25 Oct

The Insurance and Pensions Commission (Ipec) has licensed two entities to provide microinsurance products as it steps up efforts to tap into the previously untapped market.


Ipec has also urged local insurance players to offer microinsurance products. The thrust towards microinsurance comes after the National Financial Inclusion Strategy has identified insurance as a key player in the financial services sector.

Fidelis Kagura, Ipec analyst (insurance and microinsurance) said the regulator had licensed Zing and Coverlink, as it intensifies the drive to tap into the lower end of the market.

“We have different needs and we should have products that talk to the needs of different people,” Kagura said last week.

An insurance executive told NewsDay yesterday that the thrust was more to do with financial inclusion than more anything else.

“It is designed to give a person in the rural areas, for example, a product that is tailormade for their needs,” the executive said.

The International Association of Insurance Supervisors defines microinsurance as “insurance that is accessed by low-income populations, provided by a variety of different entities, but run in accordance with generally accepted insurance practices.

According to Ipec, microinsurance is that insurance, which is appropriate for the low income market and informal sector in respect to cost, terms and conditions, coverage and delivery mechanisms.

The drive towards financial inclusion comes as the 2014 Finscope survey showed that 30% of the adult population has insurance. Of the 30%, 77% of the insurance they have was funeral cover.

This has seen Ipec coming up with a framework to advance the thrust of licensing microinsurers.

Under the Microinsurance Regulatory Framework of 2017, companies, mutual societies, burial societies and cooperatives (should be registered in terms of Co-operatives Act or any other appropriate statutes that gives them legal standing ) are eligible to apply for microinsurance licences provided they have at least 100 members if not, they should be incorporated under registered insurers or microinsurers.

Ipec has also set $300 000 as the minimum capital requirements for microinsurers and it won’t be reviewed during the proposed three-year transitional period. Kagura said the minimum capital threshold had initially been pegged at $700 000 before it was reviewed downwards.

The framework stipulates that a dedicated microinsurer shall maintain with the Commission a statutory deposit of 5% of the minimum capital requirement.

“This deposit will be available to the insurer in the event of failing to meet insurance liabilities and need to be replenished within 60 days after being accessed. The deposit acts as last resort and a trigger indicating that the insurer is in financial distress,” it said.

Microinsurers are not permitted to invest more than 10% of their assets in real properties, more than 5% of their assets in unquoted equities and shall not invest more than 40% of their assets in quoted equity, more than 10% of the shareholders’ equity in associates, subsidiaries and related companies and more than 20% of the total assets with one counter party. They are not permitted to have more than 25% of the total cash balances in any one bank or such restrictions that may be imposed by Ipec from time to time.

Microinsurance has been used to increase the rate of insurance penetration.

A study by FinAccess conducted in 2009 revealed that the rate of insurance penetration in Kenya was below 3% of gross domestic product, with only 7% of the Kenyan population having any form of insurance. It further revealed that the majority of the insured are drawn from the formal sector, which accounts for about 5% of the total population.

“This, therefore, means that majority of Kenyans in the informal sector is not adequately provided for by conventional insurance. A different concept of insurance is, therefore, necessary to facilitate the required growth by tapping into the potential existing in the informal sector” a policy paper by the Insurance Regulatory Authority said.

“With this realisation, microinsurance remains a form of financial inclusion and access both of which are necessary preconditions for increasing insurance penetration. By giving insurance access to the low-income and
economically-vulnerable households, the microinsurance agenda will support the government’s financial sector policy objectives as outlined in the Vision 2030.”

Microinsurance in Ghana has experienced a steady growth in the period 2012 to 2015. The 2012 Microinsurance Landscape survey revealed that 1,8 million representing 7% of the Ghanaian population of 25,4 million as at that year had some form of microinsurance coverage.

“In 2013, this figure increased to 3,1 million representing 12% of the population in 2013 and 28% for the year 2014. Although the growth in coverage of the Ghanaian population is significant, it is no indication of the quality and value of the products to the low-income market,” 2015 report on the microinsurance landscape read.

“The 2014 microinsurance landscape survey has further established that microinsurance penetration accounts for only 0,06% of the Gross Domestic Product representing 2,7% of premiums for all insurance business [total gross written premium] of the relevant 13 microinsurance providers in Ghana.”

The report said the number of lives and properties covered was 7,5 million rising from 3,1 million in 2013 and from 1,8 million in 2012.

It said mobile network operators (MNOs) have been driving the growth rates.

“Through partnerships with MNOs, microinsurance providers reached 4,34 million lives [representing 58% of lives covered] in 2014.

Furthermore microinsurance providers partnering with MNOs experienced significant growth in 2013 and 2014 having increased number of lives covered by 94% and 438% respectively over the corresponding years,” the report read.

Insurance expert Luke Ngwerume said insurance was one of the engines for mobilising local capital.

“If a country is hoping to attract foreign investment, it is easier to achieve that if it is doing a lot on its own,” Ngwerume, who is founder of Zimselector, an online financial services shopping mall and comparison site, said.