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MCCO REGULATION: TRENDS AND CHALLENGES
Enhancing Value in Community-Based Micro Insurance:
An MIA Innovation Workshop
May 17, 2010 New Delhi
DR. IAN WEBB
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Outline of Presentation
I. Challenge of Regulating MCCO’s
II. IAIS-MIN Draft Issues Paper
III. MCCO Regulatory Approaches Philippines, Peru
IV. MCCO TA Support Institutions, Philippines, Peru, Colombia, D.R.
V. Where Do We Go From Here?
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I. Some of the Challenge of Regulating MCCO’s
Area of Regulation/Supervision
Challenges
InvestmentsInvestments may not be professionally managed. Little or no ALM used. Liquidity risk and concentration risk not understood often.
CapitalRestricted ability to raise capital. Capital adequacy may not be easily calculated when liabilities and catastrophic risk exposure not well analyzed.
Actuarial – Reserving & Pricing
Pricing of products often done using data from other populations. Lack of good accounting practices may lead to poor accounting records, limiting hisotrical analysis of pricing adequacy. Same issues for reserving adequacy.
Market ConductMCCO’s are highly attentive to member needs, but may impose pressures on members as well given their influential position in the relationship.
GovernanceMCCO’s may not be famiiliar with corporate governance standards.
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I. Challenge of Regulating MCCO’s
Cost – benefit equation is different
Cost of regulation should be less than the benefit
Level of resources makes compliance with regulations difficult
Variety of MCCO models, cultures and objectives complicates using a single approach
Different regulatory agencies may claim jurisdiction
Inadequate data on the number and types of MCCO’s existing
Little insurance supervisory experience with MCCO’s
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II. MCCO Surveys, Studies & Papers
Joint Working group – IAIS & CGAP (MI Network)
Issues paper on Microinsurance (2007)
Survey on the role of mutuals, cooperatives and community-based organizations (2008)
Issues paper Regulation & supervision of MCCO’s in increasing access to insurance markets (expected 2010.)
Next => “More elaborative standards and guidance with respect to issues of access to insurance” (2011 +)
ICMIF
Planning a survey on mutuals and coops around the world (2010)
Planning an analysis of “success stories” behind mutual insurers that started out as microinsurance providers (2010)
Publication of ICMIF mutual survey 2008 – size of formal mutual insurance market in each country (2010)
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IAIS-MI Draft MCCO Paper: Highlights
Yes
Implications for regulation/supervision (ICP’s) arising from mutual nature of organization
Grounds and scope for different regulatory/supervisory treatment due to MCCO characteristics
Emphasizes positive role MCCO’s play in increasing access to insurance
Highlights need to formalize supervision of MCCO’s beyond supervisory radar
No
Regulatory/supervisory issues arising from microinsurance, or small insurers
Specific guidance on how to regulate MCCO’s
Guidance on how to address lack of adequate supervision for many MCCO’s
Viewpoints and concerns of MCCO’s
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IAIS-MI Draft MCCO Paper: Contents
Defining Characteristics of MCCO’s
Member ownership
Democracy
Solidarity
Created to serve a defined group or purpose
Role of MCCO’s in providing access to MI
Geographic challenges
Cultural challenges
Business model challenges
Service and product design challenges
Socio-econoic circumstances challenges
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IAIS-MI Draft MCCO Paper: Contents
Supervisory arrangements
Licensing
Suitability of persons
Changes in control and portfolio transfers
Corporate Governance
Internal Control
On-going Supervision
Prudential Requirements
Capital Adequacy and Solvency
Markets and Consumers
Intermediaries
Consumer Protection
Information, Disclosure and Transparency towards the market
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Draft MCCO Paper: Special Considerations
ICP’s Special Considerations
1-5: Supervisory arrangements Few differences / Important not to exclude MCCO’s from supervisory regime / May need to coordinate oversight with other government agencies
6: Licesning Important to consider alternatives to allow MCCO’s to participate if current licensing regime prohibits their participation /Consider strength of governance
7: Suitability of persons Professional experience and suitability of board, as well as continuity of directors, may need to be scrutinized / suitabilty of capital subscribers is different
8: Changes in control, portfolio transfers Path to change under demutualization needs to be established in law / Change in “effective control” in MCCO should be considered
9: Corporate Governance Consider seprate rules for C.G. For MCCO’s that are facilitative of access and reflect nature of mutuality / Effective Board is equally expected of MCCO
10: Internal control Same treatment
11 – 17: Ongoing supervision Same, except provision of path to exit through demutualization
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Draft MCCO Paper: Special Considerations
ICP’s Special Considerations
18 – 23: Prudential Same treatment
23: Capital adequacy and solvency
Fairness towards existing and future members regarding capital surplus / Callable but unpaid capital not to be relied upon
24 – 28: Markets and consumers
Same treatment, except implementation of ICP with respect to AML/CFT may take into account aspects of member relationship
24: Intermediaries If requirements placed on licensing and duties of intermediaries are difficult for MCCO’s, consider modifying / Apex institutions may reduce supervisory burden
25: Consumer protection Credit should be given for built-in mechanisms in MCCO’s that demonstrate high level of consumer awareness and protection may reduce burden on supervisor
26: Information disclosure, Transparency to market
Credit should be given for built-in mechanisms for democratic assemblies, meetings, and dissemination of information
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III. Insurance Regulatory Environment MCCO’s
Philippines
Formal MI regulatory framework
Licensing structure expanded to incorporate varoius kinds of MI-related activity including conventional insurers, MBA’s, cooperative insurance socieites, pre-need companies & health maintenance organizations.
Required simplified and favorable contractual terms, and facilitates commercialization by MCCO’s and others, when definition of MI met
Peru
Formal MI regulatory framework
Superintendency Banks & Insurance and Pension Funds (SBS) 1 tier licensing - only for conventional insurers
Required simplified and favorable contract terms, and facilitated commercialization by MCCO’s, when definition of MI met
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IV. Technical Assistance for MCCO’s
Philippines
RIMANSI offers thorough and sustained TA support for MBA’s. Insurance companies, through partner-agent model, also provide some TA and product development support for distribution partners. Cooperatives, pre-need companies, HMO’s ’s receive little and scattered TA support from other sources.
Peru
Insurance companies, through partner-agent model, provide most of the TA and product development support to MCCO’s. Health clinics (Micro-Health), cooperatives, and labor unions receive little and scattered TA support from other sources.
Dominican Republic (COOPSEGUROS) & Colombia (La Equidad)
Member-owned cooperative insurers licensed by the insurance supervisor provide substantial TA and product development support to cooperatives.
Insurance companies through partner-agent model also provide TA and product devlpt.
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TA for MCCO’s: APEX Institution (RIMANSI)
Independently owned (non-stock, non-profit)
Member-governed but with full-time professional staff
Services
Licensing assistance for MCCO’s wishing to establish MBA’s
Extensive market surveys to identify risk protection needs of clients
Governance structure of MCCO’s behind MBA’s that has built-in attention to satisfaction and needs of client members
Professional product development, pricing, reserving, investment services
MIS installation and training
Prudential and performance monitoring of client MI operations (self-regulatory function recognized by Insurance Commissioner)
Corporate governance training
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TA for MCCO’s: Cooperative Insurers
Serve the interests of their cooperative members
Member-owned and governed, but with full-time professional staff
Profit not retained by individual members; shared and administrated by collective
Services
Extensive market surveys to identify risk protection needs of members
Governance structure has built-in attention to satisfaction and needs of members
Provide professional product development, pricing, reserving, investment services
Financial literacy and other social services (i.e. health education)
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V. Where Do We Go From Here?
Understanding MCCO’s
Don’t know the scope/size of number of MCCO’s size of their activities – DATA!
Don’t know their interests and strengths, and contributions adequately yet
Many questions still be to answered – How are MCCO’s fundamentally different?
Do MCCO’s want to be regulated?
How do MCCO’s contribute to the insurance market (what are their special roles, in terms of social capital, financial literacy, trust-building?)
Are they addressing a market failure, and consequently, require a organizational profile different than a professional insurer?
Risk- transfer Vs. Risk-pooling
How to balance technical assistance with regulation/supervision?
Do different stages of MCCO development that require different types of regulatory/supervisory intervention?
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Where Do We Go From Here?
Exploring viable paths to development and regulation
Establishing dialog between key stakeholders (MCCO’s, insurance regulators, other regulatory agencies with jurisdiction, donor agencies) to explore best approach to
Regulation and supervision
Development of MCCO capacity, performance and integrity
Develop adequate and appropriate regulatory/supervisory framework
Developing TA and regulatory models with various key stakeholders
Learning from practices and experience around the world
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Parts of the Puzzle
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Stakeholders
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THANK YOU