The South African Microinsurance Regulatory Framework (2011)

Question 1

3 Features of the SA insurance market needing urgent policy redress

Answer 1

• better access for South Africans to affordable insurance products that meet the risks that they face
• consumers need to better match the products that they buy with their insurance needs
• consumer protection must be strengthened as more policies are sold through funeral parlours that may not be licensed for this business

Question 2

Microinsurance

Answer 2

Refers to insurance that is accessed by the low-income population (the mass market), provided by a variety of different providers and managed in accordance with generally accepted insurance practice.

Question 3

4 Objectives of the National Treasury’s policy framework

Answer 3

• Extend access to a variety of good-value formal insurance products appropriate to the needs of low-income householders, thereby supporting financial inclusion.
• Facilitate formalised insurance provision by currently informal providers, and in the process promote the formation of regulated and well-capitalised insurance providers and small business development.
• Lower barriers to entry, which should encourage broader participation in the market and promote competition amongst providers, further supporting poverty alleviation through economic growth and job creation.
• Enhance consumer protection within this market segment through prudential and business conduct regulation, improved enforcement of regulatory transgressions, and consumer education interventions targeted at understanding insurance and its associated risks and benefits.
• Facilitate effective supervision and enforcement, supporting the integrity of the insurance market as a whole.

Question 4

6 Proposals for a new Microinsurance Act

Answer 4

• Levelling the playing field for providers
• Product standards and benefit limits
• Lower prudential requirements
• Appropriate intermediary requirements
• Growing consumer awareness and responsibility
• More effective supervision and enforcement

Question 5

Proposals for a new Microinsurance Act:

Levelling the playing field for providers

Answer 5

The licence should be accessible to public and private companies (which will accommodate existing insurers and potentially funeral parlours) and co-operatives (to accommodate the existing Friendly Societies and other insurance co-operatives).

Question 6

Proposals for a new Microinsurance Act:

Product standards and benefit limits

Answer 6

Products must be designed in an appropriately simplified way, to support improved understanding of insurance products by consumers of the market.

Benefits are restricted to risk products only (i.e. exclude contractual savings), although providers can offer both long- and short-term products.

The size of the benefits that a microinsurer can offer will be capped:

• life products: R50 000
• in-life products: R50 000
• asset products: R100 000

These restrictions are introduced to contain potential risk exposure by the microinsurer, and allow in turn for reduced prudential requirements.

Question 7

Treatment of Long-term and Short-term products

Answer 7

In this environment, long- and short-term products are similarly structured and the risk is similarly managed.

Therefore the demarcation applied across the Long-term and Short-term Insurance Acts is unnecessary and would only impede competition.

Question 8

Proposals for a new Microinsurance Act:

Lower prudential requirements

Answer 8

Commensurate with the simplified product offering, microinsurers will require R3 million upfront capital, and will enjoy similar capital reserving, reporting and corporate governance requirements.

This is envisaged to support the provision of more appropriate products by the existing formal insurers.

It should also enable improved regulatory compliance by currently illegal or informal operators.

Question 9

Proposals for a new Microinsurance Act:

Appropriate intermediary requirements

Answer 9

Sellers of microinsurance products will enjoy appropriately streamlined Financial Advisory and Intermediary Services (FAIS) requirements.

The nature of protection afforder is proportionately applied to meet the needs of the market.

To encourage “human” intermediation in this market, commission is proposed to be uncapped.
The FSB will monitor commission to ensure that there is no abuse.