FSC aims to introduce new microinsurance regulations by 2015

BY SHAMILLE SCOTT Business reporter scotts@jamaicaobserver.com

Tuesday, November 05, 2013

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THE Financial Services Commission (FSC) hopes to have a regulatory framework to supervise the new microinsurance sector by 2015.


Insurers have begun to offer coverage to low-income persons and micro, small and medium-sized enterprises (MSME), which are generally more exposed to risk than the wealthy.


The insurance regulator can't say how long it will take to establish the framework for governing these services, but it knows for sure that the Insurance Act and Insurance Regulations will have to be amended.


"We hope to have the regulations by 2015, but that's just a tentative date," Leon Anderson, deputy executive director at the FSC told the Business Observer. "But we know that one of the major amendments will have to be the distribution channel -- how the microinsurance will be sold."


Currently, only insurance companies and their brokers can receive premiums or make payouts to clients.


But achieving lower premiums that are affordable to the lower income groups will require alternatives to selling insurance through brokers and sales representative, which incurs large commission fees.


Co-operatives, football clubs, convenience stores, and schools are some channels being used in other jurisdictions.


"So it (microinsurance) can work as long as the premiums are low and the distribution channels are effective," Anderson told the Business Observer.


Conglomerate, GraceKennedy through its insurance subsidiary, Jamaica International Insurance Company (JIIC), sees its branch network -- which includes 140 remittance shops and Bill Express locations -- as an ideal distribution vehicle to reach customers with at least one of its microinsurance products that was recently launched. The financial and food conglomerate also partnered with the People's Cooperative Bank, which has 37 branches in 13 parishes.


JIIC launched Bill Protect, which provides coverage for future bills should they become disabled; GKAmed, covers doctors' bills and X-rays and Livelihood Protection Policy (LPP), provides coverage for loss of income due to a weather disaster.


For those, the FSC granted approval within the current legislative framework to market a quasi-microinsurance policy in Jamaica. These insurance products are only accessible by means of a group policy.


"We fit the products that are available in our current framework, because we don't want to stifle them," said Rosemarie Henry, senior director, insurance at the FSC.


The FSC approached the World Bank and the Inter American Development Bank (IADB) three years ago to help create the framework needed to supervise the new and emerging sector locally, and subsequently developed a project to supervise microinsurance -- Implementation of Regulatory and Supervisory Standards in Microinsurance Markets in Latin America and the Caribbean.


This is a joint project between the Access to Insurance Initiative (A2ii) and the Multilateral Investment Fund (MIF), which is also being implemented through the insurance supervisors in Brazil, Colombia and Peru.


About 27 countries have decided to review the regulations applicable to microinsurance or put in place new ones, according to A2ii.


A diagnostics team is currently on the island to identify the demand for the products, drivers, and barriers to the microinsurance market development in order to inform recommendations for industry policy and regulatory reforms here.


Given the location of Jamaica and the challenges faced by individuals in the lower income bracket, there are numerous opportunities for the development of microinsurance, the FSC said.


Loss of income has been the major cry of farmers for years and various agricultural boards have instituted insurance polices for their members, while the government has shown an interest in the development of parametric insurance cover for farmers.


Still, A2ii will research the changes needed to the current regulations.


"There's an Insurance Act, then we have to involve the various entities such as the coffee board, the banana board...," said Donna Swiderek, lead consultant of the Jamaica Country Diagnostic Team. "We are looking at how we can open the market."


Later in January, A2ii will return to assess the country's level of compliance with the International Association of Insurance Supervisors (IAIS), insurance core principles (ICP).


"So the A2ii will do the diagnostics and assess our compliance with the ICP to determine what we need. Then they will help us with the appropriate legislation, in terms of amendments needed," said the deputy executive director of the FSC.


A2ii identified areas in other countries' regulations that were altered to facilitate the development of microinsurance, these include a reduction of market entry barriers, incentivising involvement in the microinsurance market, and encouraging market efficiency as well as consumer protection.


As it relates to lowering barriers that prevent players from entering the market, the Philippines is said to have lowered the capital structure needed for mutual benefit associations to become involved in microinsurance.


Microinsurance providers in Colombia are mandated to provide financial education to the market, which has encouraged market demand.


In terms of efficient and consumer protection, standards for performance are established in the Philippines, while Pakistan has a claims handling period of 14 days.


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