Regulation of micro-insurance required, IAIS says

Regulation and supervision of micro-insurance is a key factor for the further development of the insurance market, according to the International Association of Insurance Supervisors (IAIS).Micro-insurance is the provision of insurance to low-income households following basic insurance standards. These standards include economically affordable premiums, measurable losses that are not catastrophic, existence of an insurable risk, similar units should be exposed to the risk, etc.Micro-insurers provide different forms of insurance for life, health, property, disability, and agriculture (crop), among others. Poor households pay a small premium for limited coverage in the event of losses.Micro-insurance associations have been established in Africa, Latin America and many other parts of the world. Most recently, a Ugandan association has teamed up with AIG for help in providing micro-insurance products.”Regulation of micro-insurance is a challenge for most supervisory authorities,” the IAIS notes in its first-quarter 2006 newsletter. “Data on the functioning of micro-insurance is scarce and a micro-insurer’s business process differs from established insurance operations.”Many of the micro-insurance providers do not have experience with the technical and legal aspects of insurance. Thus, they need comprehensive guidance and support in implementing legal and prudential requirements. “The risk parameters used by the regulators are designed for the high-premium and high-volume business of typical commercial insurers. Micro-insurers, however, handle small policies and premiums and often work with fragmented underwriting and claiming.”The Consultative Group to Assist the Poor (CGAP) has agreed to cooperate with IAIS in the area of regulation and supervision of micro-insurance. Representatives from IAIS and CGAP met Feb. 18 in Basel, Switzerland, to discuss the current state of micro-insurance regulation. Together, they launched a new task force that will prepare an issues paper on Micro-insurance Regulation and Supervision by October 2006.Members of the joint working group are scheduled to meet in Ottawa on May 30.