1. 1 MCCO REGULATION: TRENDS AND CHALLENGES Enhancing Value in Community-Based Micro Insurance: An MIA Innovation Workshop May 17, 2010 New Delhi DR. IAN WEBB

2. 2 Outline of Presentation I. Challenge of Regulating MCCOs II. IAIS-MIN Draft Issues Paper III. MCCO Regulatory Approaches Philippines, Peru IV. MCCO TA Support Institutions, Philippines, Peru, Colombia, D.R. V. Where Do We Go From Here?

3. 3 I. Some of the Challenge of Regulating MCCOs 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 MCCOs are highly attentive to member needs, but may impose pressures on members as well given their influential position in the relationship. Governance MCCOs may not be famiiliar with corporate governance standards.

4. 4 I. Challenge of Regulating MCCOs Cost – benefit equation is different Cost of regulation should be less than the benefit Level of resources makes compliance with regulations difficult Variety of MCCO models, cultures and objectives complicates using a single approach Different regulatory agencies may claim jurisdiction Inadequate data on the number and types of MCCOs existing Little insurance supervisory experience with MCCOs

5. 5 II. MCCO Surveys, Studies & Papers Joint Working group – IAIS & CGAP (MI Network) Issues paper on Microinsurance (2007) Survey on the role of mutuals, cooperatives and community-based organizations (2008) Issues paper Regulation & supervision of MCCOs in increasing access to insurance markets (expected 2010.) Next => More elaborative standards and guidance with respect to issues of access to insurance (2011 +) ICMIF Planning a survey on mutuals and coops around the world (2010) Planning an analysis of success stories behind mutual insurers that started out as microinsurance providers (2010) Publication of ICMIF mutual survey 2008 – size of formal mutual insurance market in each country (2010)

6. 6 IAIS-MI Draft MCCO Paper: Highlights Yes Implications for regulation/supervision (ICPs) arising from mutual nature of organization Grounds and scope for different regulatory/supervisory treatment due to MCCO characteristics Emphasizes positive role MCCOs play in increasing access to insurance Highlights need to formalize supervision of MCCOs beyond supervisory radar No Regulatory/supervisory issues arising from microinsurance, or small insurers Specific guidance on how to regulate MCCOs Guidance on how to address lack of adequate supervision for many MCCOs Viewpoints and concerns of MCCOs

7. 7 IAIS-MI Draft MCCO Paper: Contents Defining Characteristics of MCCOs Member ownership Democracy Solidarity Created to serve a defined group or purpose Role of MCCOs in providing access to MI Geographic challenges Cultural challenges Business model challenges Service and product design challenges Socio-econoic circumstances challenges

8. 8 IAIS-MI Draft MCCO Paper: Contents Supervisory arrangements Licensing Suitability of persons Changes in control and portfolio transfers Corporate Governance Internal Control On-going Supervision Prudential Requirements Capital Adequacy and Solvency Markets and Consumers Intermediaries Consumer Protection Information, Disclosure and Transparency towards the market

9. 9 Draft MCCO Paper: Special Considerations ICPsSpecial Considerations 1-5: Supervisory arrangementsFew differences / Important not to exclude MCCOs from supervisory regime / May need to coordinate oversight with other government agencies 6: LicesningImportant to consider alternatives to allow MCCOs to participate if current licensing regime prohibits their participation /Consider strength of governance 7: Suitability of personsProfessional 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 transfersPath to change under demutualization needs to be established in law / Change in effective control in MCCO should be considered 9: Corporate GovernanceConsider seprate rules for C.G. For MCCOs that are facilitative of access and reflect nature of mutuality / Effective Board is equally expected of MCCO 10: Internal controlSame treatment 11 – 17: Ongoing supervisionSame, except provision of path to exit through demutualization

10. 10 Draft MCCO Paper: Special Considerations ICPsSpecial Considerations 18 – 23: PrudentialSame 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: IntermediariesIf requirements placed on licensing and duties of intermediaries are difficult for MCCOs, consider modifying / Apex institutions may reduce supervisory burden 25: Consumer protectionCredit should be given for built-in mechanisms in MCCOs 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 MCCOs Philippines Formal MI regulatory framework Licensing structure expanded to incorporate varoius kinds of MI-related activity including conventional insurers, MBAs, cooperative insurance socieites, pre-need companies & health maintenance organizations. Required simplified and favorable contractual terms, and facilitates commercialization by MCCOs and others, when definition of MI met Peru Formal MI regulatory framework Superintendency Banks & Insurance and Pension Funds (SBS) 1 tier licensing - only for conventional insurers Required simplified and favorable contract terms, and facilitated commercialization by MCCOs, when definition of MI met

12. 12 IV. Technical Assistance for MCCOs Philippines RIMANSI offers thorough and sustained TA support for MBAs. Insurance companies, through partner-agent model, also provide some TA and product development support for distribution partners. Cooperatives, pre-need companies, HMOs s receive little and scattered TA support from other sources. Peru Insurance companies, through partner-agent model, provide most of the TA and product development support to MCCOs. Health clinics (Micro-Health), cooperatives, and labor unions receive little and scattered TA support from other sources. Dominican Republic (COOPSEGUROS) & Colombia (La Equidad) Member-owned cooperative insurers licensed by the insurance supervisor provide substantial TA and product development support to cooperatives. Insurance companies through partner-agent model also provide TA and product devlpt.

13. 13 TA for MCCOs: APEX Institution (RIMANSI) Independently owned (non-stock, non-profit) Member-governed but with full-time professional staff Services Licensing assistance for MCCOs wishing to establish MBAs Extensive market surveys to identify risk protection needs of clients Governance structure of MCCOs behind MBAs that has built-in attention to satisfaction and needs of client members Professional product development, pricing, reserving, investment services MIS installation and training Prudential and performance monitoring of client MI operations (self-regulatory function recognized by Insurance Commissioner) Corporate governance training

14. 14 TA for MCCOs: Cooperative Insurers Serve the interests of their cooperative members Member-owned and governed, but with full-time professional staff Profit not retained by individual members; shared and administrated by collective Services Extensive market surveys to identify risk protection needs of members Governance structure has built-in attention to satisfaction and needs of members Provide professional product development, pricing, reserving, investment services Financial literacy and other social services (i.e. health education)

15. 15 V. Where Do We Go From Here? Understanding MCCOs Dont know the scope/size of number of MCCOs size of their activities – DATA! Dont know their interests and strengths, and contributions adequately yet Many questions still be to answered – How are MCCOs fundamentally different? Do MCCOs want to be regulated? How do MCCOs contribute to the insurance market (what are their special roles, in terms of social capital, financial literacy, trust-building?) Are they addressing a market failure, and consequently, require a organizational profile different than a professional insurer? Risk- transfer Vs. Risk-pooling How to balance technical assistance with regulation/supervision? Do different stages of MCCO development that require different types of regulatory/supervisory intervention?

16. 16 Where Do We Go From Here? Exploring viable paths to development and regulation Establishing dialog between key stakeholders (MCCOs, insurance regulators, other regulatory agencies with jurisdiction, donor agencies) to explore best approach to Regulation and supervision Development of MCCO capacity, performance and integrity Develop adequate and appropriate regulatory/supervisory framework Developing TA and regulatory models with various key stakeholders Learning from practices and experience around the world

17. 17 Parts of the Puzzle Regulatory capacity and framework for MCCOs Provision of TA resources to MCCOs Political alignment of regulatory agencies and MCCO representatives Surveys, market studies & forums to understand MCCOs

18. 18 Stakeholders MCCOs Insurance supervisor IAISICMIF Other government supervisory agencies NGOs, Donor agencies Insurance companies

19. 19 THANK YOU