Microinsurance: Insurance accessed by the low-income population, provided by variety of providers & managed in accordance with generally accepted insurance practice. Distinct means of product design and distribution. Insurance Regulatory Seminar Presented by Katherine Gibson, Arrowpoint Consulting 5 October 2011
1. Background 2. Market participation 3. Policy objectives 4. Policy framework 5. Transitional arrangements 5. Market impact 6. Way forward 2
2003 PCOF hearings on abuses in the funeral benefits industry 2005 FinMark Trust investigative study into funeral assistance business, entitled The regulation of assistance business in South Africa Joint NT / FSB task team set up to direct the assistance business reform process (PCOF updated to these developments) 2006 Project extended beyond funeral assistance business to consider all microinsurance 2008 The treasury discussion paper on the Future of Microinsurance in South Africa released for public comment. National roadshow 2011 Policy statement released, The South African Microinsurance regulatory framework: Policy Document 3
No. of entities No. of members / policyholders Annual premium income Policies issued (ave. size of benefit) Regulatory requirements Burial societies Est. 150,000 Est. 6 million Est. R6 billion Funeral related (R5,000-R10,000) None. May be registered as friendly society Friendly societies (2008) 198 (107 exempt from submitting regulatory returns as <R100,000 contributions pa) 104,000 (this figure includes only those societies that have submitted returns) R58 million (incl. only return submitting societies) Mostly funeral, some education and savings (R7,500, the regulated maximum limit) Friendly Societies Act Funeral parlours Est. 3,000-5,000 (approx. 1,500 registered with relevant health authorities) Not available Est. R5 billion (may be underwriter and/or intermediary) Funeral (R18,000, the regulated maximum limit) Long-term insurance Act, Financial Advisory and Intermediary Services (FAIS) Act (as applicable) Est. consumer credit insurance - micro- 11.7 million credit accounts, 3 million people loans (R5,000), vehicle financing have credit insurance. Only 1.15 million Consumer credit insurance: R3 billion, (<R85,000), mortgages (<200,000), National Credit Act, Long-term Insurance Retailers (2008) Approx. 2,700 dealers people in LSM 1-6 claim to have a credit funeral: unknown (may be underwriter credit cards/loans (R10,000) Act, Short-term Insurance Act, FAIS Act (as contract, while only 710,000 claim to have a and/or intermediary) applicable) related insurance policy Funeral (R18,000, the regulated maximum limit) long-term assistance policies: R18,000, Insurers, for LSM 1-6 only (2009/10) Long-term assistance policies: 31, long-term other: not available, short-term: not available Long-term: 9.6 million, short-term: <1 million long-term assistance policies: R4,2 billion, long-term other: not available, short-term: not available long-term other: not available, shortterm: est. R10,000-R180,000 (determined by value of assets, mostly cell phone, legal & household Long-term Insurance Act / Short-term Insurance Act, FAIS Act (as applicable) structure/contents) 4
Policy framework objectives: Financial inclusion Facilitate formalised insurance provision by currently informal providers, to promote formation of new, well capitalised insurance providers & small business development. Lower barriers to entry to encourage broader participation in the market and promote competition. Ensure consumer protection. Facilitate effective supervision and enforcement. 5
A microinsurance licence provided for under a stand-alone Microinsurance Act. A level playing field for providers. Accessible to public and private companies (insurers, potentially funeral parlours) & cooperatives (Friendly Societies, for-profit and not-for-profit insurance co-operatives). Product standards and benefit limits. Simplified product standards no exclusions, restricted waiting periods, claims payments, grace periods. Benefits restricted to risk products & sum assured only, but no long-/short-term divide. Benefit caps: life = R50,000, asset = R100,000, other R50,000 Restricted contract term of max 12 months, st. no waiting periods, no selective nonrenewal in group policies Right to monetary benefit. 6
Product regulation on file & use basis Lower prudential requirements. Min R3 million upfront capital, Simpler capital reserving, reporting (annual audited, quarterly unaudited) and corporate governance (transparency, skilled/fit & proper management) requirements. Separation of business Investment restrictions, actuarial sign off Interface with SAM exempt from pillar 1, alignment pillars II and III Reinsurance not required, but permitted Harmonised tax treatment accumulating reserves, VAT 7
Appropriate intermediary requirements. BETTER PROTECTION bring back verbal disclosure The Fit and Proper Determination for financial services providers (FSPs), key individuals and representatives the FAIS Code of Conduct applicable to microinsurance providers the financial soundness of the intermediaries dealing with microinsurance. Within the microinsurance regulatory framework itself it is proposed to incorporate provisions regarding: direct marketing, informed by the current legislative framework; the commission regime applicable to microinsurance; and group schemes. 8
Growing consumer awareness and responsibility. Targeted education strategy to piloted later this year, roll-out 2012. More effective supervision and enforcement. 9
Phasing in of the microinsurance regime. 3-year transition period for legal compliance Provides for capital build-up (st. business plan) Consolidation expected through aggregation to meet requirements (should support supervision & enforcement) FSB enforcement capacity and coordination with Government departments. New entrants to be registered and supervised, requires additional supervisory capacity Implementation and outreach strategy Intergovernmental coordination (mainly SARS & dti) 10
Burial Societies and small insurance co-operatives. Informal groups that do not guarantee benefits allowed to continue, s.t. Co-operatives Act requirements. Membership threshold of 2500 => require MI licence or underwriting Friendly Society transition into co-operatives. Required to convert their institutional form Guaranteed benefits will require MI licence or underwriting Potential tax implications of the conversion will be minimised. Insurers Ring-fenced business, can use same back-office Improved regulatory certainty & consistency (esp. wrt intermediation) Increased competition vs. better enforcement illegal operators 11
Treasury/FSB workgroup coordinating implementation, incl. drafting committee Continued industry engagement Microinsurance Bill (or insurance amendment bill) for public comment 2012 Parliament and implementation 2012/2013 12