Toward an Efficient and Sustainable Microinsurance Market: The Regulatory Perspective

A seminar titled “Toward an Efficient and Sustainable Micro Insurance Market: The Regulatory Perspective” was presented at the conference room of InM on 12 April 2009, by Professor Syed Moinul Ahsan of the Department of Economics, Concordia University, Canada, also a Visiting Scholar, Institute of Microfinance (InM). The paper of the seminar was written by Professor Ahsan and Mr. Subhashish Barua, Project Economist, InM.

In the very onset of his presentation Professor Ahsan upheld the necessity of regulatory body in the microcredit and microinsurance sectors of Bangladesh. He observed that microcredit though did not face much difficulty to develop, but micro insurance is struggling to take the root. The apprehension of the poor about insurance owing to their lack of awareness and capital is the main reason attributed to it.

“Protecting the policy holders and fostering market innovations are the primary goals of a regulatory regime in the insurance context,” he observed, while referring regulation to a set of formal guidelines which are legally binding on regulates and for which there is a functioning supervisory authority. Professor Ahsan in this context explained the ‘to be role’ of regulation in the sector.

He vividly depicted regulatory benchmarks. He categorised the regulation in two forms: formal and self-regulation, with his preference for the former. In terms of rigidity, he further categorised it in two other forms: prudential and non-prudential. He, however, told that insurance services may call for regulation and supervision, but not necessarily credit operations of the MFIs.

For effective regulation he upheld financial transparency, financial reporting standards, effective product design and reforms, cost-effectiveness and regulatory consensus; diversity of delivery channel, which call for “agnosticism in the organisational structure of micro insurance industry”; regulatory coordination; and sustainability and design of the subsidy regime.

Professor Ahsan provided a list of areas where micro insurance is active in the country to cover specific risks of the poor, the programs in most cases are implemented by the MFIs. In this context he mentioned the distinguishing features of between commercially driven insurance and pro-poor insurance operated by the MFIs.

While dwelling upon the regulatory framework in the country he said, “To date the regulation of the insurance industry in Bangladesh has largely been rudimentary. The new enactment replacing Insurance Act 1938 proved ineffective. The upcoming guidelines under consideration of the legislation, considers ‘insurance services of the MFIs as discretionary component.’

He proposed regulatory directives which include key goals of cost efficiency, financial viability and exclusivity. These include definition or workable interpretation of the concepts; simplicity of microinsurance products, criteria of the structure and products, eligibility for insurer, duration of coverage, life versus non-life products, institutional innovations, promoting exclusivity, guidelines to capital inadequacy, designing accumulation and investment of insurance fund, audit and supervision, and educating the regulator.

In the conclusion he, for a suitable regulatory framework, emphasised on the issue of balancing the rigor of formal regulation and supervision so that innovation is not inhibited, efficiency and sustainability of the market and consistency in regulatory guidelines are ensured.

In the open session the participants, which include the former president of Bangladesh Insurance Association, Md Rafiqul Islam, former Secretary and incumbent Janata Bank Chairman, Shohel Chowdhury, Mr. Mosharraf Hossain Khan, Deputy Managing Director of PKSF, Dr. Mohammad Abdul Latif, Director (Research & Knowledge Management), Md. Fazlul Kader, General Manager, PKSF, Dr. Mosleh Uddin Sadeque, Director (Training & Administration), InM raised various issues, such as actuary, the rate of premium, and the regulatory body. They all opined for formal regulation for the country’s microinsurance.

Professor Khalily, in his concluding remark stated that the MFIs, who were practicing microinsurance for the poor, would play an instrumental role in the development and consolidation of the sector. Any regulation for microinsurance has to be framed in consultation with them.