Emerging Insight: New models and new risks
13 April 2015
As new models emerge to deliver insurance to previously under-served groups, new risks also emerge. Regulators therefore face the tough task of balancing the need for innovation and the need for consumer protection. This role is extremely important: the absence of consumer protection regulations may have negative consequences for clients and hinder the long-term development of the market, as showed by the experience of Zimbabwe.
In 2010, Zimbabwe's largest wireless network operator Econet established a life insurance product called EcoLife. The scheme provided life insurance to all Econet customers spending a minimum of US$ 3 on their telephone services. In less than one year, it had reached a total of 1.6 million people.
Despite its success, disputes between Econet and its technical partner TrustCo led Econet to withdraw the insurance offer. However, around 62 per cent of its clients were not informed, generating widespread mistrust and accusations of dishonesty. The impact was so negative that 63 per cent of those affected ruled out the use of similar products in the future. Such experiences have significant implications for future attempts to develop a microinsurance market in the country.
Some possibilities for regulators have been suggested in response to this experience. One possibility would be to require a “living will” (a concept developed in the banking sector in response to the financial crisis). Mobile network operators and their partners would have to ensure alternative cover is available, free or paid, should their product be stopped for any reason. This would allow the regulator to approve the arrangement from the beginning, rather than having to deal with the consequences after a product is unexpectedly stopped.
To learn about other strategies that policy-makers, regulators and funders can use to create an enabling environment for client value, see Brief 3 of the Client Value Series published by the ILO’s Impact Insurance Facility and the Microinsurance Centre’s MILK project.
In 2010, Zimbabwe's largest wireless network operator Econet established a life insurance product called EcoLife. The scheme provided life insurance to all Econet customers spending a minimum of US$ 3 on their telephone services. In less than one year, it had reached a total of 1.6 million people.
Despite its success, disputes between Econet and its technical partner TrustCo led Econet to withdraw the insurance offer. However, around 62 per cent of its clients were not informed, generating widespread mistrust and accusations of dishonesty. The impact was so negative that 63 per cent of those affected ruled out the use of similar products in the future. Such experiences have significant implications for future attempts to develop a microinsurance market in the country.
Some possibilities for regulators have been suggested in response to this experience. One possibility would be to require a “living will” (a concept developed in the banking sector in response to the financial crisis). Mobile network operators and their partners would have to ensure alternative cover is available, free or paid, should their product be stopped for any reason. This would allow the regulator to approve the arrangement from the beginning, rather than having to deal with the consequences after a product is unexpectedly stopped.
To learn about other strategies that policy-makers, regulators and funders can use to create an enabling environment for client value, see Brief 3 of the Client Value Series published by the ILO’s Impact Insurance Facility and the Microinsurance Centre’s MILK project.