Regulatory Aspects of Mitigating the Risk of Mobile Insurance in Ghana 2016 MIN Joint Member Meeting Königstein Frankfurt, June 21st / 22nd 2016 Presented by Branko Wehnert GIZ Ghana PSED FSD Page 1
Contents 1. About the relations of microinsurance and mobile insurance in Ghana 2. M-insurance landscape 3. Product information 4. Risk Framework 5. Proportionate market regulation a status quo http://www.microfinancegateway.org/library/2015-mobileinsurance-and-risk-framework-assessment-ghana. Page 2
Microinsurance Market Size (2014) Microinsurance 13 underwriters 27 products on the market 7.5 million lives and risks insured Gross written MI premium 12.2014: 13.3m GHS Mobile Insurance 3 Underwriters 6 products currently on the Market 2.7 million policyholders for m-insurance products (June 2015) 5m GHS premium (2014) 60% of all MI policyholders (2014) 27 Products 7.5m lives and risks insured 97.4% All insurance business of the 13 providers without MI (GHS 489m) 2.6% Microinsurance Business (GHS 13m) Page 3
2.8 Mio M-Insurance Policyholders as of 06.2015 Partnership s Partnership A Partnership B Partnership C Type of product Risks insured Year Started * As of April 2016 Estimated Policyholders Paid Funeral (subscriber and next of kin) 2011 5,574* Paid Funeral (subscriber and next of kin) 2010 550,000 Paid Hospital-cash 2013 700,000 Loyalty Funeral 2010 70,000 Loyalty Life, Accident, Disability, Hospitalcash 2014 1,400,000 Paid Life, Accident, Disability, Hospitalcash 2015 94,000 Products are being currently transitioned from a loyalty product to a paid product, since the business case is not strong enough for loyalty products. Page 4
Expense ratio (admin + commission) Profitability of M-Insurance Products 200% 180% KPI distribution (2014, excluding savings components) 160% 140% 120% 100% 80% 60% 40% 20% Profitability frontier (combined ratio of 100%) New ('13 or '14) Middle age ('10-'12) Old (before 2010) Size of bubble is proportionate to gross written premiums = GHS 500,000 0% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% Claim ratio Page 5
Gross Premium Structures for Micro and Mobile Insurance from the Insurer s View Page 6
About active and passive m-insurance Loyalty Product (passive) Freemium (hybrid) Client-Paid Product (active) MNO pays insurance premuim on behalf of the subscriber MNO serves as master-policy holder low-touch product, since all subscribers are automatically insured From a certain threshold of airtime usage the subscriber is automaticallly insured; more top-up increases cover with hybrid product Subscribers are very often not aware about their insurance cover Economics of MNOs: increase subscription levels and client retention; ARPU-benefits only applicable to a small segment of users Economics for insurers: good risk pooling possible; high volumes of premium; high margins through low claims ratio Subscriber pays the premium directly through automated deductions of airtime or mobile money MNO/TCP serves as corporate agent high(er)-touch product, since subscriber has to decide for the product; product needs to be marketed Trigger for cover is the payment of premium, to be done via airtime or mobile money; to be rendered by automated deduction through the MNO Subscribers are more aware about their insurance cover; Economics of MNOs: increase subscription levels (ARPU) and client retention, commissions from insurer; scale is difficult to be reached Economics for insurers: Risk of adverse selection and fraud can affect the insurer; commissions to be paid to the MNO reduces gross premium income of product Page 7
Risk Framework (1/5) Using the key risk identified, all six m-insurance products were analyzed by risk-scoring each product. Rating was done on a scale of 1-5, with 1 being very low risk and 5 very high risk. 1. Client Value Risk; Subscribers may not be aware of product (particularly loyalty products)- hence very low claims frequency, very low claims ratios; Even when aware, subscribers may not fully understand product coverage, Terms & Conditions; Customer complaints and queries are not adequately handled; Claims process is complicated, burdensome and lengthy; Customers perceive poor value if low utilization or very few claims being paid out. Page 8
Risk Framework (2/5) 2. Distribution Channel Risk MNO does not fully understand the implications of changing/cancelling insurance products; it perceives insurance as a pure marketing tool rather than a relatively long term financial service; Premium cost must be scaled commensurate with MNO service cost: low insurance coverage and risk assumptions based on under-reported claims; Business case for loyalty-based products is weak for MNO's (no significant increase in ARPU nor reduction in churn) MNO s reputation affected when there are client disputes over product/service; Exit plans or transition plans not in place/not working properly when products are being changed or discontinued; Page 9
Risk Framework (3/5) 3. Prudential Insurer s Risk Risk premium is underpriced (claims incidence-based and not actuarially verified); Adverse selection and fraud risk with client-paid m-insurance; 4. Marketing Risk Product not explained properly; Sales staff not trained sufficiently; Customer awareness during transition from loyalty to paid products; Marketing literature not clear/misleading; Marketing expenses higher than expected. Page 10
Risk Framework (4/5) 5. Legal Risk Insufficient regulatory oversight through 3 regulators involved; Role of the MNO can be arbitrary: Master-policyholder vs Corporate Agent Policy documentation; Recourse to settling disputes not clear; Data protection; Loss of data if product is cancelled as data stays with MNO; 6. System Risk Occasional systems problems were reported by some MNOs, such as down-time of the network coverage. This led to customers not being notified that their premium is due. Data not available anymore if partnership collapses; Technological breakdown; Data not maintained properly; Data errors. Page 11
Risk Framework (5/5) 7. 3 rd Party Default Risk Most insurers are not involved in the technical and operations areas of m- insurance business, the risk is that the TSP and MNO's can easily change the underwriter Capability of partners to manage the business on behalf of the insurance company: handling claims, administration etc. No contingency plans at hands to protect policy holders in case of break-up. For most products, Distribution,3 rd Party Default and Marketing and Sales risk, scored very high risk ( Risk score 4 or above) Out of the 6 products on the market 3 products scored a HIGH overall risk level. Page 12
Regulatory Status Quo National Insurance Commission Insurance Act 724 of 2006 Microinsurance Martket Conduct Rules Mobile insurance products are microinsurance in Ghana Product approval process for microinsurance products Microinsurance contains certain consumer protection principles MI Market Conduct Rules do not cover specific risk management needs for a product consortium Most TSPs are licensed as corporate agents Bank of Ghana Guidelines for E-Money Issuers in Ghana, 2015 New Banking Department of BoG supervises digital payment services by product license Airtime doesn t count as e-money and can t be used for transactions under e-money guidelines (insurance services are named) MNOs shall be licensed as Electronic Money Issuers for Mobile Wallets (licensing, market conduct rules, complaints National mechanisms) Communication group insurance Authority would not be covered NAC Act 769, 2008 Value Added Service (VAS) no obligations for m-insurance risks Page 13
Regulatory Questions for Market Conduct Rules I Market Conduct Rules shall be applicable to m-insurance, understood as a method of distribution and not be limited to microinsurance Licensing of MNO: Loyalty products: MNO is a master policy holder (MPH) for group policy; agent-licensing is not applicable Paid products: MNO is to be licensed as agent Hybrid products: can agent and MPH be combined? Licensing of TSP: needs to be licensed as corporate agent of the insurer, whereas ownership rights on data will be clarified Outsourcing agreement from Insurer to TSP needs to be considered in product approval process by NIC Page 14
Regulatory Questions for Market Conduct Rules II Legal challenge: lack of insurable ínsterest by a master policyholder for loyalty schemes; can be circumvented, if insurable interest bypasses the MPH to the insured KYC for MNO / TSP: limited applicability to display terms and conditions of a policy through the mobile channel; will obliging transparency on webpages and SMS short-texting be sufficient? Acceptance of airtime as a means for payment of premium is disputable; common practice but legally challenging; prohibiting airtime usage may kill the market Consumer protection on e-money usage in Ghana: applies in case of payment by mobile wallet, CP is much better defined than in case of air-time usage Page 15
Regulatory Questions for Market Conduct Rules III A minimum of information shall be provided by the product consortium to supervisors: Actuarial statement to proof adequate pricing and/or reserving and that premium charged is sufficient to cover risk, transaction costs etc; or to allow adequate reserving Proofing availability of client value of the product Asigning policyholder data ownership to underwriter Provision of contingency plans and service level agreements Regular quantitative and qualitative performance reporting to supervisors Page 16
Regulatory Questions for Market Conduct Rules IV Joint licensing and product approval process involving NIC, BoG (Banking Department), NCA Close comprehensive MoU amongst NIC, NCA and BoG on joint licensing, product approval, monitoring and enforcement of overlapping regulation Page 17
Quantitative Product Approval and Monitoring General information on the product consortium Product information Policyholder information Premium and liability information Claims information Expense and commission information Other information Reported at poduct approval stage and semiannual to NIC; integration into VIZOR (MIS) Page 18
Qualitative Product Approval and Monitoring Availabiltiy of business contingency plans for the insurance product within the product consortium Actuarial justification Full policy document being used Product marketing methods Sample of marketing literature used Customer enrolment methodology Staff incentive structures in place to promote sales (MNO, TSP and Insurer) Insurer s / TSP s complaint mechanism Page 19
Discussion Under which preconditions are m-insurance products inclusive and responsible insurance services (loyalty / paid services)? As of the regulatory measures mentioned: how strict should proportionate regulation through market conduct rules become? Page 20
Thank you for your attention! Branko Wehnert Head of Financial Sector Development (FSD) GIZ Programme for Sustainable Economic Development in Ghana branko.wehnert@giz.de Page 21