nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Response to Regulation in the Product Design Process

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I found an interesting report on the design and distribution of general insurance and life insurance products to individuals in the LM1-5 income bracket (poor individuals.) I must admit that I only read the executive summary but learnt a lot from it. The report can be found here: http://cenfri.org/documents/microinsurance/2011/Review%20of%20Mzansi%20and%20Zimele%20product%20standards_final%20draft.pdf

I’ll provide a brief summary of the important points. In 2004 the financial sector implemented a financial sector charter (FSC) to encourage transformation of the financial sector. One of the key pillars of this charter is access to financial services. In response to this both the life insurance and general insurance industries formed task teams which designed products which adhered to the new charter. The general insurance team designed a set of product standards called Mzansi standards. These stipulated that the products under this standard should offer value for money, be affordable, cover at least the household contents and the building and be marketed only to low income individuals. The various insurance companies could then modify and add benefits as they wished. The life insurance industry developed the Zimele standards. These were very similar to the Mzansi standards but included details as to what information the policy document should contain. The Zimele standards were less flexible with compliance and companies had to comply to all parts in order to meet the standard. They initially started with only funeral cover and later added life cover, credit cover and personal disability cover. To encourage the insurance companies to design products which meet these standards companies were awarded points according to how well their product complied with the standards.

I found it interesting to see how the insurance industry approached the mammoth task of entering into a market which was previously unoccupied and where there is a lot of distrust for the financial industry. Instead of each company going in on their own the pooled their resources and formed standards on which more complicated policies could be built. The products designed were very simple but met the demand as identified by the respective task teams. It is also interesting to see how insurance companies were encouraged to design and distribute these products by being awarded points (I think that these points were awarded under the FSC and act similarly to a BEE rating.) On the whole there were issues as there are when entering into new markets but the objectives of the FSC were still met.

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