What is Micro Insurance?
Microinsurance products offer coverage to low-income households or to individuals who have little savings. It is tailored specifically for lower valued assets and compensation for illness, injury, or death.
Micro Insurance In South Africa
Microinsurance products offer coverage to low-income households or to individuals who have little savings. It is tailored specifically for lower valued assets and compensation for illness, injury, or death”
Financial inclusion is a topic that is high on everyone’s agenda. Research done by the
Organization for Economic Cooperation and Development (OECD) in 2017 showed a huge
insurance gap in developing countries. Those with lower income levels could not afford and could not
access traditional insurance products.
Where access to insurance was previously seen as a luxury, various working groups have been
working hard to ensure that the vulnerable are educated to understand that insurance is a necessity and access to it should be afforded to all. Micro insurance aims to bridge this inequality gap.
How is micro insurance regulated in South Africa?
In 2008, National Treasury issued a discussion paper which was developed to address the low penetration levels of insurance products among low-income earners in South Africa.
This has resulted in further discussions on introducing a regulatory framework for Micro Insurance in South Africa.
Micro Insurance is regulated in the same manner as which Life and Non-Life insurance is regulated – through the Insurance Act, the Shortterm Insurance Act (STIA) and the Long–term Insurance Act (LTIA).
The Prudential Authority (PA) is responsibility for prudential supervision of micro-insurers while the Financial Sector Conduct Authority (FSCA) supervises from a conduct perspective.
In terms of prudential supervision, the PA has developed the Prudential Standards for Micro
Insurance. This entails:
• A minimum capital requirement of 15% of net written premiums with an absolute minimum capital requirement of R4 million;
• Classes of business that may be offered are long-term, short-term and reinsurance;
• A micro-insurer cannot reinsure or retrocede more than 75% of premiums to one insurer;
• ORSA is only required if a material change is made to the risk profile or on request from the PA.
The insurer must have a head of actuarial and head of internal audit function, however no risk or remuneration committee is required. The board is required to evaluate performance and monitor the governance framework every 3 years;
Key Features of Micro Insurance in South Africa
As required by the PPR Microinsurance Product
Standards, the key feature of Micro Insurance
include:
• Benefits offered are limited to risk only and cannot have a surrender or investment value;
• Policies are limited to R100 000 for life insurance and R300 000 for non-life insurance.
• Rider benefits cannot be more than 20% of the total primary insurance obligation under a policy;
• Micro insurance policies must have a contract term of not more than 12 months.
• Waiting periods are 3 months in the case of death due to natural causes i.e. it can not be more than a quarter of the contract term. There is no waiting period for accidental death, renewed or replacement policies.
• Exclusions are only permitted for non-funeral products and may not exceed 12 months for suicide. Exclusions are not permitted for preexisting health conditions for funeral products.
• Claims must be finalized within 2 business days after all required documentation is received.
• Commission across all micro insurance products is uncapped except for credit life products. In addition,
• Insurers may impose only one standard excess per risk event covered which may not exceed
10% of the benefit or R1 000, whichever is lower.
• No loyalty benefits may be offered without the approval of the Prudential Authority
What is the opportunity/ benefit for insurers?
In countries such as South Africa, where a large segment of the population cannot afford traditional insurance products, insurers who offer micro insurance have a significant market to tap into.
Additionally, if micro insurers are innovative in their approach and use mobile technology to reach their customers and deliver their products, they will grab the attention of those customers who traditional insurers cannot reach.
Is micro-insurance profitable?
“Microinsurance is both profitable and scalable,” he was quoted as saying on the fund’s website. The fund will invest in India, Pakistan, South Africa, Ghana and Kenya, it added.
What is the maximum cover that can be provided in micro insurance?
Rs 50,000
The Irda has allowed insurers to issue policies with a maximum cover of Rs 50,000 for general and life insurance under its new micro-insurance regulations.
How do I become a micro insurance agent?
Only a Non-Governmental organization or a Self Help Group Micro Finance Institutions or Associations not formed for Profit are entitled to become Micro Insurance Agents.
Such Agents can distribute the products of one life insurer or one general insurer or both.