MCCO REGULATION: TRENDS AND  CHALLENGES   <ul><li>Enhancing Value in Community-Based Micro Insurance: </li></ul><ul><li>An...
Outline of Presentation <ul><li>Challenge of Regulating MCCO’s </li></ul><ul><li>IAIS-MIN Draft Issues Paper  </li></ul><u...
I. Some of the Challenge of Regulating MCCO’s Area of Regulation/Supervision Challenges Investments Investments may not be...
I. Challenge of Regulating MCCO’s <ul><li>Cost – benefit equation is different </li></ul><ul><ul><li>Cost of regulation sh...
II. MCCO Surveys, Studies & Papers  <ul><li>Joint Working group – IAIS & CGAP (MI Network) </li></ul><ul><ul><li>Issues pa...
IAIS-MI Draft MCCO Paper: Highlights  <ul><li>Yes </li></ul><ul><ul><li>Implications for regulation/supervision (ICP’s) ar...
IAIS-MI Draft MCCO Paper: Contents <ul><li>Defining Characteristics of MCCO’s </li></ul><ul><ul><li>Member ownership </li>...
IAIS-MI Draft MCCO Paper: Contents   <ul><li>Supervisory arrangements </li></ul><ul><li>Licensing </li></ul><ul><li>Suitab...
Draft MCCO Paper: Special Considerations   ICP’s Special Considerations 1-5: Supervisory arrangements Few differences / Im...
Draft MCCO Paper: Special Considerations   ICP’s Special Considerations 18 – 23: Prudential  Same treatment 23: Capital ad...
III. Insurance Regulatory Environment MCCO’s <ul><li>Philippines </li></ul><ul><ul><li>Formal MI regulatory framework </li...
IV. Technical Assistance for MCCO’s <ul><li>Philippines </li></ul><ul><ul><li>RIMANSI offers thorough and sustained TA sup...
TA for MCCO’s: APEX Institution (RIMANSI) <ul><li>Independently owned (non-stock, non-profit) </li></ul><ul><li>Member-gov...
TA for MCCO’s: Cooperative Insurers <ul><li>Serve the interests of their cooperative members </li></ul><ul><li>Member-owne...
V. Where Do We Go From Here? <ul><li>Understanding MCCO’s </li></ul><ul><ul><li>Don’t know the scope/size of number of MCC...
Where Do We Go From Here? <ul><li>Exploring viable paths to development and regulation </li></ul><ul><ul><li>Establishing ...
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MCCO Regulation: Trends and Challenges

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MCCO Regulation: Trends and Challenges

  1. 1. MCCO REGULATION: TRENDS AND CHALLENGES <ul><li>Enhancing Value in Community-Based Micro Insurance: </li></ul><ul><li>An MIA Innovation Workshop </li></ul><ul><li>May 17, 2010 New Delhi </li></ul>DR. IAN WEBB
  2. 2. Outline of Presentation <ul><li>Challenge of Regulating MCCO’s </li></ul><ul><li>IAIS-MIN Draft Issues Paper </li></ul><ul><li>MCCO Regulatory Approaches Philippines, Peru </li></ul><ul><li>MCCO TA Support Institutions, Philippines, Peru, Colombia, D.R. </li></ul><ul><li>Where Do We Go From Here? </li></ul>
  3. 3. I. Some of the Challenge of Regulating MCCO’s Area of Regulation/Supervision Challenges Investments Investments may not be professionally managed. Little or no ALM used. Liquidity risk and concentration risk not understood often. Capital Restricted 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 Conduct MCCO’s are highly attentive to member needs, but may impose pressures on members as well given their influential position in the relationship. Governance MCCO’s may not be famiiliar with corporate governance standards.
  4. 4. I. Challenge of Regulating MCCO’s <ul><li>Cost – benefit equation is different </li></ul><ul><ul><li>Cost of regulation should be less than the benefit </li></ul></ul><ul><li>Level of resources makes compliance with regulations difficult </li></ul><ul><li>Variety of MCCO models, cultures and objectives complicates using a single approach </li></ul><ul><li>Different regulatory agencies may claim jurisdiction </li></ul><ul><li>Inadequate data on the number and types of MCCO’s existing </li></ul><ul><li>Little insurance supervisory experience with MCCO’s </li></ul>
  5. 5. II. MCCO Surveys, Studies & Papers <ul><li>Joint Working group – IAIS & CGAP (MI Network) </li></ul><ul><ul><li>Issues paper on Microinsurance (2007) </li></ul></ul><ul><ul><li>Survey on the role of mutuals, cooperatives and community-based organizations (2008) </li></ul></ul><ul><ul><li>Issues paper Regulation & supervision of MCCO’s in increasing access to insurance markets (expected 2010.) </li></ul></ul><ul><ul><li>Next => “More elaborative standards and guidance with respect to issues of access to insurance” (2011 +) </li></ul></ul><ul><li>ICMIF </li></ul><ul><ul><li>Planning a survey on mutuals and coops around the world (2010) </li></ul></ul><ul><ul><li>Planning an analysis of “success stories” behind mutual insurers that started out as microinsurance providers (2010) </li></ul></ul><ul><ul><li>Publication of ICMIF mutual survey 2008 – size of formal mutual insurance market in each country (2010) </li></ul></ul>
  6. 6. IAIS-MI Draft MCCO Paper: Highlights <ul><li>Yes </li></ul><ul><ul><li>Implications for regulation/supervision (ICP’s) arising from mutual nature of organization </li></ul></ul><ul><ul><li>Grounds and scope for different regulatory/supervisory treatment due to MCCO characteristics </li></ul></ul><ul><ul><li>Emphasizes positive role MCCO’s play in increasing access to insurance </li></ul></ul><ul><ul><li>Highlights need to formalize supervision of MCCO’s beyond supervisory radar </li></ul></ul><ul><li>No </li></ul><ul><ul><li>Regulatory/supervisory issues arising from microinsurance, or small insurers </li></ul></ul><ul><ul><li>Specific guidance on how to regulate MCCO’s </li></ul></ul><ul><ul><li>Guidance on how to address lack of adequate supervision for many MCCO’s </li></ul></ul><ul><ul><li>Viewpoints and concerns of MCCO’s </li></ul></ul>
  7. 7. IAIS-MI Draft MCCO Paper: Contents <ul><li>Defining Characteristics of MCCO’s </li></ul><ul><ul><li>Member ownership </li></ul></ul><ul><ul><li>Democracy </li></ul></ul><ul><ul><li>Solidarity </li></ul></ul><ul><ul><li>Created to serve a defined group or purpose </li></ul></ul><ul><li>Role of MCCO’s in providing access to MI </li></ul><ul><ul><li>Geographic challenges </li></ul></ul><ul><ul><li>Cultural challenges </li></ul></ul><ul><ul><li>Business model challenges </li></ul></ul><ul><ul><li>Service and product design challenges </li></ul></ul><ul><ul><li>Socio-econoic circumstances challenges </li></ul></ul>
  8. 8. IAIS-MI Draft MCCO Paper: Contents <ul><li>Supervisory arrangements </li></ul><ul><li>Licensing </li></ul><ul><li>Suitability of persons </li></ul><ul><li>Changes in control and portfolio transfers </li></ul><ul><li>Corporate Governance </li></ul><ul><li>Internal Control </li></ul><ul><li>On-going Supervision </li></ul><ul><li>Prudential Requirements </li></ul><ul><li>Capital Adequacy and Solvency </li></ul><ul><li>Markets and Consumers </li></ul><ul><li>Intermediaries </li></ul><ul><li>Consumer Protection </li></ul><ul><li>Information, Disclosure and Transparency towards the market </li></ul>
  9. 9. 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
  10. 10. 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
  11. 11. III. Insurance Regulatory Environment MCCO’s <ul><li>Philippines </li></ul><ul><ul><li>Formal MI regulatory framework </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>Required simplified and favorable contractual terms, and facilitates commercialization by MCCO’s and others, when definition of MI met </li></ul></ul><ul><li>Peru </li></ul><ul><ul><li>Formal MI regulatory framework </li></ul></ul><ul><ul><li>Superintendency Banks & Insurance and Pension Funds (SBS) 1 tier licensing - only for conventional insurers </li></ul></ul><ul><ul><li>Required simplified and favorable contract terms, and facilitated commercialization by MCCO’s, when definition of MI met </li></ul></ul>
  12. 12. IV. Technical Assistance for MCCO’s <ul><li>Philippines </li></ul><ul><ul><li>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. </li></ul></ul><ul><li>Peru </li></ul><ul><ul><li>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. </li></ul></ul><ul><li>Dominican Republic (COOPSEGUROS) & Colombia (La Equidad) </li></ul><ul><ul><li>Member-owned cooperative insurers licensed by the insurance supervisor provide substantial TA and product development support to cooperatives. </li></ul></ul><ul><ul><li>Insurance companies through partner-agent model also provide TA and product devlpt. </li></ul></ul>
  13. 13. TA for MCCO’s: APEX Institution (RIMANSI) <ul><li>Independently owned (non-stock, non-profit) </li></ul><ul><li>Member-governed but with full-time professional staff </li></ul><ul><li>Services </li></ul><ul><ul><li>Licensing assistance for MCCO’s wishing to establish MBA’s </li></ul></ul><ul><ul><li>Extensive market surveys to identify risk protection needs of clients </li></ul></ul><ul><ul><li>Governance structure of MCCO’s behind MBA’s that has built-in attention to satisfaction and needs of client members </li></ul></ul><ul><ul><li>Professional product development, pricing, reserving, investment services </li></ul></ul><ul><ul><li>MIS installation and training </li></ul></ul><ul><ul><li>Prudential and performance monitoring of client MI operations (self-regulatory function recognized by Insurance Commissioner) </li></ul></ul><ul><ul><li>Corporate governance training </li></ul></ul>
  14. 14. TA for MCCO’s: Cooperative Insurers <ul><li>Serve the interests of their cooperative members </li></ul><ul><li>Member-owned and governed, but with full-time professional staff </li></ul><ul><li>Profit not retained by individual members; shared and administrated by collective </li></ul><ul><li>Services </li></ul><ul><ul><li>Extensive market surveys to identify risk protection needs of members </li></ul></ul><ul><ul><li>Governance structure has built-in attention to satisfaction and needs of members </li></ul></ul><ul><ul><li>Provide professional product development, pricing, reserving, investment services </li></ul></ul><ul><ul><li>Financial literacy and other social services (i.e. health education) </li></ul></ul>
  15. 15. V. Where Do We Go From Here? <ul><li>Understanding MCCO’s </li></ul><ul><ul><li>Don’t know the scope/size of number of MCCO’s size of their activities – DATA! </li></ul></ul><ul><ul><li>Don’t know their interests and strengths, and contributions adequately yet </li></ul></ul><ul><ul><li>Many questions still be to answered – How are MCCO’s fundamentally different? </li></ul></ul><ul><ul><li>Do MCCO’s want to be regulated? </li></ul></ul><ul><ul><li>How do MCCO’s contribute to the insurance market (what are their special roles, in terms of social capital, financial literacy, trust-building?) </li></ul></ul><ul><ul><li>Are they addressing a market failure, and consequently, require a organizational profile different than a professional insurer? </li></ul></ul><ul><ul><li>Risk- transfer Vs. Risk-pooling </li></ul></ul><ul><ul><li>How to balance technical assistance with regulation/supervision? </li></ul></ul><ul><ul><li>Do different stages of MCCO development that require different types of regulatory/supervisory intervention? </li></ul></ul>
  16. 16. Where Do We Go From Here? <ul><li>Exploring viable paths to development and regulation </li></ul><ul><ul><li>Establishing dialog between key stakeholders (MCCO’s, insurance regulators, other regulatory agencies with jurisdiction, donor agencies) to explore best approach to </li></ul></ul><ul><ul><ul><li>Regulation and supervision </li></ul></ul></ul><ul><ul><ul><li>Development of MCCO capacity, performance and integrity </li></ul></ul></ul><ul><li>Develop adequate and appropriate regulatory/supervisory framework </li></ul><ul><ul><li>Developing TA and regulatory models with various key stakeholders </li></ul></ul><ul><ul><li>Learning from practices and experience around the world </li></ul></ul>
  17. 17. Parts of the Puzzle
  18. 18. Stakeholders
  19. 19. THANK YOU

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