ClydeCo-Resilience-Inclusive Insurance Report

Closing the protection gap through inclusive insurance





Building resilience is a work in progress

What is inclusive insurance?

Creating new markets




Three critical success factors

New landscape means new laws

How can inclusive insurance reach its full potential?




Building resilience to natural and man- made perils is at the heart of why insurance exists and one of the reasons we launched a campaign earlier this year to help further that purpose and explore ways to help close the protection gap. Our paper earlier this year looked at the part parametric (or index) insurance plays in building resilience. It focused on the ability of parametric insurance to provide cover to whole communities and regions, often in association with governments or NGOs. Natural disasters are only one of many risks that people face and parametric insurance can only ever be one part of the insurance mix. In this paper we look broadly at the challenge of providing insurance cover to those in developing and emerging markets who are under or uninsured against a range of both extreme and everyday misfortunes. With insurance cover, ill health, unemployment, flood, fire or theft are unfortunate and distressing, but can be recovered from. Without insurance, or other risk mitigation strategies, these perils can deeply and profoundly impact people’s lives and reduce their ability to bounce back. What’s more, where insurance penetration is low, long term economic growth, development and social cohesion can be impacted. In this paper we explore the circumstances under which insurance could successfully penetrate uninsured markets and help to bridge the global protection gap; offering

so called ‘inclusive insurance’ to a much wider audience. In a digitally connected global economy we are rapidly expanding beyond a traditional “microinsurance” silo in emerging markets. The signs are positive for a rapid uptick in insurance penetration in emerging economies due to a combination of factors including: a global shift from low to middle incomes, technological developments driving incremental costs down and governments increasingly recognising the benefits of protecting their emergent middle classes. In putting this report together we spoke to leaders in this rapidly changing area and to colleagues across Clyde & Co’s global network to understand the landscape and the challenges as well as the regulatory and legal environments. We are most grateful for the time and insights offered by Paula Pagniez of Willis Towers Watson , Garance Wattez-Richard and Quentin Gisserot of AXA’s Emerging Customers , Sarah Schneider-Olié of Allianz SE , Fiona Stewart and Peter Wrede of the World Bank , Hannah Grant of the A2ii , and Ana Gonzalez Pelaez of the Cambridge Institute for Sustainability Leadership . Many thanks also to the UK’s Department for International Development , Cenfri and the InsuResilience Global Partnership for assisting in our research. If you would like to hear more about our global resilience campaign then please go to for more information.


Building resilience is a work in progress

Misfortunes affect us all; whether ill health, accident, theft, unemployment, or other personal troubles. In the same way, no one is entirely immune from the negative consequences of weather-related or man- made perils such as very strong winds, flooding, drought, earthquake, terrorism, or catastrophic accidents. What does vary, however, is people’s ability to bounce back from unforeseen events. Generally speaking those living in emerging markets are less able to recover from setbacks that impact their longer term prosperity and broader economic development. One of the reasons for this is that four billion people – over half of the world’s population - are currently not served or are underserved by insurance markets. Many of these people might earn an income (though perhaps not on a regular or full time basis) and possess assets, yet they may have limited or zero access to insurance. With

no form of supportive infrastructure, those with little disposable income could be one crop failure or family illness away from slipping back into deprivation. These “uninsured” populations are not without risk management tools. They may have access to other means of support and societal networks to protect them and their families from adverse events. Or, they may cope with setbacks by borrowing from friends or family, selling assets, reducing food consumption, cutting healthcare expenses, or taking children out of school and putting them to work. 1 But having to resort to these methods can undermine resilience and hamper economic progress for the individual and their community. Those with no coping strategies – or who have exhausted them – may simply sink back into poverty.


Building resilience is a work in progress



The social benefits of insurance are incontestable. Insurance serves as an important ratchet to economic progress, preventing short-term setbacks from undermining broader development gains. Insurance can also be a gateway to financial inclusion. With insurance protection, many marginal consumers will have better access to savings, loans and transactional services if their health and livelihood are protected; providing the security needed to invest for a better future. Recognising the value of insurance in fostering resilience to climate risk in developing countries, in 2015 G7 leaders announced an ambitious plan: We will aim to increase by up to 400 million the number of people in the most vulnerable developing countries who have the negative impact of climate change related hazards by 2020 and support the development of early warning systems in the most vulnerable countries. 2 access to direct or indirect insurance coverage against

In 2016, insurance industry leaders came together under the auspices of the Insurance Development Forum (IDF) , with the aim of optimising and extending the use of insurance and its related risk management capabilities to build greater global resilience. Following that, the UK’s Department for International Development announced the creation of a new Centre for Global Disaster Protection in London to bring together leading thinkers from the development, humanitarian, science and finance communities, government, civil society and the private sector. Later that year the InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions was launched at the UN Climate Conference COP23 in Bonn, bringing together G20 countries in partnership with the V20 nations (those most vulnerable to climate change), as well as civil society, international organisations, the private sector, and academia. The InsuResilience Investment Fund is an initiative created by KfW, the German Development Bank, on behalf of the German Ministry for Economic Cooperation and Development (BMZ) with the objective of contributing to adaptation to climate change by improving access to and the use of insurance in developing countries. Together, these initiatives are fostering the international cross-pollination of the ideas needed to encourage greater risk management and risk transfer capabilities in emerging economies.

2 Leaders Declaration, G7 Summit, 7 – 8 June 2015



–– Prevalence of informal or self-employment. Policyholders not in formal work are harder to reach using the usual aggregators – such as employers. –– Many un-banked policyholders. Customers without access to banking can lack an effective means of paying premiums or receiving settlements. –– Lack of historical data. Limited data on events such as weather or flooding can make it difficult for insurers to price risks. Poor quality or absent customer data complicates the picture still further and without information on asset ownership, claims behavior or health history, traditional risk profiling is not possible. –– Lack of local knowledge. The challenges above may be presented in varying combinations in different locations, contributing to a lack of market understanding by would-be insurers, which can lead to ill-suited and ultimately unsustainable products. Despite the undoubted scale of the challenges, creative thinking and novel approaches are creating new and viable opportunities with the potential to unlock emerging markets and foster greater resilience. So called inclusive insurance is in the ascendency.

It will take concerted efforts - by non- governmental organisations, the insurance industry and private sector actors working on insurance inclusion - to begin to solve the challenge of building resilience among those who currently lack insurance. In emerging markets, improving access to insurance is far from straightforward, not least because of: –– A lack of infrastructure in remote and rural areas. This can make it difficult and costly to distribute insurance benefits, and provide customer support. –– Low education levels, lack of financial literacy and lack of knowledge about insurance.Asthesayinggoes:“Insurance is sold not bought”; explaining the value of insurance to first-time and returning customers can be challenging. –– Low levels of disposable income. Even modest premiums may represent a significant proportion of a household’s expenditure. –– Individuals may have little or no formal documentation. This can cause administrative issues regarding fraud prevention at the underwriting and claims stages.


What is inclusive insurance?

Inclusive insurance is a term increasingly used to define insurance products aimed at markets currently excluded or underserved by insurance. In some ways it is a late-stage metamorphosis of what was once called “microinsurance”. However microinsurance as a term, is somewhat limited in that it can too narrowly define the level of premium, regulatory categorisation, or income levels of prospective policy holders. It also infers that the products are a “micro” or “mini” version of existing products, distribution networks, and processes. Inclusive insurance is broader than that. Denis Duverne, Chairman of the Board of Directors at AXA has argued for a broader approach, saying 3 : “We cannot simply downsize traditional products. We must spend time in the field to understand customer realities, build appropriate products, and innovate beyond credit life towards health, property, and micro-savings.” An important 2017 paper from the Center for Financial Inclusion at Accion and the Institute of International Finance -

Inclusive insurance: closing the protection gap for emerging customers - helpfully defines inclusive insurance as, “access to and use of appropriate and affordable insurance products for the unserved and underserved, with a particular emphasis on vulnerable and low-income populations.” The emphasis appears to be on the creative and adaptable process or methodology of value creation for new customers and new markets. Inclusive insurance starts from the recognition that there are unserved and underserved markets in emerging economies and that the lack of insurance protection makes them especially vulnerable to risks. As markets develop and insurance penetration deepens the term itself may even become obsolete. Fiona Stewart from the World Bank believes that “we are moving away from calling it microinsurance or even inclusive insurance. Regardless of who the policyholder or beneficiary is, we should be calling it ‘insurance’. We want to encourage insurance more broadly and develop markets as a whole.”


What is inclusive insurance?

1. What is microinsurance? Microinsurance, as defined in the 2007 International Association of Insurance Supervisors (IAIS) Issues Paper on the Regulation and Supervision ofMicroinsurance, is insurance that is accessed by the low- income population, provided by a variety of different entities and run in accordance with generally accepted insurance practices. This means that the risk insured under a microinsurance policy is managed based on insurance principles and funded by premiums. Microinsurance covers a broad variety of products, for example, life insurance, funeral cover, health, invalidity, livestock, crop and asset insurance. 2. What is inclusive insurance? Inclusive insurance is a broader term denoting all insurance products aimed at the excluded or underserved market; rather than just those aimed at the poor or a narrow conception of the low-income market. This definition can be found in the IAIS Conduct of Business in Inclusive Insurance Issues Paper published in 2015. 4




Creating newmarkets

Inclusive insurance aims to extend insurance protection to un- or underserved customers, primarily in emerging economies, thereby increasing resilience, and also providing insurers with a potentially large market for their products. Almost two thirds (62%) of participants in a January 2018 survey by the Institute of International Finance saw the rise of the middle class in emerging market economies as one of the key factors motivating their development of inclusive insurance services. 5 Hannah Grant from A2ii , the Access to Insurance Initiative a global initiative created by IAIS and the Microinsurance Network that facilitates knowledge- sharing and provides guidance to insurance policymakers, regulators and supervisors, feels there has “definitely been a lot of interest from commercial players in the last few years. Commercial insurers are seeing there is a good business case and an opportunity to perhaps diversify their portfolio. Technology, particularly mobile phones – has been a game changer as it has reduced administrative overheads.”

In emerging economies inclusive insurance has become increasingly possible due to: –– The ongoing movement of populations from low to middle income –– The current digital revolution driving incremental costs down –– The growing awareness amongst governments regarding the national interest benefits of protecting emergent middle classes As Garance Wattez-Richard, Head of Emerging Customers, AXA points out: “From a macroeconomic standpoint, the business case is fueled by an unprecedented demographic shift in Asia and beyond, bringing hundreds of millions from low to middle income and triggering a significant demand for protection. Planets are aligning because this emerging middle class is also increasingly connected through the digital revolution, creating a scalable access gateway. Digital technologies enable us to drive the incremental cost down by one more zero.”


Creating new markets



In markets where the understanding of insurance and purchasing power are limited, insurers have recognised a need to fundamentally change their approach. As such they are developing products that properly respond to the risks faced and build trust in the value of insurance as part of a risk mitigation approach. Given that most insureds will not make a claim from one policy year to the next, what services can insurers offer that will build loyalty and offer value to first time and cash-strapped customers? Equally, how can insurers ensure that the cover they offer is properly tailored to customers’ needs? Much of the answer comes through a new approach to the way in which insurers construct their value chain at every step: from product build to partnership development and service delivery through to customer management and policy and claims management.

Against this backdrop it is not surprising that from just seven in 2005, there are now over 60 global insurance carriers active in the inclusive insurance space including AIG, Allianz, AXA, MetLife and Zurich. 6 There are also new market participants, with insurtech start-ups enhancing client contact and risk analysis, and new technical experts in the field. Microensure and BIMA mobile are both leading the way, informing product development and transforming interactions with prospective policyholders. In addition, there are distribution partnerships forming between carriers and local microfinance institutions (MFIs), retailers, mobile network operators, postal operators, agricultural cooperatives, and commercial banks that are helping roll out insurance to new markets. Commenting on the growing momentum, Denis Duverne, Chairman of the Board of Directors at AXA and incoming Chairman of the IDF commented: “We are creating a market, not entering an existing one in a different way.”




Where prospective policyholders are not in formal employment, insurers are becoming creative around ‘aggregators’ for group insurance. For example, in Colombia the bank Banco Davivienda, through its partnership with insurer Seguros Bolívar uses its mobile wallet ‘DaviPlata’ to offer a life microinsurance product focused on rural customers. It is also designing a bicycle insurance product, given the importance of bicycle transportation among their low-income customers.

Developing successful inclusive insurance products has required a fundamental rethink from insurers in how to ‘go to market’. New customers may be unaware that risk-transfer products exist, so insurers need to identify and leverage trusted networks already serving them. Insurance distribution partners can include mobile network operators (MNOs), retail stores, factories, and agricultural cooperatives - any existing network that knows and understands its customers or members and can see value in adding insurance into the bundle of products and services offered. Sarah Schneider-Olié of Allianz’s Emerging Consumers describes their approach: “Allianz’ local entities drive and own the Emerging Consumers business. We work with over 700 experienced distribution partners to reach out to customers.”

We work with over 700 experienced distribution partners to reach out to customers.

- Sarah Schneider-Olié, Allianz

Creating new markets

Example: Allianz-BIMA Allianz has re-branded its product offering in this space from “microinsurance” to “emerging consumers.” The company offers “a range of product solutions that are specifically tailored to the needs of low- income families”, Focused on combining social and business benefits, in 2017, Allianz X, the digital investment unit of the Allianz Group invested USD96.6m in emerging market insurtech business BIMA, which offers affordable accident and life insurance via mobile phones to help serve what Oliver Bäte, CEO of Allianz SE calls: “the so-called next billion customers.” Example: XL Innovate-Stonestep XL Innovate has invested USD4m in Swiss microinsurance firm Stonestep, which aims to change how insurance is delivered in emerging markets by offering tangible consumer risk products and services at affordable prices. 7 Brandon Mathews, CEO of Stonestep explains: “For most people around the world, life is extremely risky: if people lose their home, they’re not checking into a hotel. If they have an accident, there’s no ambulance. Stonestep’s unique insurance platform can cover such risks for emerging consumers, and XL Innovate’s investment will help us implement this solution.”


Inmany cases,leveraging existing networks has been made possible by establishing a more formal partnership with specialist, local insurance players. These often combine aspects of social enterprise and digital capabilities that enable innovation as these examples demonstrate.

7 international/2016/12/19/435832.htm 8 IIF 9 global-initiative-to-scale-up-its-protection- of-tomorrows-emerging-middle-class/


Example: AXA-MicroEnsure AXA’s Emerging Customers has set a goal of reaching 45 million emerging customers by 2020. Their vision is to: “Accompany the emerging middle class and to help prevent them from slipping back into poverty.” 8 As part of this initiative, AXA is a key partner (with 46% participation) in microinsurance specialist MicroEnsure. 9 MicroEnsure stresses that product development is client-led and it has developed a variety of products tailored to emerging consumer risks including micro- health, political violence, crop and mobile insurance all over the world. Example: Blue Marble Microinsurance – consortium Blue Marble Microinsurance, launched in January 2015, is a consortium of nine companies (including AIG, Zurich, Aspen, Old Mutual and XL Catlin) “collaborating to extend socially impactful, commercially viable insurance protection to the underserved”.

It is clear that those at the forefront are actively welcoming collaboration and new market participants, with the belief this will foster greater understanding and trust amongst prospective policyholders, local distribution partners and regulators. Greater market participation will help drive technological innovation, bring cost savings and lower barriers to growth, whilst also building confidence in the value of insurance. As the InsuResilience Secretariat says: “A collaborative approach is needed to ensure coherence between different actors involved in the climate and disaster risk finance space. The InsuResilience Global Partnership provides a platform for a range of stakeholders to exchange knowhow, facilitate coordinated global action, and promote innovation” A collaborative approach is needed to ensure coherence between different actors.

- The InsuResilience Secretariat


Three critical success factors

Our conversations with insurers and their partners show plenty of momentum building for inclusive insurance. But this is still undeniably a work in progress and a tipping point has yet to be reached, as Paula Pagniez, Director, Capital, Science and Policy Practice, Willis Towers Watson explains: “Insurers in developing and emerging economies show increased interest in this potential market, however product implementation is still subject to a series of challenges, from regulation to technical know-how to the right business and social incentives. Innovation needs to be supported by strong mandates and

allocation of resources in order to turn ideas into concrete market solutions.” Market development requires a creative approach and new thinking. Although there aremore andmore players in this space, the untapped potential remains vast. We have identified three critical success factors for providers to consider when creating new products for new markets. 1. Trust 2. Transaction capability 3. Value

Three critical success factors for inclusive insurance


you are an Indian construction worker in Dubai or Sharjah and you send money back home through a money exchange house. You give cash at one end and it always arrives to your family on the same day, which develops trust.” Frequent contact Digital technology can help build trust by maintaining a high level of contact between insurers and customers. So-called frictionless encounters provide advice and guidance and can support product understanding, assisting financial literacy and helping to build a sense of connection and value. In Indonesia Allianz has been applying automated telephone messages using a fictional character called Ms Ali to automate post-sales calls and educate customers about their microinsurance product. 10 Similarly, chatbots can carry out direct conversations and provide a useful and cost-effective way of fostering client engagement. 11 FINO PayTech is an Indian banking correspondent agency working with agents to sell insurance and other financial services. It has developed a cost-effective mobile-based module to deliver ongoing support through updates on product and policy changes and answering frequently asked questions. FINO tracks whether agents have downloaded the updates and will follow up with those who do not. Once downloaded, the updates remain available

Trust cuts both ways. New inclusive insurance customers are often unable or unwilling to share information about the risks they face in a way that insurers are used to. They may have no wage or a formal address, or any proof of their identity. This means insurers need to work on an inclusive basis, recognising that it is not always possible to fully investigate the specific risks associated with individual policyholders and doing it at scale so that the cost of the few can be subsumed by the many. At the same time, would-be consumers need to trust the insurer and their distributor. Trust can be built through a track record of claims settlement by the insurer or trusted service provision by its local partner. As Quentin Gisserot, Project Manager - AXA Emerging Customers says: “A successful distribution partner needs to be trusted by the end-customer and that comes from the number of successful interactions the customer had with them. That’s one of the key reasons for working with a mobile network operator: for example in Ghana when you’re poor not many services work correctly, but topping up your phone always works and that works in the same way irrespective of whether you are poor or rich. Or if

10 Report_2016FY_2.4_-_20170403_-_MH.pdf 11


Example: ICMIF’s 5-5-5 Mutual Microinsurance Strategy The International Cooperative and Mutual Insurance Federation (ICMIF) is the global network for the cooperative and mutual insurance sector. In 2015 ICMIF launched the 5-5-5 Mutual Microinsurance Strategy to help mutual microinsurance reach its full potential scale in a number of emerging markets, thereby having a positive impact on the lives of millions of low-income households. By 2020 ICMIF plans to develop mutual microinsurance in five countries, reaching out to five million uninsured low-income households (people with a daily income of USD 2-10), which will equate to 25 million people in total.

to agents even when they do not have mobile reception, so they can access them while interacting with customers. Despite this array of technology solutions, insurers still deploy traditional high-touch approaches such as local agents to support consumer understanding and build trust. Distribution via agents is one of the key components of the BIMA model. With over 3,500 salespeople across the developing world it has signed up 24million customers in Africa, Asia, and Latin America. Their call centre in Honduras houses over 100 agents to support a team of 40 field agents with their life insurance product being delivered through Honduras’ largest mobile operator. Using alternative insurance structures to build trust Alternative insurance models such as mutuals can assist in building trust and satisfying regulatory requirements. Many mutuals maximise client value by enhancing community development to increase group solidarity. For example, Seguros Futuro in El Salvador and La Equidad in Colombia emphasise the value of healthy living via an embedded consumer education. Others are overtly inclusive and democratic. VimoSEWA (Self-Employed Women’s Association) in India, for example, enables its members to participate directly in decision-making.

Three critical success factors for inclusive insurance


Innovative types of technology-enabled insurance structures can also reach new markets. Peer to Peer (P2P) models such as Friendsurance in Germany, allow customers with the same type of insurance to connect and “share” premiums and to assess risks and claims. If no claims are made by the customer or any of their connections, a pre-agreed maximum amount of cash is re-distributed, which can reduce costs. TongJuBao in China operates in a similar way and offers insurance that includes cover for “uncommon social risks” such as marriage cover. 12 In South Africa, Cenfri has pointed to the role of “cell captives” in creating trust and enabling an insurance framework. Cell captives are entrenched in the new South African Insurance Act of 2017, allowing smaller businesses to participate in the insurance sector and earn dividends from their investments.

Collecting premiums and paying claims remains a challenge in inclusive insurance, and transaction costs can be high in cash- driven markets. Insurers may work closely with mobile network operators (MNOs), collecting premiums using mobile phone airtime and paying claims via digital payment channels or mobile wallets. For example, Remedinet in India 13 has pioneered cashless health insurance through a cloud-based platform connecting hospitals directly to insurers. Tigo Family Care Insurance in Ghana, is provided by MNO Tigo to its customers without charge as a loyalty product for Tigo’s prepaid airtime package. Customers can double their insurance coverage by paying a premium using Tigo airtime. 14 Client on-boarding can be difficult and/or costly. Insurers have to collect, validate and verify proof of identity, proof of address and proof of birth.

12 See: AgencyManagement/ACT/Pages/planning/NatureOfRisk/Peer%20to%20Peer.aspx 13 claims-processing/#2aa1b1625a4e 14 IAIS - Issues_Paper_on_Conduct_of_Business_in_Inclusive_Insurance.pdf


As Microensure comment: “In our case, we noticed that even when we did get insurance into the hands of a low-income family; they weren’t taking full advantage of it. We had to strip down the typical insurance process—filling out detailed forms, providing personal information—and create a simpler, easy-to- follow process for enrolling, which meant registering via text rather than a paper form.” In markets where National Registration and Identification Systems are not readily available, digital technologies can assist with client identification and claims validation. Using a smartphone a customer can establish their identity by making particular facial expressions to camera, or reading out some on-screen text. Frictionless futures Looking to the future, Artificial intelligence (AI) may assist in further helping to reduce administration, processing time and costs. Lower distribution and operational costs to support scalability, drive faster service, and ultimately enable more affordable and accessible products. 15 The World Economic Forum’s research suggests the use of blockchainwill increase significantly in the next decade, as banks, insurers and tech firms see technology as a way to speed up settlements and

cut costs. Already some are using it in a microinsurance context. Consuelo in Mexico, for example, offers blockchain- basedmicroinsurance products to Mexican migrant workers in the US. Identifying data can be recorded on a blockchain and accessed later by anyone who needs to check that person’s identity. 16 It’s estimated that in total, as many as 30.5 days could be removed from the entire insurance transaction using blockchain. 17 The InsuResilience Secretariat feels that blockchain’s time is still to come: “Further down the line, blockchain might have a role to play in scaling up financial resilience against climate and disaster risks and improving speed and quality of protection. For now, the InsuResilience Global Partnership will look to adopt technology that is already tried and tested in more developed markets.” We had to strip down the typical insurance process – filling out detailed forms, providing

personal information – and create a simpler, easy-to-follow process.

- Microensure

15 Insurance Inclusion: Reaching Underserved Populations With Tech at page 2 16 How Blockchain Technology Can Help Poor People Around the World , Nir Kshetri emerging-markets/ 17 Blockchain for Insurance: From Preventing Fraud to Automating Claims at page 12

Three critical success factors for inclusive insurance


Insurance can be part of a package of mobile health advice services. For example, Hello Doctor’s Sema Doc in Kenya gives subscribers daily health tips, with 24/7 access to registered doctors and cash back for hospitalisation. Other services with an insurance element have also been designed to offer regular weather updates and agronomic advice to small-hold farmers or business advice to microenterprises. Inclusive insurance is often offered as part of a value package rather than the lead element. Financial compensation still key Insurance or insurance-led products still have their place, however, and parametric or index insurance is proving its worth in many markets by offering rapid access to funds following disasters. At the macro level, index-based insurance payments to sovereigns may confer a benefit upon the least protected. In the aftermath of Hurricane Matthew, the parametric catastrophe insurance facility CCRIF SPC paid out USD 29.2m to member countries (Barbados, Haiti, Saint Lucia, and St. Vincent and the Grenadines) 14 days after the hurricane.

For inclusive insurance to take off, customers need to perceive its value during every policy period, irrespective of whether a claim is made. This illustrates the wider value-add of insurance and its related risk- mitigation and management strategies. ‘Additional’ services create value and build demand In some cases, the risk transfer mechanism will be one part of a bundle of services offered around the particular risk. Health insurance might go beyond covering the treatment of illness to targeted health advice or access to discounts in hospitals and pharmacies. Such loss prevention or advice-based offerings add tangible value for customers, but could also mitigate the risk itself and minimise the impact of an incident.


However, there is also scope for more direct parametric products, such as Livelihood Protection Policies (LPPs) which offer cash payouts to low-income individuals in the Caribbean. 31 individuals, including small- holder farmers in Saint Lucia, received payouts totalling USD 102,000 on their LPPs after Hurricane Matthew, also within 14 days. In addition, an SMS-based warning systemmitigates future losses by informing clients of approaching events so they can employ risk reduction strategies. Technology is a vital enabler of value Where the high cost of verifying losses on large numbers of small rural landholdings would make traditional insurance unviable, some companies have turned to new sources of data via technology such as satellite data for risk assessment and loss adjusting. The Research Programme on Climate Change, Agriculture and Food Security (CCAFS) has noted: “advances in satellite technology and data analysis help avoid the pitfalls of high transaction costs and therefore expand the potential reach of insurance policies to rural areas previously considered uninsurable.” 18

Drones and sensors are also being used to gather risk data and assess damage. In West Africa, CCAFS is integrating index-based insurance with climate risk management strategies including climate information services, and providing technical input to Nigeria’s plans to scale up agricultural insurance for 15 million of its small-hold farmers. 19 The WINnERS Project in Tanzania integrates remote sensing and field observations to model agricultural losses for maize farms based on weather-related risk such as rainfall deficit or heat stress. 20 A successful distribution partner needs to be trusted by the end-customer and that

comes from the number of successful interactions the customer had with them.

- Quentin Gisserot, AXA

18 CGIAR, Climate Change, Agriculture and Food Security Research Program, “Climate Services and safety nets”, 19 CGIAR, Climate Change, Agriculture and Food Security Research Program, “Climate Services and safety nets”, 20


New landscape means new laws

Many of the innovations now in play have the potential to rapidly change the landscape of inclusive insurance provision in emerging markets. The combination of new products, new customers, new partnerships and new distribution channels will inevitably raise legal and regulatory considerations. It is of course vital that any new market entrants or capital providers understand the markets in which they will be

operating and innovate to suit emerging consumers. It can take time for legislators and supervisory authorities to adapt to innovative offerings and enshrine suitable product standards, licensing and capital requirements in national law or regulation. In the meantime, there can be overlap, an over-engineering of requirements and uncertainty. All of this might hold back growth in insurance market development.

New landscape means new laws

In South Africa, promotion of financial inclusion has been enshrined as a key objective of the new financial services legislation currently being implemented. The Prudential Authority and Financial Institutions Sector Conduct Authority are duty bound to ensure that all persons have timely and fair access to appropriate, fair and affordable financial products and services and to this end are overseeing the introduction of a new microinsurance regulatory framework.

STANDARDISED REQUIREMENTS PROMOTE ESTABLISHMENT BUT MAY LIMIT INNOVATION As noted previously, there is no standard “dictionary” definition of inclusive insurance. However, many countries have specific microinsurance legislation whichmay forma starting point for decision-making regarding the development of inclusive products. These have consumer protection at heart and will take into account the low financial literacy levels of many consumers. According to theAccess to Insurance Initiative (A2ii), over 20 countries have a specific microinsurance regulatory framework and at least the same number are in the process of developing one. 21 Depending on the jurisdiction, products falling within the microinsurance bracket may have wider customer disclosure obligations. Local laws may impose less stringent capital requirements for insurers offering products classed as microinsurance.

- Ernie Van Der Vyver, Partner, Clyde & Co, Johannesburg



In some jurisdictions, the insurance supervisor may set requirements for products classed asmicroinsurance to have certain standard product parameters or features. This might include standardised wordings designed to build consumer trust and encourage an insurance culture to take root. Common requirements for “microinsurance” products include grace periods, maximum waiting periods, and restrictions on the number and type of exclusions in a policy. The period for claims settlement may be strictly defined and can be amatter of days. There may be a cap on the policy benefit or a premium ceiling to ensure that the product targets low-income populations or in order to limit prudential risks. Some jurisdictions will require approval of products on a case-by-case basis, such as in China and Brazil.

Standardisation can potentially lower costs in the early stages of product development and may encourage more players to enter the market. However, the risk is that it can restrict innovation and reduce product choice for customers, so there is less differentiation between insurers as markets mature. Hannah Grant at A2ii considers that there are “a number of ways that an insurance supervisor can foster inclusive insurance. A supervisor may need to think more flexibly in allowing insurance to be purchased via mobile phones with no need for physical signatures or paper follow- up. For those without financial literacy a supervisor may adopt provisions to protect low income people such as having a shorter claims payment period (as those with lower income can’t wait for a claims payment) or allowing some flexibility regarding premium payments, because policyholders aren’t earning regularly. There may be requirements for disclosures to be made in the local language.”

New landscape means new laws

DATA ISSUES SUCHAS INFORMATION ASYMMETRY AND DATA SHARING CAN BE PROBLEMATIC Companies with operations that touch the EU are adapting to the new reality of the EU’s General Data Protection Regulation (GDPR) requirements. Although standards for data protection may be less stringent than GDPR, a thorough understanding of the law surrounding data protection is essential for any insurer operating in emerging markets. This is particularly the case where inclusive insurance products are offered to individual consumers andwhere customer data is being shared between distribution partners such as mobile network operators and insurers. The IAIS has warned of the high degree of information asymmetry between insurers offering inclusive insurance and their customers and considers this a particular area of conduct risk.

There may also be overlapping regulations where data crosses borders. Insurers and their partners will need to consider what regulations and standards are applicable to avoid falling foul of data protection requirements. Where data is shared between insurers and their local partners, it is important to consider who controls and accesses such data. An insurer may not have ready access to client data held by its partner – for example a mobile network operator – which canmake it difficult for the insurer to understand the risk and price schemes appropriately. Insurers and their partners may consider entering into data-sharing agreements to enable more accurate pricing and efficient risk transfer, reducing the potential for disputes, and ensure that adequate protections for data subjects are built in with the appropriate customer consents being obtained by partners.


In India, the Insurance Regulatory and Development Authority of India (IRDA) is currently drafting e-commerce regulations which will regulate sales of “m-insurance” or mobile insurance. The China Insurance Regulatory Commission has introduced regulations to make it easier for insurers to provide online services where they do not have a physical presence.


The use of technology may give rise to issues in respect of contract formation and distance selling. For example, what terms will be incorporated into a contract formed by text message or via a mobile app? In some jurisdictions there may be existing requirements for contract formation that hamper innovation; for example, requirements for insurers to provide proof of cover in paper format or for insureds to physically sign the policy document. This can cause issues for tech- enabled underwriting and distribution or the volume of transactions required to achieve economies of scale for some inclusive products. 22 In many markets, there are specific legislative requirementsgoverningdistance selling and conclusion of contracts over the internet or mobile networks.

22 files/MP26%20v3.pdf files/Insights%20on%20MNO%20as%20distribution %20channel%20for%20MI%20in%20Asia_2016.pdf

New landscape means new laws


of their insurance obligations. Careful contingency planning can ensure continuity of service and satisfy regulatory requirements in the event of a relationship with a partner or local service providers breaking down. For example, contracts could include “soft landing” termination provisions, with detailed notice provisions and procedures for addressing complaints following terminationof thearrangement. 23 Although a distribution partner will likely have most contact with customers and exercise a large degree of control and oversight of the customer relationship, insurers will still need to understand their regulatory obligations regarding disclosures and communications with policyholders and ensure those standards are met. The parties may also need to agree on how premium is to be calculated. For example, there can be challenges in determining the value of premiumpaid via airtime onmobile networks. Parties will need to determine how such payments aremonetised and allocated. Branding will also need to be considered where an insurer relies heavily on its local mobile network operator (MNO) partner, or where there are branding requirements for insurers under local regulation. If an insurer has an agreement in place with an MNO for example, it may need to ensure that the MNO in turn has agreements in place with technical service providers or others in the value chain and can supervise them effectively and appropriately in line with applicable regulatory standards.

If an inclusive insurance business model depends on partnerships between insurers and partners (such as MNOs, credit unions, retailers, or microfinance institutions) for distribution or claims administration, those involved will need to consider what terms will govern that arrangement and how to deal with any disputes. In China, microinsurance and parametric insurance products are frequently designed and sold locally with the support of local governments. However, since there is no specific law or regulation regarding microinsurance, its development is still in the pilot stage and subject to case-by-case approval by the regulator. Many of the partnerships that are being formed are novel groupings with parties that may not have much trading history or experience of working together. Some technical service providers may themselves be relatively new insurtech start-ups. Mutual expectations may vary. Insurers will likely have regulatory responsibility regarding the fulfilment - Xiaolin Lin, Clyde & Co, Shanghai





There may be specific requirements for outsourcing functions and licensing requirements for those operating in designated regulatory roles. A thorough understanding of regulatory and licensing categories and delineation of responsibilities will be all-important. Some countries will require that intermediaries who arrange insurance are licensed (so as to ensure they have the requisite knowledge and skills to advise customers), but inclusive insurance products in emerging markets are often highly simplified and distributed by partners – such as MNOs or supermarket chains – who do not usually fall within the regulatory framework of insurance supervisors. Where new technologies are involved, the value chain can be significantly shortened with a merging or blurring of lines between “traditional” roles of introducing, broking, claims administration, marketing and underwriting. Some jurisdictions may require a certain profit commission or brokerage on policies defined as microinsurance. The level of such payment percentages as well as the tax treatment and regulatory burden on participants in the value chain will need to be considered as part of any business plan.

Inclusive insurance products, particularly those with new distribution partners or offered as part of a wider mobile service, can potentially attract attention from a number of regulators: including insurance, banking and telecommunications; information commissioners and data protection officers; consumer protection bodies and ombudsmen; ministries of agriculture and health regulators. Overlapping jurisdictions of regulators and supervisors have the potential to create uncertainty and increase costs. It may not be clear which body regulates specific issues. A proliferation of regulatory bodies to oversee a relationship could lead to regulatory arbitrage and the costs of clearing a new product with several regulatory bodies may be high. It is important that inclusive insurance project partners have a good understanding of where the regulatory obligations will lie, and, if necessary, work in cooperation with various regulators to streamline approvals processes and licensing. Early coordination with regulators through pilot projects and “sandboxes” may assist in streamlining this process. In due course, regulatory architecture may itself need a refresh to take account of these new products and new distribution channels to allow innovation and new approaches to flourish in this rapidly evolving market. -William Hogarth, Partner, Clyde & Co, London


How can inclusive insurance reach its full potential?


In terms of the number of consumers reached, new inclusive insurance markets may have the potential to rival the scale of insurers’ existing operations. Many innovations and new technologies are already in place and the landscape is rapidly shifting as a result. But what needs to change if more players are to join the chorus and foster market development? To help ensure that uncertainty doesn’t stifle innovation concerted coordination is needed between insurers, their partners and regulators to find an acceptable balance between consumer protection and supportive regulation. Government donors and theWorld Bank are already building capacity and sponsoring projects and pilots. Innovative insurers are helping to shape the conversation and test the existing frameworks of each new product and local partner organisations are informing those in the value chain about the unique needs of their clients.

It is our view that law and regulation must also innovate for inclusive insurance to fully take hold in emerging economies. We believe that that there are three broad measures that can be taken to help support innovation: 1. A positive regulatory approach 2.Informationsharingacross jurisdictions 3. Encouragement of public-private partnerships

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