Micro-insurers a step closer

Published Apr 18, 2015

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Proposals to establish micro-insurers to serve the low-income market came a step closer to being realised yesterday, when National Treasury published the draft Insurance Bill.

The bill introduces new capital requirements for insurers. It also provides for a new licence category for micro-insurers, which may meet lower capital requirements than regular insurers.

The introduction of this category of insurers, which will comply with simplified capital requirements entailing financial backing of R3 million, was first mooted in a policy document issued in 2011.

The aim is to increase access to formal financial products in the low-income market by allowing smaller insurers to sell life and disability assurance products with benefits up to R50 000, and short-term insurance benefits up to R100 000. These insurers are also likely to focus on selling funeral insurance policies, which are a form of life assurance.

These capital requirements and benefit limits, however, are still to be set in subordinate legislation under the Insurance Bill, after it is enacted.

The bill proposes an effective date of January next year.

Jonathan Dixon, the deputy executive for insurance at the Financial Services Board (FSB), says the FSB will publish an update on its micro-insurance regulation policy in the next month or two. (A press release issued by National Treasury yesterday incorrectly states this update has already been published.)

Dixon says product standards to ensure that micro-insurance products are simple, low-risk and flexible will be issued in terms of the Policyholder Protection Rules, under the Insurance Act. Insurers that comply with these standards will be able to pay advisers who sell these products higher commissions than are allowed on regular insurance policies.

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