with  credit   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  issue  of   moral  hazard  will  be  addressed  through  SEFs  careful  group  selection  process  used   in  the  microcredit  programmes.  Regus.  New  Delhi  –  110  019.  SEF  intends  merely   “presenting”  and  not  actively  selling  (it  will  not  be  providing  any  advice)  the   product  to  its  clients.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  differs  from  the  way  other   international  MFIs  have  traditionally  sold  their  insurance  products.  India   completed.  While  the  provision  of  insurance  through  an  MFI  is  laudable.  she  may  continue  to   participate  in  the  insurance  even  if  she  decides  not  take  any  further  loans.able  to  participate  in  the  insurance  offering  until  their  second  loan  cycle  has  been         15th  Floor.   2006).  Eros  Corporate  Tower   Nehru  Place.  All  loan  officers  involved  in  the  sales  process  will  be  registered  as  agents   of  the  FSP  and  will  simply  be  using  the  tick-­‐of-­‐the-­‐box  sales  method  (Lampe.  will  not  need  to  register   as  an  FSP.  consequently.  It  will  be  selling  the  funeral  product  under  the  insurer‟s   Financial  Service  Provider  (FSP)  license  and.  Assessment.  When  the  individual  completes  a  third  loan  cycle.

 although  some  clients  could  be  classified  as  LSM  4-­‐5.  insurers  and  clients.  the  insurance  will  mainly  be  targeted  at  individuals  in  LSM   1-­‐3.processes  and  management.2.  it  does  provide  a  useful  learning  process  to  the   benefit  of  intermediaries.  India   consultation  with  SEF  clients  and  negotiations  with  insurers  –  this  at  least  assists   in  addressing  the  creation  of  appropriate  products.  Eros  Corporate  Tower   Nehru  Place.  However.  due  to  its  individual  nature  of   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.2.  COST  MODELS   3.1.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  New  Delhi  –  110  019.  Nevertheless.  it  is  necessary  to  generate  some  approximation  of  relative  costs.   3.  which  could  initiate  the  extension  of   access  to  insurance  for  a  large  number  of  individuals.  It  seems  that  the  emerging  broker  model.  Regus.  this  initiative  will  not  be  able  to  open  up  the  low-­‐income   market  to  insurance.   This  analysis  attempts  to  quantify  the  costs  of  emerging  brokers  distributing   insurance.  Although  premiums  will   be  collected  in  cash.  Due  to  the  economic  profile  of   its  microcredit  clients.  The  absence  of  advice  also  does  not  augur  well  for   the  fulfilment  of  client  needs.  the  products  were  only  arrived  at  after         15th  Floor.  PURPOSE  OF  THE  ANALYSIS   In  considering  what  intermediation  models  are  the  most  appropriate  to  serve  low-­‐ income  clients.

2.  New  Delhi  –  110  019.2.  in  its  current  or  in  a  variant  form.  Given  recent  product  developments  in  the  low-­‐income  market.1).  Alternatively.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  is  the  most  expensive         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.   we  have  decided  to  use  a  proposed  Mzansi  short-­‐term  product  (developed  by   34   SAIA)  and  the  CAT  Standard  funeral  insurance  product  (developed  by  the  LOA)  to   quantify  the  costs  associated  with  distributing  low-­‐income  insurance  products   through  the  emerging  broker  (see  Section  3.2.  Regus.  consequently.  India   distribution  model.  ASSUMPTIONS  AND  MODEL  STRUCTURE   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.1.operation  and  the  provision  of  independent  advice.  is  able  to  (in  a  financially  sustainable   manner)  serve  the  low-­‐income  market.   The  purpose  of  the  section  is  thus  to  understand  whether  the  emerging  broker   model.  Estimation  of  broker  costs.  the  purpose  can  be   understood  as  to  provide  an  assessment  of  the  limits  of  the  emerging  broker   distribution  model.   3.  provides  us  with  a   rough  idea  of  maximum  costs  when  distributing  insurance  to  the  lower-­‐income   market  and  we  assume  that  other  distribution  models  are  associated  with  lower   costs.

 as  well   as  overhead  costs.  The  model   assumes  that  the  broker  does  not  have  an  existing  portfolio  of  policies  and  is   starting  his/her  business  anew.  The  costs  are   aimed  at  modelling  minimum  costs  rather  than  average  costs.  but  rather  creates  a  “frontier”  model.  It  must  be   noted  that  the  model  does  not  try  to  approximate  the  costs  of  the  average   emerging  broker.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  The  basic  assumptions  and   structure  of  the  model  are  noted  below  (The  reader  is  referred  to  Appendix  C  for   detailed  information  on  models  and  assumptions):  Start-­‐up  model.  India   this  analysis.  Regus.  New  Delhi  –  110  019.  In         15th  Floor.  Costs  have  been  based  on  various  submissions  in  response  to   the  National  Treasury  discussion  paper  (2006)  on  commissions  in  the  life  insurance   industry.  The  model  includes   consideration  of  transaction  costs  incurred  in  selling  or  servicing  policies.  Accordingly.  Eros  Corporate  Tower   Nehru  Place.  we  have  drawn  on  interactions  with  industry  players  to  ensure  that   our  assumptions  regarding  these  issues  are  as  realistic  as  possible.  This  means  that  we  try  to   model  the  lowest  realistic  costs  possible  to  assess  the  limits  of  products  and   markets  that  could  be  served  by  the  emerging  broker.  Costs  included  in  model.  and  interviews  with  various  players  and  service  providers.There  are  a  number  of  issues  that  impact  on  the  costs  of  a  distribution  model.  our   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.

        15th  Floor.  Detailed  income  or  commission  assumptions  are  contained  in   Appendix  C.costs  are  mostly  lower  than  costs  reported  in  the  submissions  by  intermediary  and   insurer  representative  bodies  to  National  Treasury.   ·∙ Individual  and  group  selling.  Eros  Corporate  Tower   Nehru  Place.  he/she  also  sells  to  one  group  (assumed  to   average  30  individuals)  every  two  months.  This  model  assumes  that.  It  is  important  to  note  that   this  is  quite  a  liberal  assumption  and  thus  presents  a  best  case  scenario.   Detailed  costs  assumptions  and  related  calculations  are  contained  in  Appendix  C.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  The  most  basic  model  is  based  on  a   single  emerging  broker  selling  on  individual  basis  only  and  assuming  that  the   broker  can  sell  15  policies  on  average  per  month22.  A  variety  of  sale  models  were  used  in  the  modelling  process  and  the   results  for  these  are  shown  in  Table  1  and  Table  2.  New  Delhi  –  110  019.  in  addition  to  the  15   individual  policies  a  broker  can  sell.  Regus.  this  is  a   quite  liberal  assumption  and  presents  a  best  case  scenario.   Income  received.  Like  the  assumption  above.  Cost  item  assumptions.   Sales  model.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   ·∙ Single  broker  selling  individual  policies  only.

 India   with  each  broker  able  to.  each  with  three  sales  assistants.  We  used  a  scenario  of  three  brokers  sharing  infrastructure.  sell  15  individual  policies  and  policies  to  one   group  every  two  months.  Regus.   we  provide  for  three  additional  sales  assistants  for  the  broker.  our  models  are  based  on  the  broker  selling  one   of  two  possible  products.  These  assistants  do   not  provide  advice.  In  addition  to  the  three  brokers  of  the  previous  model.  on   average.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  To  simplify  the  analysis.·∙ Multiple  brokers.  we  have  decided  to  use  a  product  based  on  the  proposed  Mzansi  short-­‐ term  product  (developed  by  SAIA)  and  one  based  on  the  CAT  Standard  funeral   insurance  product  (developed  by  the  LOA).  on  average.         15th  Floor.  see  Appendix  C.  sell  10  policies  per  month.  but  sell  policies  using  the  tick-­‐of-­‐the-­‐box  approach  and.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This  model  extends  the  previous  model  to  three   brokers.  For  more  background  information  on   the  products  used  for  the  cost  modelling.   Products.   ·∙ Single  broker  plus  runner.   ·∙ Multiple  brokers  plus  runners.  New  Delhi  –  110  019.  Given  recent  product  developments  in  the  low-­‐income   market.

 For  each  model  variant  and  sensitivity  scenario  we  present  three   outputs:   ·∙ Time  to  break-­‐even.)24.  This  does  not   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  In  order  to  test  the  sensitivity  of  our  findings  to  specific  assumptions.  etc.  Eros  Corporate  Tower   Nehru  Place.   The  discussion  of  findings  deriving  from  our  models  is  structured  around  the  type   of  product  sold.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Again  to  simplify  the  analysis.  The  number  of  months  required  for  the  broker  to  break  even   on  monthly  basis  (i.  The  scenarios  used  in  the  sensitivity  analyses  are:   ·∙ Double  sales  volume  assumptions.  Introducing  these  events  will  impact  negatively  on  the  models.   ·∙ Halve  sales  transaction  costs.  and   ·∙ Remove  estimates  of  FAIS-­‐related  overhead  costs  (e.   ·∙ Double  sales  transaction  costs.  recurring  compliance  and   training  costs.  in  any  specific  month  income  exceeds  costs).  annual  registration  fees.  It.  the  models  do  not  factor  in   lapsing.e.  New  Delhi  –  110  019.  presents  a  type  of  „best   case‟.g.  therefore.  Sensitivity         15th  Floor.  surrendering  or  claims  on  policies.  we   conducted  a  number  of  sensitivity  analyses  which  are  presented  in  the  summary   tables  and  the  discussion  below.  India   analysis.Lapsing/surrendering.

 Eros  Corporate  Tower   Nehru  Place.     It  seems  unlikely  that  emerging  brokers.   ·∙ Cumulative  loss  at  break-­‐even.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  This   is  relevant  to  consider  whether  the  model  can  realistically  manage  the  portfolio.  will  be  able  to  sell  the  short-­‐term  product  to  the  low-­‐income  market.  India   ·∙ Volume  at  break-­‐even.  It  takes  more   than  seven  years  (87  months)  to  break-­‐even  (where  total  monthly  commission   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  This  shows  total  losses  over  the  period  leading  up   to  the  first  break-­‐even  month25.         15th  Floor.   23  Industry  players  indicated  that  lapse  rates  in  the  low-­‐income  market  can  equal   anything  up  to  50%.  New  Delhi  –  110  019.  in  the  standard  model  and  in  other   models.take  into  account  the  financing  of  any  losses  made  leading  up  to  the  break-­‐even   month.   The  lone  emerging  broker  selling  to  individuals  does  not  appear  to  be  a  viable  or   financially  sustainable  option  for  serving  the  low-­‐income  market.  The  number  of  policies  in  the  portfolio  at  break-­‐even.  24  The  FAIS-­‐related  costs  used  in  the  model  are  based  on   assumed  compliance  with  all  the  requirements  of  FAIS  and  not  the  actual  level  of   compliance  in  the  market.

received  is  greater  than  total  costs)  at  which  point.  the  multiple-­‐brokers-­‐and-­‐runners  model  appears  to  fare  best.  India   debt.873  (see  Table  1).  Although  still  not  arriving  at  a  favourable   outcome.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .425  (see  Table  1).  Including  the  financing  costs  will  have  a  negative  impact   on  the  models.  at   which  stage  the  broker  has  accumulated  a  debt  of  R186.  Regus.  Of   all  models.       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  broker  has  accumulated  a   debt  of  R380.  The  lag  period  to   break-­‐even  and  debt  accumulated  at  break-­‐even  does  not  provide  attractive   market  opportunities  and  will  discourage  entry  into  the  emerging  broker  market.957.  is  considerably  lower  at  R216.  Eros  Corporate  Tower   Nehru  Place.   However.  Break-­‐even   time  is  almost  halved  (although  it  still  takes  almost  4  years  to  break  even)  and         15th  Floor.  although  still  substantial.  New  Delhi  –  110  019.  it  still  takes  more  than  two  and  a  half  years  to  reach  break-­‐even.    This  is  simply  done  on  present  value  basis  and  does  not  take  into  account  the  cost   of  financing  these  losses.  moving  to  a  higher  volume  sales  model  (the  group  sales  model)   improves  time  to  break-­‐even  and  debt  at  break-­‐even  significantly.

        15th  Floor.  The  reason   why  the  addition  of  volumes  or  group-­‐selling  does  not  make  a  significant   difference  to  the  financial  position  of  the  broker  is  that  a  point  is  reached  where   the  costs  associated  with  the  selling  and.  An  examination  of  figures  derived  from  the  sensitivity  analysis  on  the   doubling  of  policies  sold  per  month  leads  to  the  conclusion  that  there  is  a  ceiling  or   level  of  policies  sold  beyond  which  additional  volumes  do  not  provide  any   beneficial  impact  to  the  models.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  a  position  is  reached  where  the  financial  position  of  the  broker   actually  worsens  when  more  policies  are  sold.  in  particular.  New  Delhi  –  110  019.  India   Simply  increasing  (or  doubling)  volumes  does  not  allow  brokers  to  serve  this   market.  servicing  of  existing  policies   is  greater  than  the  commission  that  can  be  earned  from  a  low-­‐premium  product.  In  the  case  of  the  runner  and  multiple-­‐brokers-­‐ and-­‐runners  model.  The  only  model  that  really  benefits   from  a  doubling  of  the  policies  sold  per  month  is  the  individual  model.  Eros  Corporate  Tower   Nehru  Place.

  respectively)  and  time  to  break-­‐even  is  still  long.   ·∙ The  group  sales  model  and  the  multiple  broker  model  become  more  feasible  at  a   premium  of  R90.  the  premiums   required  for  the  broker  to  successfully  serve  individuals  may  be  at  levels  that  are   only  affordable  at  the  upper-­‐end  of  the  low-­‐income  market  or  even  beyond  the   low-­‐income  market.972.   the  doubling  of  premium  values  does  have  a  very  favourable  impact  on  the   financial  situation  of  the  broker  (Table  1).  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.Increasing  premium  levels  significantly.  Regus.  although  debt  levels  are  still  high  (R95.  This  demonstrates  that  when  premiums  are  high  enough.  The  doubling  of  the  premium  from  R45   to  R90  has  the  following  impacts:   ·∙ The  individual  model  is  still  unsustainable  (and  a  large  debt  of  R162.  However.         15th  Floor.542  is   accumulated).  Contrary  to  the  effect  of  doubling  the  number  of  policies  sold.816  and  R  67.  but  time  to  break-­‐even  becomes  more  feasible  (it  decreases  to  38   months)  and  the  policy  volumes  at  the  break-­‐even  point  more  realistic  (decreases   to  570  policies).  the   broker  (in  its  current  form)  is  able  to  serve  individuals.  results  in  a  more  favourable  position  for   the  broker  model.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.

 It  is  important  to  keep  the  different  Mzansi   product  options  in  mind  when  interpreting  these  figures.  Regus.  Some  products  are  priced   at  more  than  R90  and  arguably.  although  debt  levels  are  still  higher  than  R30.e.       Even  an  environment  without  the  FAIS  Act  would  not  improve  the  broker’s   feasibility  in  serving  this  market.  However.000.Note:  If  the  premium  is  four  times  greater  (this  scenario  is  not  shown  in  Table  1)   than  originally  assumed  (i.  R180).  India   break-­‐even  within  10  months.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  even  if  these  products  would  allow  the  emerging  broker  to   operate  on  a  financially  sustainable  basis.  Although  FAIS  has  a  substantial  impact  on   overhead  costs  (up  to  20%).  the  impact  of  overhead  costs  on  feasibility  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  most  models  (except  the  individual  model)         15th  Floor.   This  demonstrates  the  extent  to  which  premiums  would  need  to  increase  in  order   for  these  models  to  be  feasible.  intended  for  the  upper  end  of  the  low-­‐income   market.  New  Delhi  –  110  019.  demand  from  the  low-­‐income  market   will  be  limited.

      CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  it  only  makes  a   marginal  difference  to  the  financial  sustainability  of  the  broker  in  selling  the   Mzansi  product  (compare  the  last  column  of  Table  1  to  the  original  column).  we  can   assume  that  the  FNA  and  other  reporting  requirements  imposed  by  the  FAIS  Act   will  increase  the  amount  of  time  spent  to  complete  an  individual  sale.  India   components  were  to  be  removed  from  total  overhead  costs.  New  Delhi  –  110  019.  FAIS  may   also  translate  directly  into  increased  trips  to  see  the  client  and  an  increased   amount  of  paper  that  may  need  to  be  printed.  we  halved  direct  costs   (see  Table  1).  The   time  to  break-­‐even  is  only  marginally  reduced  and  cumulative  losses  remain  high   for  all  models.  The  results  indicate  that  even  a  significant  reduction  in  the  broker‟s   direct  costs  does  not  improve  the  broker‟s  financial  position  sufficiently.  Eros  Corporate  Tower   Nehru  Place.  Regus.   Although  the  impact  of  FAIS  on  direct  costs  is  not  explicitly  modelled.  To  understand  whether  the   broker‟s  viability  would  increase  if  direct  costs  are  reduced.  If  all  FAIS  cost         15th  Floor.overshadowed  by  the  continued  impact  of  direct  sales  costs.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 New  Delhi  –  110  019.  This  is  not  a  suggested  solution  for   the  distribution  of  short-­‐term  microinsurance.000  and  R42.4.2.  but  gives  an  indication  of  the  power   of  up-­‐front  commission  on  the  viability  of  the  broker  model.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .Up-­‐front.  in  contrast  to  the  short-­‐term  product.  It  is  important  to   remember  that.000.  This   provides  some  indication  of  the  difference  in  viability  between  an  up-­‐front  and  an   as-­‐and-­‐when  commission  structure.  A  scenario  in  which  commission  on  the  R45  premium  is   received  at  a  3.  the  other  models  all  became  profitable  after   either  the  7th  or  13th  month.  RESULTS  OF  MODEL  BASED  ON  LONG-­‐TERM  PRODUCT   This  section  looks  at  the  distribution  of  the  funeral  product.  Regus.25%  level  on  an  up-­‐front  basis  (the  same  payment  structure  as  that   of  the  funeral  product)  was  also  modelled  (not  shown  in  Table  1  or  Table  2).  This  shows  that  selling  of  even  a  moderate  to  low  premium   product  (R45)  on  an  up-­‐front  commission  basis  allows  the  broker  model  to  achieve   a  position  of  relative  financial  sustainability.  rather  than  as-­‐and-­‐when  commission  could  create  a  more  viable         15th  Floor.  with  accumulated  losses  only  amounting  to  between   R25.  an  up-­‐front  commission   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   3.  While  the  individual  selling  model  was  not   viable  using  these  assumptions.  Eros  Corporate  Tower   Nehru  Place.  India   situation  for  the  broker.

610  (at  a  more  manageable  level  if   compared  to  the  findings  for  brokers  selling  the  short-­‐term  product26).  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  The  other   models  all  reach  break-­‐even  faster  and  at  lower  debt  levels.  through  the  sale   of  a  R75  premium  product  under  an  up-­‐front  commission  structure.  If  it  is  assumed  that.  especially  the  upper  end  of  the  low-­‐income  market.  Regus.  risk  premiums  for  life  products  are  higher  than  R75.  with  cumulative  losses  totalling  R42.  Table  2  indicates   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   in  general.  The  first   column  in  Table  2  illustrates  the  potential  for  the  broker  to  serve  the  low-­‐income   market  and.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .structure  applies.  from  the  19th  month  onwards  the  level  of         15th  Floor.  India   commission  earned  does  not  change  as  the  broker  is  selling  the  same  number  of   policies  thereafter  and  all  commission  is  paid  within  the  first  19  months  after  a   policy  sale  (refer  to  Appendix  C  for  a  discussion  of  the  commission  structure).       The  current  broker  model  will  be  able  to  serve  the  low-­‐income  market  with   higher  premium  products  under  an  up-­‐front  commission  structure.  Consequently.  even  a  model  that  serves  only  individuals  is  able  to  break  even  after  19   months.  As  can  be   seen.

 As  soon  as  the  premiums  are  halved.  In  addition.g.  all  models  are  profitable  in  the  first  month.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   Broker  models  will  not  be  able  to  penetrate  very  deep  into  the  low-­‐income   market  with  low  premium  values.  Regus.  banks  and  retailers).  the  group   model  never  really  becomes  strongly  profitable  (a  monthly  profit  of  R552  is  the   largest  profit  generated)  and  by  the  44th  month  the  model  starts  generating   losses  again.  If  the         15th  Floor.  New  Delhi  –  110  019.that  the  broker  should  be  able  to  play  a  role  in  the  low-­‐income  space  and  find  the   selling  of  these  products  viable.  Note:  A   R75  premium  for  a  funeral  insurance  product  is  probably  too  high  for  the  average   low-­‐income  client  as  a  product  providing  the  same  levels  of  cover  could  be   purchased  for  lower  premiums  at  certain  providers  (  e.  As  mentioned.  Only  the  variant  business  models  seem  like  they  may  be  viable  in  a   situation  where  the  premium  is  halved.  Eros  Corporate  Tower   Nehru  Place.  3.25%  is  a  very  conservative   commission  rate  for  funeral  insurance  as  commission  rates  are  uncapped.  This  is  especially  true  for  the  models  where   the  overhead  costs  are  shared  by  multiple  brokers  and  debt  levels  at  break-­‐even   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   commission  rate  is  set  at  10%.  the   individual  emerging  broker  never  breaks  even  (see  Table  2)  and  even  the  group   model  starts  approaching  high  debt  levels  at  break-­‐even.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  all   models.  India   Variant  broker  business  models  may  still  be  able  to  play  a  role  in  the  low-­‐income   market  even  if  selling.             15th  Floor.       The  removal  of  FAIS  fixed  costs  creates  a  more  viable  situation  for  the  emerging   broker.  where  the  servicing  costs  are  doubled.  except  the  individual  selling  model  (see  Table  2)  break  even  by  the  7th   month  under  each  scenario.  We  have  not  explicitly  considered  the  financing  options   available  for  the  reviewed  models.  To  analyse   the  sensitivity  of  selling.  but  this  may  present  a  problem.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  these  costs  are  doubled.are  approaching  R30.  servicing  or  overhead  costs  were  underestimated.  When  FAIS  fixed  costs  are  removed  (up  to  20%  of  total  overhead  costs).  servicing  and  overhead  costs  were  to  increase.  except  the  individual  selling  model.  It  is   possible  that  selling.  All   models.  New  Delhi  –  110  019.  break  even  with  quite  low   accumulated  debt  levels.  Eros  Corporate  Tower   Nehru  Place.000.  servicing  and  overhead  costs.  In  addition.  Regus.

 Regus.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  while  the  number  of         15th  Floor.196.106.  Eros  Corporate  Tower   Nehru  Place.556.   3.  High  sales  volumes  may  assist  in  making  the  low-­‐income  market  slightly   more  attractive.   with  an  accumulated  debt  of  R26.the  financial  situation  of  the  emerging  broker  becomes  more  viable.  all  broker  models  (except   the  lone  emerging  broker)  break  even  within  the  first  month.  India   policies  sold  at  break-­‐even  decreases  to  195  and  accumulated  losses  at  break-­‐even   decrease  to  R27.  The  “runner”  and  “brokerage   with  runners”  models  break  even  after  one  month.  CONCLUSIONS  ON  AND  ASSESSMENT  OF  SELECTED  MODELS   This  section  concludes  by  providing  an  overview  of  the  performance  of  a  selected   number  of  intermediation  models  on  criteria  relating  to  their  potential  for   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  while  accumulated  debt  at  the  break-­‐even  point  for  the   small  brokerage  or  multiple  brokers  is  only  R  2.3.  The  lone   emerging  broker  is  able  to  break  even  after  13  months.  The  situation  is  even  better  with  the  individual   broker  selling  to  groups  who  breaks  even  after  seven  months  with  accumulated   debt  totalling  only  R9.  the  lone   emerging  broker  only  achieves  break-­‐even  after  7  months  and  210  policies  sold.  However.  In  a  scenario  of  doubled  sales  volumes.509.  with  no  accumulated  losses  or   debt.

 but  these  models  are  still  unable  to   penetrate  significantly  into  LSM  1-­‐5.  Regus.  call  centre  support  for  agents   and  brokers  in  the  Metropolitan  REI  model).g.microinsurance  distribution  as  well  as  summarising  the  findings  from  the  cost   modelling.  It  does  not  constitute  an  exhaustive  analysis  of  all  the  models   operating  in  the  low-­‐income  market.  this  has  been  based  on  group  sales.  which  were  mainly  limited  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  Where  models  have  been  able  to  extend  to   the  lower  LSMs.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   The  evaluation  of  specific  models  is  mostly  focused  on  those  models  already         15th  Floor.  There   are  some  interesting  model  variations  that  reduce  cost  (also  FAIS  compliance  cost)   and  improve  the  reach  of  some  of  the  models  (e.  India   operating  in  the  low-­‐income  market  or  on  models  that  have  the  potential  to  serve   this  market.  New  Delhi  –  110  019.  These  models   are  shown  at  the  top  of  Table  3  and  fall  in  the  broker  and  agent  categories.         Traditional  (and  particularly  advice-­‐based)  models  have  not  been  able  to  extend   into  LSM  1-­‐5  and  have  been  limited  to  the  banked  and  employed.

 Although  the  variants  of   the  broker  model  achieve  financial  sustainability  faster  and  at  lower  debt  levels.  Most  of  these  models  are  based  on  advice  and  the  FAIS  will         15th  Floor.  This  conclusion  applies  to  both  the   Mzansi  short-­‐term  product  and  the  funeral/long-­‐term  product.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .       Cost  modelling  suggests  limited  role  for  advice-­‐based  sales  model  of  brokers  in   LSM  1-­‐5.   ·∙ The  low  value  of  products  sold  to  the  low-­‐income  market  and  inability  to  cope   with  significant  volumes  will  make  it  difficult  for  the  emerging  broker  in  its  current   form  to  play  a  role  in  the  low-­‐income  market.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  India   eventually  reduce  even  the  limited  penetration  in  LSM  1-­‐5  (darker  shaded  areas  in   Table  3).  it   is  possible  that  accumulated  debt  levels  for  an  as-­‐and-­‐when  commission  structure   will  simply  be  too  high  to  source  financing.   ·∙ Emerging  broker  models  operating  under  a  complete  as-­‐and-­‐when  commission   structure  will  not  be  able  to  serve  the  low-­‐income  market.  Regus.  New  Delhi  –  110  019.larger  employers.

 This  provides  a  clear  indication  of  the   difficulties  faced  by  brokers  in  selling  low-­‐premium  products  to  the  low-­‐income   market.25%  to  10%  for  the  funeral  insurance  product.  Regus.  all  models   achieved  break-­‐even  within  the  first  month.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.         15th  Floor.   ·∙ Variants  of  the  emerging  broker  business  model  seem  to  be  able  to  serve  at  least   the  upper-­‐end  and  possibly  (under  an  up-­‐front  commission  structure)  lower  into   the  low-­‐income  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  while  also  decreasing  time  to  break-­‐even  and  the  number  of  policies   at  break-­‐even.  In  the  case  of  the  short-­‐term  product.  it  is  likely  that  these  higher  premiums  will  be  unaffordable  to  the  low-­‐ income  customer.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.·∙ An  increase  in  premiums  or  commission  levels  affects  the  financial  viability  of  the   broker  model  the  most.  When  commission  levels   were  increased  from  3.  premium  levels  that   were  doubled  decreased  accumulated  debt  (compared  to  the  original   estimations).  This  is  shown  by  the  multiple-­‐broker-­‐and-­‐runner-­‐model.   ·∙ Although  higher  premium  sales  will  allow  the  emerging  individual  broker  models   to  be  viable.  the  most  of  all  the  sensitivity  analyses.

  ·∙ Changes  from  an  up-­‐front  commission  structure  to  a  mixture  between  an  up-­‐       15th  Floor.   In  order  for  emerging  brokers  to  operate.  On  the  short-­‐ term  side.   they  will  need  to  focus  on  higher  premium  business.  However.  it  seems   as  if  regulations  are  going  to  force  the  market  from  up-­‐front  commissions  to  a   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  the  market  is  already  operating  on  an  as-­‐and-­‐when  commission  basis.  Regus.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  which  is  uncapped)  may  allow  a  mixture  of  up-­‐ front  and  as-­‐and-­‐when  commission  structures  to  be  feasible.  there  is   still  uncertainty  about  the  exact  form  that  regulations  will  take.25%  up-­‐front  commission.  even  utilising  the  reinvented  models.  We  are  unable  to   comment  on  the  extent  of  this  at  this  stage.   ·∙ Emerging  brokers  need  to  up-­‐skill  in  order  to  survive  in  the  market.50  funeral  product  at  a   3.  On  the  long-­‐term  side.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  increased  commission  rates   (especially  for  funeral  insurance.which  breaks  even  within  7  months  when  selling  a  R37.  India   front  and  as-­‐and-­‐when  commission  structure  (a  potential  outcome  of  National   Treasury’s  discussion  paper)  will  threaten  the  ability  of  even  the  variant   44   emerging  broker  models  to  serve  the  low-­‐income  market.  However.

 As  a   result.  What  we  do  know.  These  models  are  shown  at  the  bottom   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  As  a  result.  Regus.  more  profitably.  The  outcome  for  the  low-­‐income  market  is  that   these  emerging  brokers  may  be  able  to  cross-­‐subsidise  a  certain  amount  of  low-­‐       15th  Floor.  emerging  brokers  will  only   be  able  to  obtain  higher  premium  business  with  better  skills.  is  that  emerging  brokers‟  margins  will   be  squeezed  and  that  they  will  need  to  attract  higher  premium  business.   A  number  of  new  models  are  emerging  that  extend  beyond  banked  and   employed  and  are  able  to  serve  LSM  1-­‐5.  for  both  long-­‐  and  short-­‐term  insurance  policies.  in  some  of  the  potential  variant  business   models  suggested  in  this  section.  New  Delhi  –  110  019.  Better  skills  will  allow  them  to  continue  to  operate  as   individual  brokers  or.  India   end  sales  with  higher  premium  sales.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.  they  will  require  financial  and  other  support  from  government  and/or  the   insurance  industry.  the  emerging  broker  may  be  able   to  play  a  limited  role  in  the  communities  from  which  they  derive  from  and  which   generally  constitute  the  low-­‐income  market.mixture  of  up-­‐front  and  as-­‐and-­‐when  commissions.  We  are  not  sure  how  far  down   this  path  things  will  go.  To  increase  their   skills.

 The  sale  is  conducted  without  advice.  In  a  few  cases   disclosure  and/or  advice  is  available  on  request  of  the  client.  Tick-­‐of-­‐the-­‐box  selling  is  where  a  model   utilises  a  simplified  sales  process  of  simply  „ticking‟  the  relevant  box  or  space  on  a   form  if  insurance  is  required.  The  result  is  that  these  models  are   able  to  serve  the  unbanked  and  those  that  fall  beyond  payroll  deduction.   which  will  be  critical  for  a  large  proportion  of  LSM  1-­‐5  (see  Section  4.   45   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  India   ·∙ Ability  to  collect  cash  premiums.6)   ·∙ Reliance  on  tick-­‐of-­‐the-­‐box  selling.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  a  concomitant  disadvantage  of  the  collecting  premiums  in  cash  is  the   possibility  of  higher  policy  lapse  rates.  An   additional  advantage  of  cash  collection  is  the  ability  to  collect  irregular  premiums.  A  key  advantage  of  the  new  models  is  that  they   are  able  to  collect  premiums  in  cash28  or  collect  premiums  through  alternative   means  (to  bank  account  or  salary  deduction).of  Table  3  and  fall  in  the  multi-­‐function  and  organised  low-­‐income  group   categories.  They  share  a  number  of  characteristics:         15th  Floor.  but  it  is   28  However.

 It  often  implies  that  the  sale  is  completed   (i.  the  client  indicates  that  she  wants  to  purchase  the  product)  before  any         15th  Floor.   This  means  that  the  client  has  to  know  what  to  ask  for  in  order  to  obtain  sufficient   information  on  the  product.2).  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .not  part  of  the  standard  sales  process.3.  The  leveraging  of  brand  power   not  only  helps  to  reduce  certain  intermediation  costs  components  such  as   advertising.  Regus.  while   two  of  the  models  offer  at  least  disclosure  (microfinance  institutions  and  captive   cash  retailers).  but  also  helps  to  facilitate  trust  by  potential  clients  in  the  offered   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  A  potential  concern  is  that  a  number  of  the  new  models  do  not   offer  disclosure  as  part  of  the  basic  sales  process  but  only  on  request  of  the  client.  Only   one  of  the  models  provide  advice  upon  request  (the  tiered-­‐agency  force).  Eros  Corporate  Tower   Nehru  Place.   ·∙ Utilising  brand  trust  and/or  group  affinity  to  facilitate  sales.  India   disclosure  or  advice  on  the  product  is  provided  (if  any  disclosure/advice  is  provided   at  all).  One  benefit  of  the  tick-­‐of-­‐the-­‐box  method  to  the  intermediary  is  that  the   sale  can  be  conducted  by  a  non-­‐FAIS  registered  employee  (see  Section  5.  This  can  generally  be  assumed  not  to  be  the  case.  New  Delhi  –  110  019.  The  new  models  all   utilise  some  form  of  brand  or  affinity  power  to  facilitate  an  easier  introduction  of   its  insurance  products  to  the  lower-­‐income  market.e.

 However.  can  also  facilitate  insurance  sales.   ·∙ Intermediary  control  over  distribution  channel.g.  We  return  to  the  issue  of  controlling  access  to  client  groups  in  Section  7.  trust.  Eros  Corporate  Tower   Nehru  Place.  India   takes  less  time  to  sell  the  product  and  clients  are  willing  to  make  the  purchase   without  requiring  significant  face-­‐to-­‐face  interaction.  the  insurer.  While  the  retailer  controls  access  to   new  clients.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Similarly.  Regus.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  therefore.2).  This  argument  applies  to  a   strong.  the  retailer  models).  as  found  in   low-­‐income  groups.  visible  retail  brand  (e.  As  clients  are  familiar  with  and  trust  the  intermediary.  New  Delhi  –  110  019.insurance  product(s).  The  intermediary  or  distribution  channel   generally  controls  access  to  the  client  and  forces  the  insurer  to  partner  with  these   institutions.  which  means  that  the  insurer  is  also  able  to  gain  access  to  the  client   through  direct  access  to  client  information.  is  in  a  position  to  interact  directly  with  the   existing  clients  even  if  the  relationship  between  the  insurer  and  retailer  breaks   down.  it         15th  Floor.  for  at  least  one  of  these  models  (the  captive  cash  retailer)   the  insurer  has  managed  to  structure  the  partnership  in  the  form  of  a  joint   venture.  The  nature  of  the  relationship   with  the  distribution  partner  means  that  access  to  the  client  in  most  of  the  new   models  is  beyond  insurer  control.

 Our  review  has   revealed  some  critical  limitations.  they  have  not  yet  proven  their  success.  independent  retailer  and  cash  retailer.   46   Although  the  new  models  will  place  the  products  within  reach  of  low-­‐income   customers.  A  number  of  the  models  utilise  SMS  reminders  for   clients  who  pay  their  premiums  in  cash  and  have  cell  phones  or  use  systems  of         15th  Floor.  Although  the  new   models  hold  much  promise.  New  Delhi  –  110  019.  but  effective  use  of  information  technology.  which  raises  questions  about  the  take-­‐up  that   will  be  achieved  through  these  models  and  the  level  of  service  that  will  be   provided  to  low-­‐income  clients.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   29  Tiered-­‐agency.·∙ Simple.  For   at  least  three  of  the  models29.  but  effective  application  of  technology  for   communication  purposes.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  a  call  centre  is  of  central  importance  in   communication  with  clients.  India   phone-­‐back  disclosure  where  the  call  centre  responds  on  a  missed  call  or  SMS.  A  further  key  aspect  of  the   new  models  is  their  simple.  Eros  Corporate  Tower   Nehru  Place.  it  is  not  clear  whether  they  will  achieve  take-­‐up.

 especially  in  the  case  of  the  retailer   models.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  India   reconcile  cash  collection  with  claims  payment  processes  and  often  still  require  a   bank  account  to  pay  claims.·∙ Claims  processes  lag  sales  and  premium  collection  innovations.  Eros  Corporate  Tower   Nehru  Place.   ·∙ Disclosure  on  demand  rather  than  by  default.  However.   however.  problems  arising  out  of  this  solution.  It  is.  would  be  to  utilise  the  existing  infrastructure  of  the  retailer  to  facilitate   in-­‐store  cash  payments.  some  have  not  been  able  to         15th  Floor.  The  models  that  are  able  to   extend  to  the  lowest  LSM  categories  (microfinance  institutions  and  other  low-­‐ income  groups).  such  as   security  risks  and  possible  cash  flow  issues.   ·∙ Low-­‐income  group  models  limited  to  membership.  The  fact  that  a  number  of  the  new   models  do  not  provide  advice  and  only  provide  disclosure  on  request  creates  a   substantial  risk  of  at  least  some  mis-­‐selling  to  clients  occurring.  would  first  have  to  be  addressed.  One  solution.  Particularly  MFIs   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Although  all  of   these  models  are  able  to  collect  premiums  in  cash.  New  Delhi  –  110  019.  obvious  that  this  misalignment  in  the  distribution  process  would  first   have  to  be  addressed  if  the  low-­‐income  market  is  to  be  served  successfully.  Regus.  cannot  extend  beyond  their  core  membership.

 A   number  of  the  new  models  employ  a  passive  sales  model.  the  extensive  reach  of  and  familiarity  with  funeral  insurance  also   means  that  clients  understand  basic  insurance  products  and  are  aware  of  them.  Eros  Corporate  Tower   Nehru  Place.  take-­‐up  of  insurance  policies  to  date  has   been  very  low.   ·∙ Distribution  still  limited  to  funeral  policies.  Regus.  The  only  product  actively  being  sold         15th  Floor.   In  the  case  of  the  HTG/Shoprite  example.   ·∙ Passive  model  unproven  in  markets  not  familiar  with  insurance.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  full  integration  with  the  sales   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  for  the  Pep/Hollard   model.  which  relies  on  clients  to   approach  a  counter  or  distribution  point  rather  than  a  sales  agent  approaching  a   client.  One  of  the  most   critical  limitations  of  the  current  low-­‐income  distribution  models  is  that  (along   with  advice).  This  model  has  not  yet  demonstrated  its  success  in  the  low-­‐income  market.have  limited  membership  and  will  only  be  able  to  intermediate  insurance  to  their   members.  The  Pep/Hollard  model  has  not  been  in  existence  very  long  and  it  is   thus  too  early  call  for  a  verdict  on  sales  numbers.  However.  they  have  also  removed  active  selling  from  their  sales  model.  Although  we  note  this  as   a  limitation.  India   (with  the  exception  of  Pep/Hollard)  is  funeral  insurance.  New  Delhi  –  110  019.

47         15th  Floor.4m  people  in  LMS  1-­‐5  have  store  account.  but  no  form  of  formal  insurance.  Eros  Corporate  Tower   Nehru  Place.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   ·∙ 3.   30  In  contrast  to  the  Pep/Hollard  model  where  insurance  products  are  placed  on   open  shelves  in  the  stores.  Shoprite  sells  insurance  products  from  a  separate   Money  Market  counter  in  the  store.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  incentivisation  of  sales  at  store  level  and  contact  centre  sales  support   may  result  in  more  active  promotion  of  the  products.  India   process30.  Regus.   ·∙ 1.2m  people  in  LSM  1-­‐5  have  bank  accounts  but  no  form  of  formal  insurance.  New  Delhi  –  110  019.   ·∙ 4.  SEGMENTATION  OF  THE  LOW-­‐INCOME  MARKET   Key  findings  from  Section  4   ·∙ A  large  number  of  unreached  clients  in  LSM  1-­‐5  are  within  reach  of  existing   formal  and  informal  client  touch  points.   48   4.3m  people  in  LSM  1-­‐5  have  a  pre-­‐paid  cell  phone  but  no  form  of  formal   insurance.

  ·∙ potential  reach  of  insurance  channels.         15th  Floor.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  New  Delhi  –  110  019.  not  the  main   constraint  in  reaching  the  uninsured  as  they  are  already  accessing  other  formal   and  informal  networks  which  could  serve  as  a  potential  payment  collection   system.  certain  demographic  and  other  characteristics  of  LSM  1-­‐5  (or  the   low-­‐income  insurance  market)  are  explored  as  part  of  the  demand-­‐side  analysis.  and   ·∙ likely  insurance  take-­‐up.  therefore.·∙ For  a  large  proportion  of  LSM  1-­‐5.   ·∙ distribution  strategies  that  are  likely  to  succeed  in  the  low-­‐income  market.  Eros  Corporate  Tower   Nehru  Place.   4.1.  INTRODUCTION   In  this  section.   These  characteristics  were  selected  because  they  are  able  to  provide  some   indication  of:   ·∙ product  characteristics  required  to  succeed  in  the  market.  premium  collection  is.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   ·∙ All  the  alternative  client  touch  points  are  still  beyond  the  control  of  insurers  and   will  rely  on  partnerships  with  institutions  that  control  access  to  the  client  groups.

 This  section  should   therefore  not  be  considered  a  demand  analysis.  SCOPE  OF  ANALYSIS  AND  RISK  CONTEXT   Defining  the  low-­‐income  market.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  In  addition.  Eros  Corporate  Tower   Nehru  Place.  Regus.2.  but  rather  viewed  as  a  demand-­‐ side  analysis.  the  low-­‐income  market  is  segmented  into   groups  or  categories  with  specific  profiles  that  have  implications  for  how   insurance  is  distributed  to  these  groups.  some  statistics  around   current  microinsurance  usage  in  LSM  1-­‐5  are  explored.  The  FSC  clearly  states  that  insurers  have  to   increase  effective  access  and  that  this  means  (amongst  other  things)  “a   sufficiently  wide  range  of  first-­‐order  retail  financial  products  and  services  to  meet   first  order  market  needs  and  which  are  aimed  at  and  are  appropriate  for   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  allows  us  a  glimmer  of  how  the  need  for  insurance  (which  we         15th  Floor.   49   4.  Although  the  categories  and  their   descriptors  do  not  allow  us  to  measure  actual  demand  for  insurance.Using  the  mentioned  characteristics.  they  do   provide  an  indication  of  factors  that  could  potentially  drive  demand  and.   consequently.  India   assume  is  there)  could  be  fulfilled  by  insurers.

individuals  who  fall  into  the  All  Media  Product  Survey  (AMPS)  categories  of  LSM  1-­‐       15th  Floor.  given   a  specific  monthly  household  or  personal  income.  Eros  Corporate  Tower   Nehru  Place.  “using  R3000  as  the  upper  income”31.  India   5‖  (emphasis  added).  it  is  much  easier  to  answer  the  question  of  whether.  an  asset-­‐based  segmentation  of  the  low-­‐income  market.  Access  and  Terms)   Standards  products  developed  by  the  LOA  to  fulfil  the  targets  set  in  the  FSC.000  would  fall   into  the  LOA‟s  target  market  for  the  so-­‐called  CAT  (Charges.  New  Delhi  –  110  019.  since  the  FSC   Council  has  not  officially  changed  or  adapted  definition  of  low-­‐income  market.  this   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   Using  such  a  definition.  households  would  be  able  to   afford  paying  a  certain  monthly  insurance  premium.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  The  FSC  definition  of  the  low-­‐income  market  is  thus  posed  in   terms  of  LSM  1-­‐5.   In  contrast.  An  income-­‐based  definition  of  the  low-­‐ income  market  relates  directly  to  the  issue  of  affordability  of  insurance  products.  The   income  definition  serves  as  practical  proxy  for  LSM  1-­‐5  as  it  is  often  difficult  to   determine  an  insurance  client‟s  LSM.  However.  the  Life  Offices  Association  (LOA)  uses  a  market  categorisation  based   upon  individual  income.  This  implies  that   any  individual  earning  a  monthly  income  equal  to  or  less  than  R3.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   including  insurance.  such   as  withdrawing  children  from  school  to  save  on  educational  expenses  or  reducing   other  household  consumption.  Low-­‐income  or  poor  households  are  more  vulnerable  and  exposed   to  adverse  events.  Vulnerability  for  this  group  is  increased  by  uncertain  or   irregular  incomes.  they  are  also  more  at  risk.  are  used  after  occurrence  of  the  adverse  event.  Regus.  savings  and  credit.   Strategies  to  deal  with  risk.  can  be  used  before  or  during  an  event  to   limit  the  impact  of  the  adverse  event  when  it  does  occur.  Risk  in  the  low-­‐       15th  Floor.  accidents.  New  Delhi  –  110  019.  Coping  strategies.  Risk  mitigation  strategies.  theft  and  fire  occurring.analysis  uses  the  LSM  1-­‐5  definition  of  the  low-­‐income  market.   Insurance  is  only  one  of  a  number  of  risk  mitigation  strategies  and  it  will  not  be   rational  for  all  households  to  insure  themselves  against  all  possible  adverse   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Eros  Corporate  Tower   Nehru  Place.  Not  only  are  these  households  more  vulnerable  than  other   households.  Low-­‐income  individuals  normally  live  and   work  in  environments  with  a  higher  probability  of  adverse  events  such  as   infection.  India   income  market.  the  absence  of  an  asset  buffer  and  equally  vulnerable  social   support  structures.  Individuals  within  these  households  can  choose   between  one  of  two  main  strategies  to  deal  with  risk.

 Insurance  usage  cannot  be  considered  indicative  of   insurance  demand.  India   events.  as  insurance  is  the  risk  mitigation  mechanism  of  choice  for   many  households.  In  addition.  However.  In  the  South  African  context.   50         15th  Floor.  LOA  Access  Committee.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  establishing  true  levels  of  demand  for  a  product   within  any  market  is  difficult.  the  problem  of   insurance  demand  measurement  in  the  low-­‐income  market  is  exacerbated  by  the   fact  that  products  (to  date)  have  not  been  designed  to  meet  the  needs  of  this   market  (with  some  notable  exceptions).31  Sid  Kaplan.  However.  this  section  uses  insurance  usage  figures  derived  from  FinScope  2005  to   provide  some  indication  of  demand.  Given   the  difficulty  of  establishing  the  real  demand  of  insurance  within  the  low-­‐income   market.  it  is  necessary  to  understand  the  factors  that  determine  and   shape  demand  and  also  supply  responses.  It  is   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  need.  nor  will  households  necessarily  choose  to  insure  (even  if  it  is  the  rational   choice).   Insurance  usage  vs.  New  Delhi  –  110  019.  The  meaning  of  derived  numbers.  financial  literacy  within  this   market  is  also  not  very  high  and  certain  insurance  concepts  unfamiliar32.  Eros  Corporate  Tower   Nehru  Place.

   The  proliferation  of  burial  societies  and  relatively  high  usage  of  funeral  insurance   in  the  low-­‐income  market  has  supported  an  understanding  of  funeral  insurance   and  its  benefits.  Figure  3  shows  the  usage  of  insurance  and  other  financial   products  across  LSMs  as  recorded  by  the  FinScope  2005  survey33.necessary  to  emphasise  that  the  segmentation  process  utilised  in  this  study  and         15th  Floor.  Regus.   are  still  largely  unfamiliar  to  the  low-­‐income  market.3.     4.  New  Delhi  –  110  019.  rather   than  on  the  absolute  numbers  or  statistics  derived  from  the  approach.   Figure  3:  Usage  of  insurance  and  other  financial  products  across  LSMs   Source:  FinScope  200534  Based  on  the  information  captured  in  the  FinScope   survey.  However.  other  insurance  concepts.  THE  CURRENT  MICROINSURANCE  MARKET   The  microinsurance  market  in  South  Africa  is  limited  in  products  offered  and   penetration  achieved.  a  number  of  observations  can  be  made  on  the  current  microinsurance   market:   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  such  as  short-­‐term  insurance.  Eros  Corporate  Tower   Nehru  Place.  India   the  resultant  discussion  are  focused  on  the  demonstration  of  an  approach.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 suggests  that.Only  funeral  insurance  achieves  notable  usage.  they  do  not  provide  insurance  as  defined  in  South   African  legislation  as  the  benefits  are  not  guaranteed.  New  Delhi  –  110  019.  we  refer  to  burial  societies  in  the  same  context  as   insurance  products.  Regus.  short-­‐term  insurance  is  represented  by  the  general  insurance   category.         15th  Floor.  An  important  and   still  unanswered  question  on  the  success  of  funeral  insurance  is  whether  the   „success‟  achieved  by  this  product  is  due  to  the  characteristics  on  the  supply-­‐side   (e.  although  burial   societies  provide  funeral  cover.  Previous  research.  27%  of  individuals  in  LSM1-­‐5   indicated  that  they  have  some  form  of  funeral  insurance  (including  formal   insurance  through  a  “big  institution”.  funeral   insurance  seems   34  In  Figure  3.  Eros  Corporate  Tower   Nehru  Place.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  35  For  simplicity.  See  Genesis  (2004)  for  a   more  detailed  discussion.  uncapped  commissions)  or  simply  because  of  the  particular  cultural  demands   around  funerals  in  South  Africa.  insurance  through  funeral  parlours.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .g.  India   insurance  through  employer  or  burial  society  membership35).  however.  In  contrast  to  all  other  insurance  products.

 New  Delhi  –  110  019.   the  bulk  is  through  funeral  parlours.  However.  Of  the  formal  insurance  usage.  irrespective  of  the  drivers  of  the  successful  take-­‐up  of  funeral  insurance.  this  is  still  quite  limited         15th  Floor.  this  is  also  a  demand  signal  for  the  need  for  products  to   manage  risks  faced  by  lower-­‐income  households.  about  60%  are  members  of  a  burial  society  and  about   50%  are  only  members  of  a  burial  society  (i.  The  bulk   is  still  expected  to  be  informal  insurance  products  managed  without  any   relationship  with  a  formal  insurer.  Although  a  proportion  of  these  may  refer  to  formal   funeral  insurance  products  sold  through  informal  societies.  a   large  proportion  is  through  informal  burial  societies.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  is  provided  through   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  India   and  not  expected  to  be  a  large  component  of  the  informal  product  usage.  the   bulk  (30%)  of  usage  in  LSM1-­‐5.  Of  the  27%  that  have  any   form  of  funeral  insurance.  Of  the  funeral  insurance  usage.e.   what  is  clear  is  that  the  product‟s  success  in  the  low-­‐income  market  will  definitely   contribute  to  the  same  market‟s  receptiveness  to  other  insurance  products  and   they  have  now  had  some  insurance  exposure.  outside  of  burial  societies.  Regus.  In  addition  to  showing  the  strength  of  the   informal  societies.  they  did  not  use  any  of  the  other   funeral  insurance  products).  Eros  Corporate  Tower   Nehru  Place.  Exploring  funeral  insurance  usage  further.

 this  also   presents  illegal  insurance  schemes  run  by  funeral  parlours  without  any   relationship  with  a  formal  insurer.  2004).  Regus.   Other  than  funeral  insurance  use  of  formal  life  or  general  insurance  products  are   restricted  to  the  higher-­‐income  market.funeral  parlours.  The  absence   of  bank  accounts  is  often  given  as  the  reason  by  insurers  why  they  cannot  access   lower-­‐income  households  (due  to  the  cost  and  difficulty  of  collecting  cash   premiums).  India   funeral  parlour  acts  as  the  agent  of  the  formal  insurer  but  in  many  cases.  While  it  may  be  true  that  the  absence  of  bank  accounts  complicate  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   Bank  accounts  exceed  insurance  penetration  at  lower-­‐income  levels.  The  data  available  is  insufficient  for  the   disaggregating  of  these  two  components  or  to  provide  estimates  of  the  extent  of   illegal  insurance.  some  form  of  formal  life  insurance   or  short-­‐term  insurance.  From  previous  research  (Genesis.  this  could  be  where  the         15th  Floor.  Qualitative  research  suggests  that  the  self-­‐insured  component   may  be  substantial.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  respectively.  Figure  3  shows  very  limited  usage  of   formal  life  or  short-­‐term  (general)  insurance  below  LSM  6.  Of  all  individuals  in  LSM   1-­‐5.  only  about  4%  and  1%  have.  New  Delhi  –  110  019.  Eros  Corporate  Tower   Nehru  Place.

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  store  card  usage  in  LSM  4-­‐5  exceeds  formal  insurance  usage  (if  funeral   insurance  is  excluded  -­‐  of  which  the  bulk  is  in  any  event  distributed  through   funeral  parlours)  and  suggests  some  potential  for  the  distribution  of  other   financial  products  through  retailers.  79%  (1.  Eros  Corporate  Tower   Nehru  Place.9m)  do  not  have  life  insurance  and  70%  (1.  Although  equally  limited  in   LSM1-­‐3.   take-­‐up  of  formal  bank  products  suggests  a  familiarity  with  formal  institutions  and   possibly  some  level  of  financial  literacy.  In  addition.  While  13%  (2.4m  people)  of  individuals  in  LSM   1-­‐5  have  a  store  card  or  account.  This  suggests  that  the  premium  collection  and  claims   payment  elements  of  distribution  may  not  be  the  primary  barriers.  Figure  3  shows  that  bank  account  usage  exceeds  usage  of         15th  Floor.  This  presents  a  substantial  and   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  between  20%  and  30%  of  store  card   holders  in  LSM  3-­‐5  do  not  have  a  bank  account.  India   formal  insurance  products.distribution  question.  In  addition.  New  Delhi  –  110  019.4m)  of  the  store  card  holders  do  not  have   general  insurance.     The  use  of  store  cards  suggests  some  potential  of  retailer  distribution  for   extending  the  reach  of  formal  insurance  products.75m)  do  not   have  formal  funeral  insurance.  97%  (2.

untapped  market  within  reach  of  the  retailers.  but  the  analysis  above   suggests  that  the  bulk  of  formal  funeral  insurance  is  sold  through  funeral  parlours   and  that  the  component  expected  to  be  sold  through  broker  or  agents  will  be  quite   limited.  While  the  question  in  FinScope  2005  on   how  insurance  was  bought  is  limited  to  the  few  individuals  in  LSM  1-­‐5  who  have   purchased  formal  life  or  short-­‐term  insurance  products  (768.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Eros  Corporate  Tower   Nehru  Place.000  and  148.  the  bulk  of  formal  life  and  short-­‐term  insurance   is  still  sold  through  brokers  and  agents.  New  Delhi  –  110  019.  Regus.  The  limited  penetration  of  brokers  and  agents  in  the  low-­‐income  market   can  probably  be  drawn  back  to  low  levels  of  profit  achievable  in  this  market   through  one-­‐on-­‐one  sales  (see  Section  3.  India   expected  that  insurance  could  be  sold  to  a  larger  proportion  of  the  retailers‟  client   base  than  may  currently  use  or  qualify  for  store  cards  or  accounts.  This  is  a  conservative  signal  as  it  is         15th  Floor.  The  distribution  of  formal   funeral  insurance  was  not  explored  by  a  similar  question.  While  the  situation  for  funeral   parlours  is  quite  different  from  that  of  general  retailers  (primarily  that  funeral   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   Even  in  the  lower-­‐income  market.  it  is  still  interesting  to  note  that  86%  and  71%  respectively  reported   to  have  purchased  this  through  a  broker  or  an  agent.2).000   respectively).

 and         15th  Floor.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  New  Delhi  –  110  019.  be  divided  into  groups.  Eros  Corporate  Tower   Nehru  Place.  Two  main  indicators  were  selected   to  create  easily  identifiable  distribution  groups:  banked  status  and  source  of   income.     ·∙ accessibility  of  income  through  payment  system  (captured  by  both  source  of   income  and  banked  status).  Although  Figure  3  visually  presents  insurance  usage  in   LSM  1-­‐10.parlours  insure  the  service  that  they.  in  fact.  This   population  (consisting  of  19m  individuals)  can  for  the  purpose  of  assessing   distribution  potential.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   Focus  limited  to  LSM  1-­‐5.  These  indicators  were  chosen  as  they  relate  to  the  following  factors  that   have  implications  for  the  distribution  of  insurance  to  this  market:   ·∙ consistency  of  income  (mainly  captured  by  source  of  income  data).  DEFINING  THE  DISTRIBUTION  SEGMENTS   Why  segment?  The  adult  LSM  1-­‐5  population  is  not  a  homogenous  group.  provide).4.  Regus.  it  also  confirms  the  need  of   formal  insurers  to  consider  distribution  channels  such  as  retailers.   4.  the  above  discussion  was  focused  on  only  LSM  1-­‐5  as  this  is  the   category  of  interest  for  the  rest  of  the  section.

 it  was  possible  to  determine  the   banked  status  (banked  or  unbanked)  of  the  adult  LSM  1-­‐5  population.  New  Delhi  –  110  019.  domestic  workers.   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  farm  workers).  The  same   data  was  also  used  to  construct  five  sources  of  income  categories  which  were  then   applied  to  the  same  population:   ·∙ Company  income:  Individuals  earning  a  regular  wage  or  salary  from  a  company.  India   Identifying  groups.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  individuals  in  this  group  still   earn  a  consistent  form  of  income.   This  source  of  income  implies  that  insurers  will  most  likely  be  able  to  access   income  through  the  payroll  system  and  also  employ  worksite  marketing  in   reaching  these  individuals.  Eros  Corporate  Tower   Nehru  Place.  Using  FinScope  2005  data.         15th  Floor.   ·∙ Job  income:  This  category  includes  individuals  earning  a  regular  wage  or  salary   from  other  individuals  (e.  Regus.·∙ current  usage  of  formal  financial  services  (captured  by  banked  status).  The  fact  that  income   is  earned  from  an  individual  eliminates  the  possibility  of  payroll  deductions.g.   ·∙ State  grant  or  pension:  Although  the  size  of  state  grants  or  pensions  might  raise   affordability  issues  in  terms  of  insurance  premiums.

 together  with  the  two  factors  used  to  create  the  four  groups.  Eros  Corporate  Tower   Nehru  Place.   The  combination  of  banked  status  and  employment  status  thus  segments  the         15th  Floor.  and   ·∙ Availability  of  a  formal  point  of  access  for  insurers.   However.   ·∙ Unemployed:  Individuals  in  this  group  have  no  regular  source  of  income.5.  Regus.  India   adult  LSM  1-­‐5  population  into  ten  groups  or  categories.     Table  4:  Clustering  of  the  four  groups  Source  Genesis   4.  New  Delhi  –  110  019.  this  does  not  imply  that  they  receive  no  income.  Some  income  is   received  from  sources  such  as  family  and  friends  and/or  Lotto  winnings.·∙ Other/irregular  income:  Individuals  falling  in  this  category  are  self-­‐employed  in   either  the  formal  or  informal  sector.  These   features.  SALIENT  FEATURES  OF  DISTRIBUTION  SEGMENTS   The  table  below  contains  salient  features  describing  the  four  groups.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Two  key  factors  were  used   to  then  collapse  the  ten  groups  into  four  groups  (visible  in  the  table  below):   ·∙ Consistency  of  income.  Income  can  be  derived  from  a  number  of   sources.  allow  us  to   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  including  the  selling  of  goods  and  rent  from  a  room  or  property.

create  clear  pictures  of  the  nature  of  each  group.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.  Easy  to  Reach  Flexible  Premium   Group  Innovative  Distribution  Group  Hard  to  Reach   Group  size   3.  New  Delhi  –  110  019.7m  (19%  of  LSM  1-­‐5)   2.  Eros  Corporate  Tower   Nehru  Place.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.6m  (18%  of  LSM  1-­‐5)   9.6m  (14%  of  LSM  1-­‐5)   3.4m  (49%  of  LSM  1-­‐5)   Major  age  category   25-­‐29  years   18-­‐24  years   60-­‐64  years   18-­‐24  years   Gender  spread   45%  female   52%  female   66%  female         15th  Floor.

46%  female   Geographic  spread   55%  urban   57%  urban   40%  urban   47%  urban   Banked  status   97%  banked  (4%  have  Mzansi  bank  accounts)   100%  banked  (8%  have  Mzansi  bank  accounts)   100%  unbanked   100%  unbanked   Major  LSMs   LSM  4  and  5   LSM  4  and  5   LSM  2-­‐5   LSM  2-­‐5         15th  Floor.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Regus.  Eros  Corporate  Tower   Nehru  Place.  New  Delhi  –  110  019.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .

 A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Regus.081   R  605   R  254         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.651   R  1.  India   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.627   Personal  income   R  1.  New  Delhi  –  110  019.837   R  1.Major  FSMs   FSM  3-­‐6   FSM  3-­‐5   FSM  1-­‐3   FSM  1-­‐3   Household  income   R  2.644   R  2.204   R  1.

 The  formal  points  of  access  to  this   group.  In  addition.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  all  individuals  in  the  Easy  to  Reach   earn  a  relatively  consistent  form  of  income.  New  Delhi  –  110  019.Table  5:  Demographic  and  economic  characteristics  of  the  four  groups  Source:   Genesis  calculations  based  on  FinScope  2005  data         15th  Floor.  Regus.  but  the  group  still   provides  insurers  with  a  formal  point  of  access  through  bank  accounts.  In  addition.  India   The  Easy  to  Reach  are  waiting  to  be  insured.  individuals  have  a  high  level  of  financial  sophistication   if  the  Financial  Services  Measure  (FSM)    is  viewed  as  indicative  of  level  of  financial   sophistication.  The  Flexible  Premium  Group  requires  intelligent  product  design.  This  group  has  the  highest  average  personal  income   of  all  the  groups  and  the  majority  of  individuals  are  clustered  in  the  higher  LSMs   (LSM  4  and  5).  Eros  Corporate  Tower   Nehru  Place.  as  well  as  its  consistent  income  flows.  Individuals  in  the  Easy  to  Reach  are   similar  in  that  they  provide  insurers  with  two  possible  points  of  access:  bank   account  and/or  payroll  deduction.  makes  it  the  easiest  group  (for   insurers)  to  sell  insurance  to.  The  fact   that  this  group  is  100%  banked  implies  that  a  formal  means  exist  through  which   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.   The  income  sources  of  individuals  in  the  Flexible  Premium  Group  are  more   inconsistent  or  irregular  than  that  of  the  previous  group.

 for  example.data  on  the  income  and  expenditure  of  this  group  can  be  collected.  The  Flexible  Premium  Group  earns   the  highest  average  household  income  (R6  more  than  the  Easy  to  Reach)  and  the   majority  of  individuals  is  also  clustered  in  LSM  4  and  5.  India   months  in  which  payment  need  to  take  place).  New  Delhi  –  110  019.  The  Innovative   Distribution  Group  stimulates  insurance  creativity.  the   unstable  income  flows  of  the  group  mean  that  insurers  will  have  to  design   insurance  products  that  allow  premium  flexibility.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .   but  because  they  do  not  have  bank  accounts  cannot  be  accessed  through  any   formal  points  of  contact.  This  implies  that  insurers  will  have  to  be  particularly   innovative  in  the  design  of  distribution  strategies  and  products  targeted  at  this   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  Like  the  Easy  to   Reach.  Individuals  in  the  Innovative   Distribution  Group  are  similar  in  that  their  income  flows  are  relatively  consistent.  However.  be   achieved  by  collecting  premiums  on  a  quarterly  basis  or  designing  products  that   requires  only  9  out  of  a  possible  12  premiums  annually  (with  a  choice  on  the         15th  Floor.  Regus.  average  personal   income  is  almost  R800  lower  than  that  of  the  Easy  to  Reach.  However.  this  group  is  characterised  by  quite  a  high  level  of  financial  sophistication   as  indicated  by  the  fact  that  the  majority  is  clustered  in  FSM  3-­‐5.  This  could.  Eros  Corporate  Tower   Nehru  Place.

 The  issue  of  product  design  is  complicated  by  the  low  average  personal   income  of  the  group  and  also  low  average  household  income.  Eros  Corporate  Tower   Nehru  Place.     CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  it  is  questionable  whether  these  income  flows  are  sufficient  to    The  higher  household  income  of  The  Hard  to  Reach  compared  to  same  income  of   The  Innovative  Distribution  Group  can  be  ascribed  to  larger  household  sizes.4%  of  individuals  falling  in  this  bracket.  Average  personal  income  is  very   small  and  although  household  income  is  higher  than  that  of  the  Innovative   Distribution  Group.group.  New  Delhi  –  110  019.  The  Hard  to  Reach  is   characterised  by  irregular  and  small  income  flows  and  provide  insurers  with  no   formal  point  of  access  to  individuals  in  this  group.  with  more  than  85%  of  individuals  falling  in  FSM  1-­‐3.  Fewer  individuals   are  clustered  in  LSM  4  and  5  than  in  the  previous  groups  and  the  group  is   characterised  by  a  more  even  spread  over  LSM  1-­‐5.  India   attention.  LSM  2  is  the  largest  category.   with  31.  Regus.     The  Hard  to  Reach  tests  the  limits  of  insurance  distribution.  with  both  premium  collection  and  claims  payment  requiring  specific         15th  Floor.  A  COMPANY   REGISTERED  IN  BRITISH  VIRGIN  ISLANDS   .  Financial  sophistication  in  the   group  is  low.

 This  measure  rates  the  extent  of  interaction  with   informal  networks  as  proxied  by  informal  group  membership.  In  groups  with  high  take-­‐up  of  either  of  these  we  propose  that  the   likelihood  of  take-­‐up  of  insurance  by  the  uninsured  is  higher.  this  section  provides  a  summary  of  our:   ·∙ evaluation  of  the  distribution  potential  of  the  four  groups.   4.  REACHING  THE  FOUR  GROUPS         15th  Floor.  Eros  Corporate  Tower   Nehru  Place.1.  we  assess  the   CONFIDENTIAL:  INTENDED  FOR  USE  ONLY  THE  CLIENT:  ARCHIMEDES  INVESTMENT  LIMITED.  DISTRIBUTION  POTENTIAL  OF  SEGMENTS   Our  assessment  of  the  distribution  potential  of  the  four  segments  is  summarised  in   Table  6.6.  Regus.  Any  client  touch   point  presents  a  distribution  opportunity  for  insurance.  and   ·∙ an  overview  of  the  size  of  unserved  markets  within  reach  of  existing  formal  and   informal  client  touch  points.  This  measure  proxies  the  likelihood  of  demand   for  insurance  by  the  uninsured  by  considering  the  take-­‐up  of  formal  and  informal   insurance  produc