ZIMBABWE is working on a framework to regulate and formalise operations of micro-insurance firms targeting low income earners, the Insurance and Pensions Commission said. Micro-insurance has been identified as a critical instrument for delivering effective and efficient insurance services and products as well as promoting financial inclusion. The proposed guidelines are meant to provide a more structured method to deal with the licensing, formalisation and regulation of micro-insurance activities, the commission said.
The need to develop the framework has been motivated by the current regulatory framework, which does not provide guidelines for the licensing and regulation of micro-insurance products and entities. The regulatory gap has presented a challenge to the commission on how to deal with the existence of unregistered providers.
It cited funeral service providers and legal aid businesses providing insurance products as well as other entities that are seeking registration to conduct insurance business, targeting the poor.
According to a Finscope Survey of 2014, 70 percent of adults do not have insurance. While 30 percent of the population have insurance, 77 percent is in respect of funeral cover. “The primary objective of the framework is to promote the development of micro-insurance by establishing the basis of the legal framework for the regulation of micro-insurance activities.
“The thrust is to create an environment in which, unnecessary regulatory barriers to financial inclusion are minimised whilst at the same time taking into account the need to protect the interest of policyholders, create a level playing field and a stable financial sector,” read part of the draft document. The framework also seeks to advocate for a principle based approach as opposed to a rule or prescriptive manner of regulating micro-insurance activities.
This is meant to avoid stifling of innovativeness by anchoring the regulation of micro-insurance on the principle of proportionality. IPEC has proposed minimum capital at $300 000. The minimum capital requirements would be reviewed from time to time.
It is also proposed that micro-insurers shall maintain a statutory deposit of 10 percent of the minimum capital. This deposit would be available to the insurer in the event of failing to meet insurance liabilities and need to be replenished within 60 days after being accessed.
The deposit would also be last resort and a trigger indicating that the insurer is in financial distress. In general, reserving requirements for micro-insurance products sold under a micro-insurance licence would be the same as for products sold under a non-life insurance licence, given that most of the policies would have one year tenure.
However, if the nature of the product sold is the same as that of a long term product sold under the life insurance licence, the company would have the option to use the reserving requirements as under a life insurance license; and if the nature of the product sold is the same as that of a short term product, the reserving requirements would be the same with that of products sold under a general insurance licence.
IPEC has proposed micro-insurers shall not invest more than 10 percent of their assets in real-properties; 5 percent in unquoted equities; 40 percent in a quoted equity; 10 percent of the shareholders equity in associates, subsidiaries and related companies; 20 percent of the total assets with one counter party, and not more than 25 percent of the total cash balances in any one bank.
IPEC is now seeking input from the industry.