PAKISTAN MICROINSURANCE REGULATORY
FRAMEWORK
Consultation Paper
SECURITIES AND EXCHANGE
COMMISSION OF PAKISTAN
Document Type
Public
Division/
Department
Insurance Division/
Policy, Regulation and
Development
Department
Date
Code
Revision
October 16,
2012
MI-CP
Version 1.x
This Consultation Paper is part of the series of activities undertaken by Securities and Exchange Commission
of Pakistan (SECP) for the development of the regulatory framework of Microinsurance in Pakistan. It is, in no
way, meant to substitute the process of public consultation and undermine the importance of eliciting public
opinion mandated under Section 40(2) of the Securities and Exchange Commission of Pakistan Act, 1997 (Act
No. XLII of 1997), which shall be assumed once the tangible regulations are drafted, on the basis of
stakeholders input.
The Securities and Exchange Commission of Pakistan thankfully acknowledges the
support provided by the FIRST Initiative/ World Bank for developing microinsurance in Pakistan; however, this
document does not necessarily depicts the point of view or recommendations by FIRST Initiative/ World Bank
or its Consultants. Also, this document has not been authorized or approved by the FIRST Initiative/ World
Bank in any way, expressed or implied. This document is mainly an improvised product from the staff of the
Securities and Exchange Commission of Pakistan and the independent Consultants. Comments and feedback
on this Consultation Paper shall be sent latest by November 15, 2012 to faraz.amjad@secp.gov.pk . A soft
copy of this paper can also be requested by sending an email to above mentioned address.
Prelude
The Securities and Exchange Commission of Pakistan (SECP), as always, intends to work closely with
the industry on the development of microinsurance and its regulatory framework, and will ensure the
participation of the industry through working groups, quantitative impact studies and consultation
feedback. A diagnostic study has been recently completed with the assistance from FIRST Initiative/
World Bank, covering the demand and supply-side analysis of microinsurance in Pakistan. The study
forms the basis of stocktaking where the subject stands today and where it needs to be taken. This
consultation paper is also part of such chain and is being circulated for the comments of stakeholders.
The paper has been structured according to the following outline:
A Introduction
B Microinsurance policy, regulation and supervision – Principles
C Scope and Objective of the Regulatory Framework
D Defining Microinsurance Products
D1 Microinsurance Definition
D2 Contract & Disclosure
D2A Waiting Period
D2B Grace Period
D2C Exclusions
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D2D Claims procedures
D3 Product guidelines
D4 Client Research
D5 Product Submission
E Intermediation
E1 Microinsurance Agent
E2 Appointment of Microinsurance Agent
E3 Training & Functions of Microinsurance Agent
E4 Reporting of Microinsurance Agent
E5 Code of Conduct
E6 Remuneration & Commission
F Client Protection/Communication
F1 Disclosure requirements
F2 Complaints Handling
F3 Codes of Conduct and Consumer Protection
F4 Claims handling
F5 Client Communication
G Prudential regulation
G1 Compliance requirements
G2 Specialised Microinsurers
H Institutional Regulation
H1 Authorised Risk takers
H2 Informal Risk takers
H3 Information sharing
H4 Claims Process
I Regulatory Reporting
I1 Data Collection
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I2 Reporting requirements
The following sections would now depict the above outline in detail, encapsulating the crux of
diagnostic study and recommendations forming the basis of the proposed regulatory framework.
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A
Introduction
International experience has shown that insurance can play an important role in helping the poor
manage their risks by protecting the assets and incomes of low-income households when financial
losses occur. This can help prevent them from falling further into poverty in the first place, or falling
deeper into poverty, as a result of having to take children out of school to work, utilise savings, sell
hard-earned assets, or obtain credit or other expensive means of post-event risk management
methods available to them. This does not, however, imply that microinsurance, and particularly formal
microinsurance, is the appropriate risk-management tool for all low-income individuals. Some may
never be able to afford microinsurance, while others may opt for other risk management mechanisms
at their disposal. Although, for those at very low levels of income, microinsurance may not be able to
fully replace the need for government-funded social protection.
It has been observed that the market for microinsurance in Pakistan remains severely underdeveloped
due to the lack of awareness about the potential benefits of microinsurance among microentrepreneurs, small and landless farmers, women, and low-income households, and also due to the
lack of effective mechanisms and targeted products to provide microinsurance services and address
the existing or potential demand. Moreover, most of the activities in this sector remain broadly
unsupervised due to the inexistence of a specific regulatory framework. This document outlines policy
thrusts and direction for the establishment of a policy and regulatory environment that will encourage,
enhance and facilitate the safe and sound provision of microinsurance products by the formal
insurance sector. It also identifies and promotes a system that will protect the rights and privileges of
those who are insured.
The following recommendations set out the basis for regulations for Microinsurance; Draft regulatory
framework for both existing and new microinsurance providers; Draft framework for microinsurance
accounting & regulatory reporting; Draft framework for code of conduct for microinsurance agents
and code of consumer protection. Section B sets out some guiding principles and objectives when
setting microinsurance policy, regulations & supervision. Section C sets out the scope and objective
of the regulatory framework.
Product
regulation,
Sections D and onwards set out regulatory recommendations for
Microinsurance
Intermediaries,
Client
protection,
Prudential
regulation,
Institutional regulation and Regulatory reporting.
This document is meant to be a companion and consultation document to the formal microinsurance
regulations and guidance. The Appendices set out fuller details as appropriate.
B
Microinsurance policy, regulation and supervision – Principles
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The purpose of growing microinsurance provision is to extend financial inclusion in the insurance
domain. The objective with financial inclusion is that individual consumers, particularly low-income
consumers currently excluded from using formal financial sector services, must be able to access and
on a sustainable basis use financial services that are appropriate to their needs and provided by
registered financial service providers. Detailed below are international guidelines1 to grow the formal
microinsurance market. Such principles suggest that this can be done by (i) formalising existing
informal providers of insurance; (ii) encouraging existing commercial insurers to reach out to lower
market segments (referred to in these guidelines as outreach); and (iii) encouraging new entrants,
both domestic and foreign, that are particularly focused on the low-income market.
To develop microinsurance markets, it is suggested that the following general objectives be pursued:
i.
ii.
iii.
iv.
Facilitate both outreach and formalisation, ensuring a level playing field for big and small
players where they seek to serve the same market;
Promote products, providers and distribution channels that will trigger the favourable
introduction of low-income clients to insurance and its benefits;
Adopt risk-based regulation, tailoring regulation to the distinctive risks posed by
microinsurance products and intermediation;
Minimise the regulatory burden on underwriting and intermediation;
To develop microinsurance markets, it is suggested that the following guiding principles be observed:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
C
Target market: Identify, define and understand the target market;
Broader policy: Develop microinsurance policy as part of broader goal of financial
inclusion;
Definitions: Define allowable microinsurance product categories;
Risk nature: Tailor regulation to the risk character of microinsurance thus entities writing
the same kind of risk face a similar regulatory burden;
Multiple players: Allow multiple players with flexible approaches including multiple legal
forms to underwrite microinsurance, if appropriate;
Informal: Provide a path for formalisation of informal approaches;
Distribution: Allow flexibility in distribution approaches;
Enrolment: Build on a mandatory market and also foster a voluntary market;
M&E: Monitor and evaluate market developments to respond. Facilitate information
sharing; and
Enhanced supervision: Use market capacity to support supervision in low-risk areas.
Scope and Objective of the Regulatory Framework
This paper is expected to cover the provision of microinsurance, by the formal insurance sector, that
cover the risk protection needs of low income households. It is not intended to cover social schemes
1
Emerging Guidelines for microinsurance policy, regulation and supervision (A2ii, 2009)
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and risk protection programs administered and implemented directly by government. However if
such a social insurance scheme or risk protection program involves an insurer then such schemes or
programs will be covered by this framework.
The paper also provides a policy and regulatory environment direction that will facilitate the
participation of the insurance sector in providing risk protection for low-income households and
ensure that the rights and privileges of the insured poor will be protected and promptly acted upon.
The paper builds on the work recently completed and documented in the Diagnostic study of
Microinsurance in Pakistan2. This study assessed the demand and supply of microinsurance, the
regulatory environment and produced a number of policy recommendations for SECP and other
parties, to consider. The key recommendations from this diagnostic form the basis of the policy thrust
of this paper, which is intended to explain the proposed Microinsurance regulatory framework and the
rationale for the Microinsurance regulations and guidelines. The following sections set out the key
policy recommendations and the related regulatory approach:
-
D
Defining Microinsurance Products;
Intermediation Regulation;
Client Protection;
Prudential Regulation;
Institutional Regulation; and
Regulatory Reporting.
Defining Microinsurance Products
These are the regulatory directions in order to effect and ensure that the relevant policy
recommendations from the Diagnostic study are implemented, as they relate to: (i) Defining
Microinsurance; (ii) Contract & Disclosure; (iii) Product Features; (iv) Underwriting Guidelines; (v) Client
Research; and (vi) Product Submission Procedures. The key regulatory approaches to be used are
identified, namely the use of Microinsurance regulations and guidelines.
D1
Microinsurance Definition
At a basic level, microinsurance refers to insurance that is accessible by low-income households. To
turn this conceptual definition3 into a practical one, wide enough to facilitate the development of a
dynamic microinsurance market, it is recommended that the definition should reflect the features of
insurance required by low-income households and generate low prudential risk and be
straightforward to distribute. As such it was considered important that a quantitative definition be
adopted to ensure clarity and consistency in categorisation by varying insurers.
2
“Assessment of Demand and Supply of Microinsurance in Pakistan” conducted in May 2012
3
“The South African Microinsurance Regulatory Framework” (2011)
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However, it is also important that the definition is “quantitative-light” i.e. quantitative but also not too
complicated to implement.
To ensure consistency and appropriateness over time, this definition
should be subject to regular review by SECP. A simple definition is being proposed on the basis of
Sum Insured, rather than premium, which is considered more representative of the insurance needs of
the low-income population. This is considered to be more likely linked to the financial loss the
insured is facing and is seeking insurance for.
As the definition includes the term “low-income
person” it is important to also quantify what is considered to be a low-income person. This definition
is linked to a standard measure of income produced by the Government of Pakistan, under the annual
Economic Survey of Pakistan, subject to the regular review for adequacy by SECP.
In the definition, it is important to be clear that microinsurance is insurance and more simply is a
special category of insurance and not a new class of insurance. As such it is defined as either life
microinsurance or non-life microinsurance.
Though, there are a number of allowable classes of
insurance, for life and non-life in the Insurance Ordinance, 2000 4, that are not considered relevant for
Microinsurance. As such microinsurance is defined for the life classes and non-life classes considered
to be where microinsurance needs are highest, namely; ordinary life, accident and health, fire &
property damage and agriculture insurance.
In line with current market practice, both a life insurer and non-life insurers will be able to provide
health microinsurance (Class 4 under Life and Class 7 under Non-Life as defined in the Ordinance). It
is not necessary to define insurance as this is clearly defined in the Ordinance.
The above stated definition will form the part of proposed Microinsurance regulations.
D2
Contract & Disclosure
Given the low literacy level of the target market, it is important that key information necessary to
make an informed decision be fully disclosed by the insurer and intermediary. All microinsurance
policies should clearly state the benefits and terms of coverage. In this regard, all insurers providing
microinsurance shall ensure that contract provisions can be easily understood by the insured and
printed in local vernacular language, while the documentation requirements are kept simple. The
contract & disclosure requirements will form part of the Microinsurance regulations.
There are four typical risk management tools for the insurer to address the key insurance risks such as
adverse selection, moral hazard and fraud. However these areas are also significantly different for
microinsurance as compared to conventional insurance. For a successful microinsurance product, it is
important to adopt a more practical and pragmatic approach to these four policy conditions.
4
Further, all references in this document referring to Insurance Ordinance 2000 shall be referred as Ordinance, which is the
primary legislation of insurance in Pakistan.
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Consultation Paper
D2A
Waiting Period
Waiting periods are used to reduce the risk of adverse selection in situations where no individual
underwriting occurs. Practical waiting periods can be adopted for microinsurance products. The
following waiting periods are proposed to be allowable for microinsurance products: maximum of 6
months for death & disability due to natural causes for policyholders who are less than 65 years of
age upon entry; no waiting period proposed to be allowed for accidental death & disability as
accidental policies have limited adverse selection risk. The above stated waiting period requirement
will form part of the Microinsurance regulations.
The imposition of a waiting period could adversely affect policyholders if they move between insurers.
The risk of adverse selection may already have been dealt with and the need for another waiting
period with another insurer may not be necessary. Therefore, it is recommended that insurers develop
an arrangement whereby they can share information and make specific allowance for an insured
switching insurer and who has already served a waiting period. This above stated waiting period
recommendation will form part of the Microinsurance guidelines.
D2B
Grace Period
Many microinsurance policyholders, especially those in the informal sector and seasonal workers, are
likely to have irregular income streams which may make it difficult for them to maintain regular
premium payments.
To ensure that such policyholders are not unduly disadvantaged by their
irregular cash flows, microinsurance policies are recommended to allow a grace period if premium is
not paid when due. The following is considered to be allowed: As a minimum, cover to continue for
one month after the due date of the premium. The outstanding premium may be paid any time
during that month without compromising the insurance coverage. If the premium is not paid by the
end of the grace period, the cover will cease at that date i.e. end of grace period.
Should a
policyholder submit a claim during the grace period, the value of the claim may be reduced by the
sum of the unpaid premium, including any mark-up. The above stated grace period requirement will
form part of the Microinsurance regulations.
D2C
Exclusions
To ensure consistency and fair treatment of clients across the market, it is recommended to insurers
that for base product design, there is no exclusion for pre-existing conditions. However, if an insurer
wishes to include exclusion for specified pre-existing conditions, they may provide clear rationale why
they wish to do so. This will form part of the product filing requirements. To avoid adverse selection,
standard exclusions, such as suicide, will be allowed. The above exclusion requirement will form part
of the Microinsurance regulations.
D2D
Claims procedures
The claims process is a very important aspect of Microinsurance and an area where insurers typically
have to adopt a more flexible and pragmatic approach, in order to enable the insured to make a claim
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as easily as possible. It is also important for the insurer to have a cost effective process to limit their
claims administration costs. The microinsurance policy document must clearly state the documents
required for a claim, the claims process and timeframe for settlement.
This claims procedure
disclosure requirement will form part of the Microinsurance regulations; however, the guidance on
effective claims procedure will form part of the Microinsurance guidelines.
D3
Product guidelines
In order to guide the microinsurance sector and bring in learning from microinsurance programs in
Pakistan and in other jurisdictions, there will be a prescription of underwriting guidelines. These are
particularly important for group microinsurance policies as this is the most common and often most
effective way to underwrite microinsurance. Building scale and retaining clients in a cost-effective and
simple manner is also important, which is why automatic renewals are suggested. The guidelines will
be recommended for insurers to follow when developing and issuing microinsurance products. The
stated product advice will form part of the Microinsurance guidelines.
D4
Client Research
When developing and launching a Microinsurance program it is critically important to build the
product around the clients’ risk management needs. Often the key reason, why a microinsurance
program fails, is due to poor client research and a poor product fit to clients needs. It is not in the
insurer or clients’ interest to offer a poorly designed product. On the converse, the most successful
microinsurance programs are usually where there has been client research and there is a reasonable
level of client value in the product. One has to be practical and one would not expect all insurers to
conduct detailed client research for every Microinsurance product. This is why it is suggested that
there be ongoing industry studies to develop an ongoing knowledgebase on low-income clients. In
order to guide the microinsurance sector, there will be client research guidelines plus a requirement
for some basic client research when developing the product. Insurers will be required to report on the
level of client research they conduct, on their Microinsurance client base, as part of the Microinsurance
product filing. The client research guidelines will form part of the Microinsurance guidelines and the
reporting requirements will form part of the Microinsurance regulations.
D5
Product Submission
It has been found that the literacy level and understanding of insurance for microinsurance target
market is usually very low. As such, it is important that products are designed in an appropriately
simplified way, to support understanding of insurance products by consumers in this market. Every
insurer shall be subject to the “File and Use procedure”5 for microinsurance with respect to filing of
microinsurance products with SECP.
Insurers will be required to submit and file microinsurance
products at least 30 days prior to the intended launch date of the product. The filing requirement will
“File and use” means that unless SECP instructs the insurer to desist from launching the product, or to alter certain product
features, the insurer can proceed to launch the product
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include among other items, an example of the proposed policy document, summary of product
features including risk events covered, benefit level, risk rate, expense rates and the pricing basis used
by the insurer. Exact filing requirements will be specified in detail in the Microinsurance regulations.
Currently, all life insurers are required to submit their products to SECP, but this is not required of
non-life insurers. This file and use requirement will thus be an additional requirement for non-life
insurers, but it is intended to be straightforward process with minimal regulatory burden. The key
objective of the File and Use procedure is to ensure insurers follow a consistent approach to
developing a Microinsurance product and that SECP can keep a record of this and review/comment as
and when required. The filing requirements are intended to provide guidance to the industry on what
is considered as an appropriate Microinsurance product and the best practice approaches to product
development.
Every microinsurance product which is cleared by SECP for the purpose of
microinsurance shall prominently carry the caption “Microinsurance Product”.
The above stated
Product Submission requirements will form part of the Microinsurance regulations.
E
Intermediation
Low-cost distribution is essential to successful microinsurance development, though cost is not the
only criteria.
Distribution channels should be able to actively sell policies to clients and deliver
microinsurance policies as close as geographically possible to the normal locations of low-income
clients. International experience also shows that microinsurance uptake increases with the level of
trust that potential clients have in the distribution channel, be that a retailer with a trusted brand, a
bank with which the person has an existing banking relationship, a public utility, or another institution
such as a religious group or trade union of which the person is a member.
Not all of these
intermediaries fit comfortably into the traditional broker/agent regulatory definitions. Neither can the
traditional regulatory requirements be applied to such insurance intermediaries, be transferred to
these channels with the same ease and in a manner allowing for low-cost intermediation. Different
approaches, thus, are required. International best practices suggest allowing multiple categories of
intermediaries, while particularly encouraging models that are able to actively sell products or at least
are able to verbally disclose critical product information to the client. SECP as the regulator wishes to
avoid prescriptive regulation that restricts the design and nature of potential intermediaries, beyond
what is required for risk management purposes. Business models and technologies are changing at
an increasing pace and regulatory systems are thus to be designed to accommodate changing
models. However, it is strongly felt that increasing monitoring and reporting requirements can be
utilised by SECP where the impact of models are not clear. The insurer must have a formal contractual
relationship with the intermediary that outlines the respective obligations of the parties. This bestows
joint responsibility on the insurer to ensure that its microinsurance policies are sold without consumer
abuse and there must be an ease of consumer recourse. The underwriter/ intermediary must provide
an acceptable consumer recourse option. At the very least the customer must be able to lodge a
complaint and/or channel enquiries through the point of sale. The Microinsurance guidelines will
attempt to address these guiding notes as appropriate.
E1
Microinsurance Agent
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In addition to an insurance agent or corporate agent or broker licensed under the Ordinance,
microinsurance products may be distributed through a specialised Microinsurance agent.
It is
intended that there be enough flexibility to allow for non-traditional agents and multiple categories of
Microinsurance agents. The Ordinance allows for any body corporate or natural person to be an
agent. This provides enough flexibility and it will be up to the insurer to decide who to work with as a
Microinsurance agent. However, there will be clear guidance on what functions these Microinsurance
Agents are expected to perform.
The definition of Microinsurance Agent will form part of the
Microinsurance regulations.
E2
Appointment of Microinsurance Agent
In line with the current practice, a microinsurance agent shall be appointed by an insurer by entering
into a deed agreement, which shall clearly specify the terms and conditions of such appointment,
including the duties and responsibilities of both the microinsurance agent and the insurer. There
should be a clear provision within the agreement allowing for its termination, as appropriate. The
process for appointment of the Microinsurance Agent will form part of the Microinsurance
regulations.
E3
Training & Functions of Microinsurance Agent
It is important that Microinsurance Agents have a minimum level of understanding of Microinsurance
and are trained in how to handle the key functions of their role. It is proposed that Microinsurance
Agents undergo an approved microinsurance training program conducted by the insurer or a
centralized licensing body, with a minimum of 20 hours of training. The microinsurance agent shall be
required to perform functions as specified in the agency agreement. The requirement for training and
the required functions will form part of the Microinsurance regulations.
E4
Reporting of Microinsurance Agent
The insurer shall be required to report details of their microinsurance agents to SECP as part of their
annual returns. This reporting shall include details of numbers, qualifications, training, remuneration,
turnover, sales volumes and area of operation of their Microinsurance agents.
The above stated
reporting requirement will form part of the Microinsurance regulations.
E5
Code of Conduct
As consumer protection is a critical part of Microinsurance every microinsurance agent shall abide by
the code of conduct and the code of consumer protection. It will be required that the insurer shall
ensure compliance of the code of conduct by every microinsurance agent.
Any violation by
microinsurance agent of the code of conduct or advertisement or disclosure norms should lead to
termination of the agent’s appointment.
The above stated requirement will form part of the
Microinsurance regulations.
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E6
Remuneration & Commission
As Microinsurance is a high-volume-low-margins product, it is important to have efficient cost
structures and to keep expenses to a minimum. In addition, most Microinsurance products are shortterm, typically of one year duration. It is an international best practice in microinsurance to have
target total expense margin of 20 to 30 percent 6, thus it is recommended that the regulations will set
caps for the costs of the intermediary. The above stated remuneration/ commission principles will
form part of the Microinsurance guidelines.
F
Client Protection/ Communication
To complement the consumer protection mechanisms built into the product definition, requirement
for product submission, as well as institutional, prudential and market conduct requirements, it is
proposed that provisions be made for adequate disclosure, consumer recourse, code of conduct and
client communication.
F1
Disclosure requirements
The microinsurance policy document must set out the minimum disclosure requirements being the
same as the key features of a microinsurance contract. This must be written in simple vernacular
language and also communicated directly to the insured by the Microinsurance Agent.
These
minimum disclosure requirements will include: Coverage, Period of cover, Risk and contingent events
covered, Terms and conditions, Effectivity, Claims procedures, Dispute resolution, Waiting period,
Grace period, Exclusions, Renewals process and Contestability.
This can be communicated, for
example, in a 2-page document or a single brochure, provided all the key items are disclosed to the
insured. A sample of marketing material and policy documents, along with any other material to be
used to communicate to the client, will be required to be provided to SECP as part of the filing of the
product, for information purposes only. The above stated disclosure requirements will form part of
the Microinsurance regulations.
F2
Complaints Handling
It is important that any complaint related to microinsurance contracts be acted upon by the
concerned parties and/or SECP.
It is recommended that complaints should be handled firstly, if
possible, at the Microinsurance agent level. If this is not sufficient, then it should be handled by the
insurer’s branch or relevant office, as the case may be. If this is also not sufficient, then it should be
handled by the insurer’s head office. If the complaint is still not possible to resolve at the insurer or
agent level then it could proceed to an Alternative Dispute Resolution mechanism, which is proposed
to be developed at industry level with regulatory representation. Such a mechanism is less costly then
6
Key Performance Indicators for Microinsurance (Microinsurance Network) 2010
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legal recourse and could be more effective for handling low-cost complaints.
option will continue to be to proceed to the Insurance Ombudsman.
The final recourse
The microinsurance policy
document should clearly state, in a local vernacular language, who to contact and how to lodge a
complaint.
The above stated complaints handling process will form part of the Microinsurance
guidelines.
F3
Codes of Conduct and Consumer Protection
It is recommended that insurers and agents implement and follow a Code of Consumer Protection,
which must also be communicated to the client. It is also recommended that Microinsurance agents
follow a Code of Conduct that is managed by the insurer for which SECP will have a right to review.
This code of conduct shall be consistent and refer to the code of consumer protection. The guidance
on the above stated codes of conduct and/or consumer protection will form part of Microinsurance
guidelines.
However, the requirement to comply with the Code of Conduct will be part of the
Microinsurance regulations. It is recommended that insurers develop and implement an independent
internal dispute resolution (IDR) mechanism for client’s complaints & grievances.
The above
recommendation for IDR will form part of the Microinsurance guidelines.
F4
Claims handling
The process for settling claims must be efficient and easy for beneficiaries to manage.
Claims
represent the point at which insurance becomes tangible to policyholders. It is critical that claims
processes be as efficient as possible, while still maintaining appropriate controls. It is recommended
that insurers and agents implement and follow specific guidance for simplified claims procedures and
claims documentation requirements for microinsurance products. The claims procedures guidance
will form part of the Microinsurance guidelines.
F5
Client Communication
It is recommended that insurers and agents develop and implement a strategy for consumer
education and awareness. It is also recommended that insurers and/or industry bodies develop and
implement insurance awareness campaigns for low-income households, especially in rural areas. The
above recommendation for consumer education and awareness will form part of the Microinsurance
guidelines.
It is recommended that insurers and agents develop and implement an explicit
communication strategy at the Microinsurance agent level to explain the Microinsurance product
features, premium, benefits, inclusions, exclusions and claim processes to the client.
Such a
communication strategy should be monitored by the insurer. SECP will have the right to review such a
strategy, both in terms of planning and implementation. Such a communication strategy could, for
example, consist of certain amount of time allotted for client communication during the sales period.
The above recommendation for an explicit communication strategy will form part of the
Microinsurance guidelines.
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G
Prudential regulation
In line with international best practices7, the capital requirements for microinsurance should reflect the
underlying risks involved with providing the product to its users. However, in practice it may be
appropriate to recognise that much microinsurance may be presented and provide as part of a larger
financially related package.
G1
Compliance requirements
All entities registered and licensed to provide microinsurance products shall comply with the
prudential requirements of SECP. For life and non-life insurers, these will be the current minimum
capital requirements and solvency requirements as laid out in the Ordinance, and the associated rules.
For life insurers, it will be required that the annual Financial Condition Report specifically consider the
implications of the microinsurance business on the financial soundness of the insurer. The above
stated compliance requirements will form part of the Microinsurance regulations.
G2
Specialised Microinsurers
SECP may consider issuing specific prudential requirements for specialised microinsurers.
These
requirements will include, but not be restricted to, allowance for varied capital requirements,
expanded admitted assets and limits on the type of products allowed by specialised microinsurers.
The provision to issue specific prudential requirements will form part of Microinsurance regulations.
These specific prudential requirements will be issued as a specific and separate directive on
Microinsurance.
H
Institutional Regulation
In developing licensing requirements for microinsurance providers, it is recommended that SECP will
adopt a proportionate, flexible and pro-active approach. For example, consideration should be given
to the capacity of both the microinsurance providers and the product distributors to protect the
interests of those insured over all the links in the insurance value chain, the level of government
interest and support for microinsurance, and the typically low level of insurance knowledge and
awareness of many microinsurance recipients
H1
Authorised Risk takers
Provision of a microinsurance product shall only be undertaken by entities registered and licensed by
SECP as an Insurer. These entities shall include, and are not limited to, the following: Life Insurers,
Non-life Insurers, including public and private entities. The above stated requirements are part of
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Emerging Guidelines for Microinsurance policy, regulation and supervision (A2ii 2009)
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current requirements within the Ordinance and will also form implicit part of the Microinsurance
regulations.
H2
Informal Risk takers
As stated in the Ordinance, it is not legally possible to provide insurance without having an insurance
license and thus to do so would be in breach of the Ordinance. However there may be cases of
informal insurance occurring. All entities providing microinsurance that are not licensed as an Insurer,
but that intend to continue provide microinsurance products, shall be required to formalize their
operations, using the following options: Partner with licensed microinsurance providers; or Buy a
microinsurance product through a licensed microinsurance agent or broker.
The above stated
requirements will form part of the Microinsurance regulations.
H3
Information sharing
SECP as the regulatory will collaborate and exchange information to ensure that informal insurance
and insurance-like activities are under the coverage of the regulatory environment in order to
minimize regulatory arbitrage among regulated entities. The above stated recommendations will form
part of the Microinsurance regulations.
H4
Claims Process
Payment and Settlement of Claims: All entities providing microinsurance products should process and
settle claims within 10 working days from receipt of complete required documents. The Ordinance
does not allow for the mandating of hierarchy of claims approval times, therefore the stated
recommendation for turnaround time will form part of the Microinsurance guidelines.
Documentary Requirements: The microinsurance provider should accept substitute documents for
settlement of claims. SECP will issue appropriate guidance providing for the minimum documentary
requirements and recommended claims procedures. The above stated requirements will be within the
Microinsurance regulations.
I
Regulatory Reporting
I1
Data Collection
Data collected with regard to microinsurance should be segregated from other data. Each insurer
conducting microinsurance business will be required to report on its microinsurance business,
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separately. Each insurer will be required to find a means within its management information system to
record and identify its microinsurance business distinctively. However, it is at the insurer’s discretion
to decide the exact means to do so within its internal management information system. The above
stated recommendations will form part of the Microinsurance guidelines.
I2
Reporting requirements
Each insurer will be required to provide product details and pricing prior to launch, on a “File and Use
basis”. For each insurer conducting microinsurance business, it will be required to provide regulatory
returns under current reporting requirements, as for conventional business, but with Microinsurance
identified separately. Each insurer will also be required to provide annual reporting on claims statistics
as per the format prescribed by SECP. This reporting will be at the same time as the usual regulatory
reporting. The above stated reporting requirements are part of the Microinsurance regulations. 
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