Emerging supervisory trends
The Access to Insurance Initiative (A2ii) is in a unique position to monitor and observe trends in inclusive insurance supervision and regulation. Hannah Grant reports on the main issues to emerge over the past year. By courtesy of the Micro Insurance Network.
Developing regulations for increased access
Forty-seven supervisory authorities across Africa, Latin America, the Caribbean, Pacific and Asia have, or are in the process of developing, regulations aimed at increasing access to insurance. This compares to 41 just a year ago. These arrangements are usually released in the form of a microinsurance regulation and typically include a definition of microinsurance, as well as proportionate approaches to areas such as licensing, distribution, product approval, disclosure, premium collection and claims payment. Supervisors, especially in Latin America, increasingly talk in terms of inclusive insurance rather than microinsurance. This ensures that all underserved consumers, not just the low-income market, are included within the scope of the regulation. For example, in Costa Rica, the elderly have been identified as being underserved and thus have a special focus in the regulations.
The main aim of this type of inclusive insurance regulation has been to broaden the range of channels, especially mass channels, which are permitted to distribute insurance. New categories have been created to ensure these distribution channels are included under the regulatory umbrella. These include operadores de seguros autoexpedibles (insurance operators) in Costa Rica, comercializadores de seguros (insurance marketers) in El Salvador and Guatemala, and representantes de seguros (insurance representatives) in Brazil.
Encouraging market development
It is a given that insurance supervisors are responsible for consumer protection and financial stability, but market development is increasingly being added to their mandate as well. A growing number of supervisory practices are being used to help stimulate insurance market growth, ranging from tried and tested approaches (such as ‘test and learn’ and open dialogue with the industry and other sectorial supervisors) to more resource-intensive initiatives including innovation hubs and sandboxes.
Until recently, innovation hubs and sandboxes were seen solely in more developed countries and in the banking sector, but they are becoming increasingly common in insurance too. The Monetary Authority of Singapore and the UK Financial Conduct Authority have led the way but several developing countries are looking to follow suit, with Kenya among the countries planning to set up a sandbox in their jurisdiction.
Responding to the demand from insurance supervisors for more support to implement their market development objectives, A2ii launched an inclusive insurance innovation Lab in late 2017. Multi-stakeholder teams from Albania, Ghana, Kenya and Mongolia have come together over the course of a year to examine why insurance penetration is low in their countries and to come up with innovative solutions. The high level of interest and commitment shown by supervisors participating in the Lab underlines the importance that insurance supervisors attach to their market development role. The Lab is developing innovations such as an insurance education game app for mobile phones in Mongolia, an indexbased product in Albania to cover against frost damage to seedlings, an awareness-raising clinic to promote insurance to small- and mediumsized enterprises (SMEs) in Ghana, and the establishment of a regulatory sandbox in Kenya.
In addition, several countries are putting structures in place to ensure that the work of the Lab teams can continue beyond the lifetime of the project. Participants do not generally see regulation as a barrier to market development, but the success of the Lab has hinged on the involvement and leadership of insurance supervisors who can increase awareness of opportunities and motivate other important market players to participate.
Developments in digital financial inclusion
Digital financial inclusion could be a game changer. Already it is transforming business models in the insurance sector by improving access and targeting, as well as reducing, administrative overheads. Supervisors recognise and welcome digital developments that could create greater access at more affordable prices. However, a degree of caution is also evident with supervisors wanting to protect consumers from the potential risks of new technologies.
The forthcoming International Association of Insurance Supervisors (IAIS) Applications Paper on digital financial inclusion, which provides supervisors with much-needed guidance, is therefore keenly anticipated.
Legislative change takes time, and most insurance legislation was developed with more traditional business models in mind. As a result, domestic insurance law often fails to take account of digital transactions, and even where supervisors support change it can take time before practices such as e-contracting and electronic signatures are allowed. However, there are signs of positive progress, with jurisdictions including Brazil, Mexico, the Philippines, Ghana and India having recently issued new regulations allowing for e-signatures and paperless documentation. Several other supervisory authorities are looking to follow suit.
It is worth noting that supervisors have not yet fully addressed the consumer protection risks associated with greater availability of data and the use of data analytics. Data is not in itself a bad thing. For example, better data on consumers and their risks, particularly in inclusive insurance markets, means insurers no longer have to charge higher premiums to account for uncertainty. Enhanced data enables insurers to obtain a more accurate understanding of consumers’ needs, design better products and price them more accurately. However, better data can also increase the risk of exclusion, with higher-risk consumers finding themselves priced out of the risk pool or simply not being offered insurance at all. So far there have been few cases of this occurring in practice, but in markets with lower competition (which is true for most inclusive insurance markets) and high-risk consumers, the risk of it happening in the future is very real.
A2ii is finalising a study that will help supervisors to improve their understanding of the risks associated with data, and a briefing note highlighting some of the study’s initial findings was published earlier this year.  It suggests that consumer data protection is not solely the responsibility of the insurance supervisor. The communications or data protection regulator also need to be involved, but that data-related risks pose a particular challenge for insurance supervisors.
Supervisors are monitoring developments in digital technologies very closely and are keen to learn from their peers in both developing and more developed jurisdictions. The recently established IAIS FinTech virtual forum is particularly welcome, as it provides supervisors with a platform where they can share developments from their own countries and learn from others.
Increasingly complex formalisation
Formalisation has been a constant challenge in inclusive insurance markets. Informal providers are still widespread, despite efforts by insurance supervisors who are often unable to gauge either the depth or the breadth of informal systems in their jurisdiction, or the risks to consumers. Recent positive developments include the new South African insurance regulatory framework and microinsurance standards, which came into force in July 2018. The framework paves the way for a long-awaited bespoke licensing regime for funeral parlours, which aims to put an end to consumer abuses by unlicensed entities.
Developments in InsurTech and the involvement of new digitally-enabled underwriters and distributors have left supervisors struggling to ensure all entities are operating within the licensed sphere. Formalisation challenges traditionally involved microfinance institutions (MFIs) adding credit life, or unlicensed cooperatives providing insurance to their members, but now regulators have to deal with insurance via mobile phone apps, technology platforms and peer-to-peer networks. A2ii recently organised a dialogue event exclusively for Latin American supervisors in Brazil to help them meet these new challenges, and to provide them with an opportunity to share experiences and learn from experts. 
Data gathering and analysis
Data collection and analysis continues to be very limited, particularly when it comes to data specific to microinsurance. As a result, supervisors are limited in their ability to review and report, or to design effective and appropriate policy responses for present and future needs. In response to a request from the IAIS Implementation Committee, A2ii organised a call with supervisors to examine the use of different ratios and cost structures in supervisory reviewing and reporting. The considerable level of interest shown by supervisors demonstrates their desire to implement improvements in this area.
The overall trajectory of change in regulation and supervision is positive, with more supervisors developing inclusive insurance regulations and more resources being dedicated to supporting insurance market development. Digital innovations present insurance supervisors with new challenges, while existing topics such as data collection and formalisation remain. Supervisory capacity building is as vital as ever to help supervisors deal with these challenges while simultaneously supporting the development of insurance markets.
 Access to Insurance Initiative, What is the role of insurance regulators in dealing with consumer data protection risks arising from increased data availability and usage? Early findings, (A2ii, May 2018). Available at https://a2ii.org/ sites/default/files/reports/the_role_of_insurance_regu – lators_in_dealing_with_data_related_consumer_protec – tion_risks.pdf, accessed on 6 September 2018.
 Supervisory Dialogue on The impact of informality on insurance markets – what supervisors can do? Hosted by Superintendência de Seguros Privados (SUSEP), Brazil. Available at https://a2ii.org/sites/default/files/reports/ supervisory_dialogue_report_english.pdf, accessed on 6 September 2018.