APPLICATION PAPER
ON THE USE OF DIGITAL TECHNOLOGYIN INCLUSIVE INSURANCENOVEMBER 2018

About the IAISThe International Association of Insurance Supervisors (IAIS) is a voluntary membershiporganisation of insurance supervisors and regulators from more than 200 jurisdictions in nearly
140 countries. The mission of the IAIS is to promote effective and globally consistent supervisionof the insurance industry in order to develop and maintain fair, safe and stable insurance
markets for the benefit and protection of policyholders and to contribute to global financial
stability.
Established in 1994, the IAIS is the international standard setting body responsible fordeveloping principles, standards and other supporting material for the supervision of theinsurance sector and assisting in their implementation. The IAIS also provides a forum forMembers to share their experiences and understanding of insurance supervision and insurance
markets.
The IAIS coordinates its work with other international financial policymakers and associationsof supervisors or regulators and assists in shaping financial systems globally. In particular, theIAIS is a member of the Financial Stability Board (FSB), member of the Standards Advisory
Council of the International Accounting Standards Board (IASB) and partner in the Access to
Insurance Initiative (A2ii). In recognition of its collective expertise, the IAIS is also routinely
called upon by the G20 leaders and other international standard setting bodies for input on
insurance issues as well as on issues related to the regulation and supervision of the global
financial sector.

About IAIS Application Papers
Application Papers provide additional material related to one or more Insurance Core
Principles (ICPs), The Common Framework for the Supervision of Internationally Active
Insurance Groups (ComFrame) or to the Global Systemically Important Insurers (G-SII) policy
measures, including actual examples or case studies that help practical application ofsupervisory material. Application Papers can be used in circumstances where the practicalapplication of principles and standards may vary or where their interpretation andimplementation may pose challenges. Application Papers can provide further advice,illustrations, recommendations and examples of good practice to supervisors on how
supervisory material may be implemented.

This paper was prepared by the Financial Inclusion Working Group in cooperation with theAccess to Insurance Initiative.
The publication is available on the IAIS website (www.iaisweb.org).
© International Association of Insurance Supervisors 2018. All rights reserved. Brief excerpts
may be reproduced or translated provided the source is stated.

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Application Paper on the Use of Digital Technology inInclusive Insurance
Contents
List of Abbreviations ..............................................................................................................4
1. Introduction ........................................................................................................................5
2. Features of an Inclusive Insurance Market ........................................................................7
3. Use and Impact of Digital Technology in Inclusive Insurance Markets ...............................9
3.1 Digital technology applications .....................................................................................9
3.2 Digital technology applications in an inclusive insurance context ...............................11
3.3 M-insurance models...................................................................................................13
3.4 Implication for business models .................................................................................15
3.5 Implications for regulators and supervisors ................................................................16
4. The Proportionate Application of the Insurance Core Principles.......................................19
4.1 Proportionality in general ...........................................................................................19
4.2 Application of the ICPs in respect of the Use of Digital Technology in Inclusive
Insurance .........................................................................................................................20
4.2.1 Supervision: powers, resources and exchange of information .............................20
4.2.2 Licensing .............................................................................................................25
4.2.3 Corporate governance and risk management......................................................27
4.2.4 Conduct of Business ...........................................................................................29
4.2.5 Financial integrity ................................................................................................32
Annex 1 - IAIS Supervisory and Supporting Papers in respect of Inclusive Insurance .........35
Annex 2 - Overview of risks manifest in digital technology applications ...............................37
Annex 3 - Concentration level in Telco sector for some developing countries (GSMA data,
December 2016). .................................................................................................................42

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List of Abbreviations
A2ii

Access to Insurance Initiative

AI

Artificial Intelligence

AML

Anti-Money Laundering

ARPU

Average Revenue per User

BFA

Bankable Frontier Associates

CDD

Customer Due Diligence

CFT

Combating the Financing of Terrorism

DLT

Distributed Ledger Technology

FATF

Financial Action Task Force

FinTechFinancial Technologies

IAIS

International Association of Insurance Supervisors

IBI

Index based insurance

ICP

Insurance Core Principle

ILO

International Labour Organisation

IoT

Internet of Things

InsurTech

Insurance Technologies

KPI

Key Performance Indicators

KYC

Know Your Customer

M-insurance

Mobile InsuranceML

Machine Learning

MNO

Mobile Network Operator

MoU

Memoranda of Understanding

OTC

Over the Counter

P2P

Peer-to-peer

TSP

Technical Service Provider

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1. Introduction
The IAIS, through the ICPs, 1 provides a globally accepted framework for the supervisionof the insurance 2 sector. Its mission is to promote effective and globally consistent supervisionof the insurance industry in order to develop and maintain fair, safe and stable insurance
markets for the benefit and protection of policyholders; 3 and to contribute to global financial
stability.

1.

There is a general recognition that enhanced access to insurance services helps toreduce poverty, improve social and economic development and supports major public policy
objectives, such as improving health conditions for the population, dealing with the effects ofclimate change and food security. Proportionate regulation and supervision can be supportiveof access to insurance services as these will avoid unnecessary barriers for market access andoffering services.
2.

3.
Since 2006, the IAIS has developed an “Access Agenda” as part of its mission ofpromoting effective supervision to help develop insurance markets. The Supervisory andSupporting Material 4 that the IAIS has adopted in order to promote access to insurance andinclusive insurance is listed in Annex 1.
4.
The term “inclusive insurance” is used broadly in this Application Paper, denoting all
insurance products targeted to the excluded or underserved market, rather than just those forthe poor or a narrow conception of the low-income market. In developing countries, the majorityof the population is often classified as un(der)served. Therefore, inclusive insurance is arelevant topic regarding the development of the retail insurance market as a whole. While theterm “inclusive insurance” is aimed at the excluded or underserved markets, the term
“microinsurance” has been defined as insurance which is accessed by low-income populations,provided by a variety of different entities and operates in accordance with generally accepted
practices, including the ICPs. 5
5.
The term “digital financial inclusion” refers to the use of digital financial services in orderto advance financial inclusion 6, for example, mobile insurance.
6.
For the purpose of this Application Paper, “digital inclusive insurance” is defined as“insurance utilising digital mechanisms to improve its outreach and delivery”. Outreach anddelivery are core elements for increasing access of the un(der)served to insurance services.
7.
“Mobile insurance” (m-insurance) refers to any insurance that is sold or subscribed tothrough a mobile phone and/or in partnership with a mobile network operator (MNO). 7

1 The complete set of ICPs including introduction, Principles, Standards and Guidance can be found on the public

section of the IAIS website (http://www.iaisweb.org/ICP-on-line-tool-689)

2 Insurance refers to the business of insurers and reinsurers, including captives.

3 The IAIS Glossary defines a “customer” as a “policyholder or prospective policyholder with whom an insurer orinsurance intermediary interacts, and includes, where relevant, other beneficiaries and claimants with a legitimate
interest in the policy”. The glossary does not define “policyholder” although earlier papers had noted that
“Policyholders includes beneficiaries”.
4 Supervisory material is generally the standard-setting material of the IAIS (ICPs, ComFrame and G-SII Policy
Measures; Supporting material consists of IAIS Issues Papers and Application Papers.
5 See paragraph 1.32 of the Application Paper on Regulation and Supervision supporting Inclusive InsuranceMarkets.
6 Global Partnership for Financial Inclusion, Issues Paper on Digital Financial Inclusion and the Implications for
Customers, Regulators, Supervisors and Standard-Setting Bodies, 30 and 31 October 2014.
((www.gpfi.org/publications/digital-financial-inclusion-and-implications-customers-regulators-supervisors-andstandard-setting)
7 For more defintions of m-insurance see Section 1.3 of the report Regulating Mobile Insurance, Insurance
business via mobile phones: regulatory challenges and emerging approaches, A2ii (April 2018)(https://a2ii.org/sites/default/files/reports/2018_05_02_mobile_insurance_regulation_web.pdf)
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About this paper
8.
This Application Paper seeks to provide guidance to supervisors, regulators andpolicymakers when considering, designing and implementing regulations and supervisory
practices with respect to the use of digital technology in inclusive insurance. Whilst the primary
focus of this paper is on building inclusive insurance markets, some considerations andsuggested approaches could also be of interest to supervisors outside the inclusive insurance
field.
9.
As well as considering the use of digital technology in inclusive insurance, thisApplication Paper examines aspects of FinTech 8 and InsurTech 9 relating to inclusive insurance.
These developments are not unique to inclusive insurance and are finding their way into all
insurance markets regardless of their level of development and saturation. Before FinTech
developments emerged, other technological innovations had already been introduced ininclusive insurance markets as a response to challenges in distribution, access to insurance,
reducing costs, and creating sufficient scale for a viable business. There are also specificchallenges for supervisors who need to find a proportionate response to the increased use oftechnical solutions, particularly those that involve multiple parties, both in and outside theinsurance sector.
10.
This Application Paper builds on the Issues Paper on Conduct of Business in Inclusive
Insurance (IAIS, 2015), which broadly deals with the fair treatment of customers within inclusive
insurance markets. An insurance product within an inclusive insurance market may provide
benefits to both individual customers and to (the) public policy objective(s) of the country or
region. It is therefore essential to provide insurance services that add value in view of thespecific context or living conditions of the inclusive insurance customer. Following the Issues
Paper, the IAIS considered it worthwhile to develop and provide application guidance in orderto clarify how the use of digital technology can contribute to these private and public objectives.

Structure of the paper
This Application Paper is structured around three main sections:11.

•

Section 2 describes the typical inclusive insurance market and the typical inclusive
insurance customer. This explanation is provided to offer context of the environment
within which the supervisor is operating;•

Section 3 offers a specific description of the use and implications of digital technology
within inclusive insurance markets. In combination with Section 2, Section 3 portrays thecontext within which the ICPs should be proportionately applied;•

Section 4 provides application guidance on the relevant ICPs, regarding the use of digitaltechnology in inclusive insurance. Where relevant, examples of observed practices havebeen included.

It should be noted that this Application Paper paraphrases from supervisory material such as
the ICPs and parts of other papers, mostly in a summarised form. This is to minimise the needto consult other materials while reading this Application Paper.

8 FinTech (short for Financial Technologies) refers to “technologically enabled financial innovation which could

result in new business models, applications, processes, or products with an associated material effect on financial
markets and institutions and the provision of financial services”; IAIS, FinTech Developments in the Insurance
Industry, 21 February 2017; with reference to the definition used by the Financial Stability Board; 16 March 2016.
9 InsureTech (short for Insurance Technologies) is the insurance-specific branch of FinTech that refers to thevariety of emerging technologies and innovative business models that have the potential to transform the insurance
business; IAIS, FinTech Developments in the Insurance Industry, 21 February 2017.
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2. Features of an Inclusive Insurance Market 10
12.
This section presents the main features of the typical market context within which the
ICPs need to be applied in order to enhance inclusion.

As outlined in the Issues Paper, 11 the features of inclusive insurance markets differ from
more conventional insurance markets, in particular in terms of:13.

•

The profile of an inclusive insurance customer;•

The country-specific context and conditions;•

The distribution models typical for inclusive insurance;•

Other elements of the insurance lifecycle. 12

The profile of an inclusive insurance customer
Although inclusive insurance customers are generally able to manage their livelihoods,
they are considered more vulnerable because of deprivations they face as a consequence ofpoverty, including limited access to the whole range of risk mitigating tools. Aside from financial
exclusion and the lack of access to effective mechanisms of risk transfer, low-income customers
often lack other basic necessities such as education, employment and access to justice. The
Issues Paper elaborates on the inclusive insurance customer profile, 13 by referring to:

14.

•

Low education levels and low insurance awareness;•

Low levels and irregular streams of disposable income;•Low levels of formal identification document penetration;•

A living environment that makes it difficult to reach inclusive insurance customers;•

A lack of trust in insurance providers and a negative perception of insurance.

The country-specific context and conditions
15.
Inclusive insurance is most relevant in developing countries, which are often
characterised by low levels of insurance market development and limited skills in the insurance
sector. Further, the regulatory and supervisory capacity in developing countries may also beconstrained. 14 Generally, formal employment is limited and the footprint of the financial sector(in terms of bank branches, other outlets and the number of people served), is generally low. 15

10 Note that the term “inclusive insurance market” as used in this paper does not refer to markets that are alreadyinclusive, but rather markets where there is an imperative to enhance the level and extent of inclusion.
11See Section 2 of the Issues Paper.
12 The term “lifecycle” is used as reference to the elements that constitute insurance provision: from productdevelopment, to distribution, disclosure of information, customer acceptance, premium collection, through to claims
settlement and the handling of complaints by the insurer.
13 Section 2.1
14 In the Southern African region, for example, a 2013 study across 12 countries found that insufficient technicalsupervisory staff challenges monitoring and supervision of the insurance market (Chamberlain, D., Bester, H. & Raja,
B., 2013. Regulating for inclusive insurance markets in SADC: review of regulation. Available at:
http://www.microinsurancecentre.org/resources/documents/regulating-for-inclusive-insurance-markets-in-sadcreview-of-regulation.html). The IMF highlights limited supervisory capacity as a challenge across much of emerging
markets (IMF, 2011. Financial Stability Issues in Emerging Market and Developing Economies. Available at:
http://www.imf.org/external/np/g20/pdf/110211.pdf).
15 The World Bank states that low-income employment, under-utilisation of skills, and lack of full-time job
opportunities are particularly evident in emerging markets (World Bank, 2015. Recent Developments in Emerging
and Developing Country Labor Markets. Available at http://blogs.worldbank.org/prospects/global-weekly-recentdevelopments-emerging-and-developing-country-labor-markets). The Bank for International Settlements (BIS)
reports limited development of the financial infrastructure in developing economies (Ehlers, T., 2014. Understanding
the challenges for infrastructure finance. Available at: http://www.bis.org/publ/work454.pdf).

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The distribution models typical for inclusive insurance 16
16.
In order to maintain low distribution costs, inclusive insurance providers often choose topartner with third party client aggregators to leverage such partners’ existing client base andinfrastructure. Hence, the typical distribution model 17 is often characterised by a complex value
chain, with multiple discrete players – such as an administrator 18 and/or technical service
provider (TSP), 19 a broker or agent, a customer aggregator and a payments platform – all ofwhich affect the relationship between the customer and the insurer. These parties may havedifferent incentives, which may not be aligned with those of the insurer. Further, the sales
representatives may have a different skillset as compared to a conventional insurance broker
or agent.

Other elements of the insurance lifecycle
17.
Besides the distribution channel, there are several challenges that impact across thevarious stages of the inclusive insurance lifecycle, as outlined in the Issues Paper, specifically:•

The need to maintain low premiums challenges the conventional face-to-face method ofenrolling new clients; 20•

Where the target market has a low rate of financial literacy, adequate disclosure of productfeatures and claims processes is particularly important. However, in the context of the
inclusive insurance market, face-to-face and/or verbal disclosure may be costly as aproportion of the premium value;•

Premium collection and claims payment pose significant challenges, particularly whencustomers do not have their own bank accounts;•

Target customers in the inclusive insurance market may face difficulties in obtaining claims
documentation. Additionally, limited financial literacy will have an impact on the executionof the claims process and this may lead to delays in settling claims. A further risk is that anindividual claims assessment or a verification of costs may be prohibitively high for lowpremium policies;•

The inclusive insurance customer usually has a limited knowledge of the complaints
process and may feel intimidated and unable to file a complaint. Hence, the inclusive
insurance provider has a responsibility to educate the customer about his/her rights and thecomplaints processes, which are costly and challenging in a low-premium environment.

This section considers how digital technology is being employed and how it could beapplied to the challenges outlined above. In this respect it is also important to consider how
technology-driven partnerships impact on the insurance value chain and the implications of thisfor insurance supervision.
18.

16 Section 2.3

17 As described in Section 2.3 of the 2015 IAIS Issues Paper on Conduct of Business in Inclusive Insurance.
Available at: https://www.iaisweb.org/file/57850/issues-paper-on-conduct-of-business-in-inclusive-insurance.
18 An administrator means a person or entity that has a mandate from an insurer to do administrative work, notably
claims administration, on its behalf.
19 Technical Service Providers (TSPs), also called global intermediaries, tend to be full service intermediaries thatplay throughout the value chain, although typically working through an aggregator and an underwriter (GIZ,
Responsible Mobile Insurance,2015. Available at:https://a2ii.org/sites/default/files/reports/responsiblemobileinsurance-20150602-final.pdf)
20 Customer acceptance refers to acceptance of the customer’s risk by the insurer based on a policy proposal
submitted by the customer, or by a broker or other intermediary on behalf of the customer. Customer acceptancesignifies that a contract has been entered into between the policyholder and the insurer. Before this can be thecase, there needs to be sufficient certainty on the risk profile, price, terms and conditions for both parties to reachagreement (IAIS, 2015. Issues Paper on Conduct of Business in Inclusive Insurance. Available at:https://www.iaisweb.org/file/57850/issues-paper-on-conduct-of-business-in-inclusive-insurance).

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3. Use and Impact of Digital Technology in Inclusive
Insurance Markets
19.
The features outlined in Section 2 examine the challenges that affect the inclusive
insurance lifecycle. Increasingly, digital technology is being applied to help overcome thesechallenges. 21 Note, however, that digital technology is not the answer to all challenges faced
when making insurance more inclusive. It is only part of the solution. The use of technology
impacts components such as product design, the efficiency of inclusive insurance delivery, as
well as the roles and parties involved in the value chain. It is suggested that digital technology
can either be a tool to enhance existing business models, or it can be utilised to form the heartof the business model.

This section describes the different technologies that are impacting the design, delivery
and value chain for insurance, whether that be as a tool for distribution, servicing of customers,
or as a means for reshaping business models (which is the case for peer-to-peer (P2P)
insurance and on-demand insurance).

20.

3.1 Digital technology applications
The IAIS report titled “FinTech Innovations in the Insurance Industry” 22 provides a
general overview of significant innovations within the insurance industry. Detailed below is asummary of the latest innovations as at the time this report was published.
21.

Digital platforms – ie internet and smartphones
Various initiatives such as pay-per-use products and P2P insurance have emerged to
improve the customer experience or service. Mobile phone Insurance (m-insurance) is part ofthis innovation but – in view of its particular significance to the inclusive insurance market – isalso discussed in Section 3.2.
22.

Internet of Things (IoT) 23
IoT involves the internetworking of physical devices, vehicles, buildings and other items(also referred to as "connected devices" and "smart devices"), embedded with electronics,
software, sensors, actuators, and network connectivity that enable these objects to collect andexchange data.
23.

Telematics/Telemetry
24.
In the context of IoT, telematics involves telecommunications, sensors and computerscience to allow sending, receiving, storing and processing data via telecommunication devices,
affecting or not, control on remote objects. Telemetry involves the transmission of
measurements from the location of origin to the location of computing and consumption,
specifically without affecting control on the remote objects. In the context of insurance, its main
applications are Connected Cars, Advanced Driver Assistance Systems (ADAS), Healthmonitoring and Home monitoring.

21 Digital technology in inclusive insurance appeared on the radar in 2006 and the number of initiatives has been

growing exponentially since then (BFA, 2015).
22 21 February 2017; https://www.iaisweb.org/page/news/other-papers-and-reports/file/65625/report-on-fintechdevelopments-in-the-insurance-industry
23 The term IoT has been defined as a global infrastructure for the information society, enabling advanced services
by interconnecting (physical and virtual) things based on existing and evolving interoperable information andcommunication technologies (source http://www.itu.int/ITU-T/recommendations/rec.aspx?rec=y.2060)
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Big Data 24 and Data Analytics 25
25.
In the insurance market, Big Data and Data Analytics could be used in various
processes, such as product offerings, risk selection, pricing, cross selling, claims prediction andfraud detection – for example to offer customised products and allow automated underwriting.

Comparators and Robo advisors
Online services that provide automated, algorithm-based product comparison andadvice without human intervention.

26.

Machine Learning (ML) and Artificial Intelligence (AI)27.
The use of ML and AI enables several insurance industry processes to use data in realtime and, especially, in events prediction (eg vehicles thefts, health problems and weather
events). There is a vast scope for AI, not only in a better pricing of risks but also in fraud
prevention, claims handling or in preventive counselling.

Distributed Ledger Technology (DLT)28.
A distributed ledger is essentially an asset database that can be shared across a networkof multiple sites, geographies or institutions. The security and accuracy of the assets stored in
the ledger are maintained cryptographically through the use of “keys” and signatures to control
who can do what within the shared ledger.

a. Blockchain: this is a type of decentralised distributed ledger, comprised ofunchangeable, digitally recorded data in packages called “blocks” which are stored
in a linear chain;b. Smart Contracts: the novelty of DLT is that it is more than just a database – it canalso set rules about a transaction (business logic) that are tied to the transaction
itself. Smart contract is a term used to describe computer programme code that is
capable of facilitating, executing, and enforcing the negotiation or performance of anagreement using DLT.
P2P, Usage Based, On Demand Insurance
29.
Emerging technologies are likely to result in the introduction of new business models,such as:a. P2P: a business model that allows insureds to pool their capital, self-organise andself-administer their own insurance. Although it is not an innovative concept,
emerging technologies (like DLT) offer substantial benefits for implementing thismodel on a broader scale;b. Usage based insurance: a new business model introduced by auto insurers that
more closely aligns driving behaviours with premium rates for auto insurance as thecustomer only pays for the actual distance driven;c. On demand insurance: a new business model that specialises in covering only thoserisks faced at a certain moment.

24 Big Data is the term used for the storage of data from different sources, in large volume and speed; IAIS,

FinTech Developments in the Insurance Industry, 21 February 2017.

25 Data Analytics is the process of inspecting, cleaning, transforming, and modelling data with the goal of

discovering useful information, suggesting conclusions, and supporting decision-making; IAIS, FinTech
Developments in the Insurance Industry, 21 February 2017.
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3.2 Digital technology applications in an inclusive insurance
context 26
30.
The use of digital technology or FinTech can overcome challenges in the delivery of
microinsurance and inclusive insurance products. Such challenges could be:

•
•
•
•
•

Lack of information on customers;
Difficulties in reaching consumers;
Meeting specific needs of the un(der)served consumers;
Coping with consumers who lack experience in dealing with formal insurance services;
Keeping premiums affordable by reducing business costs.

31.
Lack of information on customers is caused by the reduced engagement with theformal sector by the un(der)served consumers, less official documentation and lower formal
employment rates. This affects the quality and quantity of consumer data available, which isnecessary for adequate risk profiling, product development, sales, payment collection andclaims assessment. Digital technology enables the collection and transfer of existing and new
data in real time and the application of innovative analytics. New data sources can be used for
product design and sales to better approach the target customers using voice calls, mobile
payments and social networks. Also, sensors can be used to recognise consumer behaviour for
developing value adding products. Claims can be submitted by electronic means using digital
images. Data from satellite weather stations can be used to trigger pay-outs under index-based
insurance policies. AI could potentially be used to predict risk events and to alert policyholders.
32.
Difficulties in reaching consumers are caused by scarce physical touchpoints withthe distribution network of insurers, and by consumers being largely unbanked, informallyemployed and living in rural areas. As a consequence, customers are difficult to reach for salesof insurance products, post-sales service, collection of premiums and settlement of claims.
Currently, partnerships with MNOs using mobile-phone technology have shown to be aneffective way in reaching customers. Mobile phones technology can be used for onboarding,premiums payment using airtime, and claims settlement. Digital P2P platforms are also a
promising approach to enhancing outreach to consumers. Consumers can access platforms for
product and price comparison using mobile phones, tablets or laptops. Mobile and online chatservices facilitates communication with customers.

The typical inclusive insurance customer will have specific needs with respect to his/her
insurance product in terms of insurance coverage, way and timing of premiums collection andclaims process. Digital platforms, mobile phone technology and P2P platforms are being used
to serve inclusive insurance customers with tailor-made products in terms of cover (eghealthcare and rural fire), servicing, and claims settlement.
33.

Inexperience in dealing with formal insurance services could be linked to consumers
being less literate, with less exposure to insurance as a phenomenon. Digital platforms,
accessible via mobile phones, tablets and laptops provide remote access to insurance services.
Mobile phone hotlines can achieve the same. Also, websites are being designed using icons to
inform inexperienced or less literate customers.
34.

In the inclusive insurance space it is important to keep insurance affordable andtherefore business expenses low. Insurers’ operating costs can be kept low by using
digitalised business processes, thereby reducing the need for human intervention.

35.

26 This section 3.2 is prodominantly based on the research study “InsurTech for development” by Cenfri, FSDAfricaand UKAid (March 2017); https://cenfri.org/publications/role-of-insurtech-in-microinsurance/
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Examples of digital technology applications in inclusive insurance contexts:
Big Data and Telematics:•••

USA: Cignifi, a mobile data analytics firm, analyses numerous mobile data variables –such as voice calls, mobile money transactions, mobile savings, social networks anddemographics – to determine a premium appropriate for different customer segments.
The aim is to enable its microinsurance partners to tailor SMS/text message based
marketing efforts to specific customer segments in order to increase the likelihood of
acceptance;
Senegal: The VoLo Trust Information Platform (VTIP) binds biographical, biometric, andsector specific data into a multi-platform and scalable database used within the healthinsurance sector. A unique Biometric Identification Number (BIN) is created for eachparticipant to counter identity fraud; 27
India: IFFCO-Tokio (ITGI) insurance company is using Radio Frequency Identification(RFID) chips that are injected under the skin of the animal for its livestock insurance
policies. These chips are accessible through a reader, which allows an insurance
official to verify that the RFID reading coincides with the identification number on thepolicy when a farmer reports a claim. The aim of this product is to reduce the numberof fraudulent cases and to expedite the claims process.

P2P:
•

•

South Africa: Riovic offers P2P insurance and an on-demand insurance platform which
offers insurance backed by crowdfunding. It acts as a marketplace, which connects
those seeking insurance with investors who are willing to share the risk of a pay-out inexchange for returns in the form of premiums. Riovic offers automobile, business andhome insurance. Those seeking insurance can apply digitally via the Riovic applicationor their website and a combination of data analytics and actuarial science will determine
the price of the policy;
China: TongJuBao is a P2P insurance platform formed by P2P Protect, a technicalservice provider, 28 without an underlying insurance carrier. It is described as acollaborative insurance model which brings users together to share risks with theintention of maintaining fairer costs andfairer claims treatment while also increasingtransparency and user empowerment, as opposed to traditional insurance models. It
also develops mini or micro-insurance products by addressing social and/or family
issues, which are not covered by other insurers within the market. 29
Their model separates the underwriting process from the claims process. Firstly,
TongJuBao creates social communities or groups that customers can join as members.
Next, a deposit account for every member is created, which TongJuBao has delegatedauthority to operate. All members pay two sums of money into their deposit account –the first sum is the administration fee and the second sum is effectively a guarantee
deposit to cover the risk of being insured. In order to buy units of protection, all members
are expected to pay the same amount into their deposit accounts. This model follows amutualisation model whereby members make a deposit and anyone can withdraw fromit. There is, however a capital limitation and therefore all pay-outs are restricted to acapped amount;

27 According to the company website: www.volotrust.com

28 P2P Protect is now expanding this model to the USA (P2P Protect inc) and Europe.

29 Such as “marriage safety” or “divorce first aid” insurance to tide the policyholder over when a marriage breaks
down or provide legal support, “missing child insurance” to fund a professional search, and “family unity insurance”
that pays out when a person needs to take time off from work due to family demands (e.g. to return home to takecare of parents’ health).

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Satellite or remote sensor technology in Index Based Insurance (IBI):•

Kenya: Kilimo Salama is an index-based weather insurance product that allows farmers
to insure inputs purchased at participating agricultural dealers. Farmers are expectedto pay a premium, which is equivalent to approximately 5 percent of every USD 100
worth of inputs, required to plant one acre of maize, and the input manufacturer shallalso pay an additional 5 percent. Farmers can register through microfinance institutions,cooperatives, or agricultural dealers, all of which use a mobile phone application torecord the farmer's details into the system. The farmer will then receive a confirmation
message via SMS, listing the registration details and a policy number. Rain levels aremonitored using satellite data and automated weather stations – in the event of excess
rain or drought, funds are automatically paid into the farmer’s account with M-PESA.

Usage-based insurance:•

South Africa: The insurance provider Hollard uses a satellite-tracking device attachedto the car to measure the number of kilometres driven. The Pay as you Drive product ispriced according to the number of kilometres driven. It aims to encourage the customer
to drive less, thereby saving money on premiums and secondly, the product acts has
an anti-theft device to help locate a stolen vehicle.

Whatsapp / Facebook:•Customers of BIMA can submit their claims via Facebook and/or Whatsapp in different
markets including Cambodia, Senegal, the Philippines and Paraguay where suchmeasures have led to a rise in the number of claims.

3.3 M-insurance models
36.
In its broadest sense, inclusive m-insurance is the use of the mobile phone channel forany part of the insurance product lifecycle to help overcome the challenges to inclusive
insurance. Considering the impact the m-insurance model has within the inclusive insurance
market, it is important to address its key features.

An m-insurance model is an insurance business model in which an insurer partners witha MNO. The MNO can be involved in the delivery and sales process. 30

37.

Typically, there are multiple stakeholders involved in m-insurance models – the insurer,
the MNO and the TSP. 31 They enter into a partnership to benefit from marketing, clientacquisition, payment system infrastructure, premium or claims payment of an established brand.
Either party can initiate or lead the partnership or the composition of roles may vary over time.
Usually, the MNO holds most power as it controls access to the customer base. A MNO cantypically enter into two distinct partnership agreements, depending upon the level of its
involvement and the relationships between the entities within the m-insurance value chain. 32
38.

•

In a transactional partnership, the MNO acts purely as a distribution channel. It has apassive role, which may include supporting the payment of premiums through the
deduction of airtime or through a mobile money account, as well as facilitating the
disbursement of claims into a mobile money account. There is limited MNO involvement
in marketing and product development. One insurer or TSP may distribute the same
product through more than one MNO;

30 Leach, J. & Ncube, S., 2014. Regulating m-insurance in Zimbabwe. Available at:

http://cenfri.org/documents/microinsurance/2014/Rep_M_insurance_Zimbabwe_2014.pdf
31 Wiedmaier-Pfister, M. & Ncube, S., 2017. Regulating Mobile Insurance: Status and Regulatory Challenges.
Available at: https://a2ii.org/en/report/thematical/regulating-mobile-insurance-status-and-regulatory-challenges
32 Leach & Ncube, 2014
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•In a strategic partnership, the MNO actively drives m-insurance as a strategic
imperative to meet financial and non-financial (adjacent) benefits, such as enhancing
client loyalty, reducing churn, creating brand awareness, or increasing average revenue
per user (ARPU). The MNO’s investment may include paying premiums on behalf of
their subscribers, utilising their infrastructure, using “big data” to target clients for crossand up-selling, conducting limited administration, and/or co-funding marketing andadvertising. 33

Figure: M-insurance partnerships process diagram involving TSP and MNO 34

The three different product types which are commonly found in m-insurance
partnerships 35 are:39.

•

Loyalty products: Insurance is provided at no direct cost to the customer. Instead, theMNO pays the premium in bulk to the insurer in order to pursue the adjacent benefits
as outlined above. Loyalty products fall into the strategic partnership category;•

Paid products: Sign-up is voluntary and the customer pays the full premium. Premium
payments can take the form of airtime deduction, mobile money, over the counter (OTC)
payments, for example at a retail outlet, through a mobile money agent, or by debit
order. Paid products can fall into two sub-categories – the strategic or the transactional
category – depending on the level of involvement from the MNO;•

Hybrid products: The last category is commonly known as the “freemium” models
whereby customers can upgrade their loyalty product to a higher value paid product. In
this approach, the loyalty product is used as a “market maker” to encourage market
discovery and provides the client with a “taste” of insurance. The upgrade from theloyalty product can result in the free option falling away, leaving only the paid option in

33 Leach & Ncube, 2014; Tellez, C., 2013. Emerging Practices in Mobile Microinsurance. Available at:

http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2012/07/MMU_m-insurance-Paper_InteractiveFinal.pdf
34 Source: Section 2.1 of the report Regulating Mobile Insurance, Insurance business via mobile phones: regulatory
challenges and emerging approaches, A2ii (April 2018)(https://a2ii.org/sites/default/files/reports/2018_05_02_mobile_insurance_regulation_web.pdf)
35 BFA, 2015. Can the digitalization of microinsurance make all the difference? Assessing the growth potential of
digital microinsurance. Available at: http://cenfri.org/microinsurance/can-the-digitalization-of-microinsurance-makeall-the-difference-assessing-the-growth-potential-of-digital-microinsurance
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place. 36 In this model, the partnership may graduate from being strategic totransactional, or may remain strategic.
Examples of m-insurance models:•••

Pakistan: The MNO Telenor is partnering with Tameer Micro Finance Bank, incollaboration with Adamjee Life Insurance, to offer the Easypaisa Khushaal Beema Plus
product to its customers. The insurance offering is led by the MNO and offers monthly
life insurance coverage to Easypaisa mobile account holders based on the averagemonthly balance in their mobile accounts;
Ghana: Tigo Family Care Insurance is a paid life insurance product available to all Tigo
pre-paid subscribers. It covers two beneficiaries for Ghc 1.5 per month (USD 0.34) withcover up to Ghc 2000 (USD 450). The product is renewable monthly and is paid for via
airtime credit. It is marketed under the Tigo brand (MNO), but is fully managed by BIMA
(corporate insurance agent), from product design, customer education and distribution
all the way to quality assurance and claims management. The policy is underwritten by
Prudential Life Insurance Ghana. Currently, the product has 1.2 million registeredsubscribers;
Cameroon: An insurer called Activa launched their Activa Makala microinsurance
product together with Cameroon’s Orange (MNO) in 2015. Customers can pay theirmonthly premium via their Orange mobile wallet and are covered for accidents up to amonthly value of USD 350.

3.4 Implication for business models
40.
The use of technology has implications across a number of elements of the inclusive
insurance lifecycle and these could be utilised to help overcome some of the challenges toinclusive insurance while ensuring consumer protections are maintained, as outlined in Section
2. For example:•

By applying sophisticated algorithms to big data, providers can better understand andtherefore model the risk they are underwriting. In addition, providers can increase theirefficiency in product design, risk selection and premium pricing. 37 Although this use ofalgorithms is not unique to inclusive insurance, the key drawback is that some existing
consumers will become excluded, as providers will reach and may act upon conclusions
based on their knowledge of their potential customers and these conclusions may havetangible consequences for their existing customers; 38•

Policy origination can be achieved by using electronic signatures, also known as “econtracting”, thereby reducing costs. For the distribution of mobile microinsurance it isimportant that customers are able to confirm their registrations with their mobile devices.
As the vast majority of customers have feature phones, this means that the possibility toreceive confirmations by SMS is necessary for the distribution model to work;•

Distribution costs can be reduced by embedding the insurance offering in the menu on
the SIM/mobile phone. Product information such as registration, administration, premium
payment and claims payment may be distributed entirely via mobile phones or can bemade available online;•

Analysis of behavioural data can provide an indication of a customer’s propensity toaccept insurance offers and to continue paying premiums, thereby resulting in improved
sales targeting and distribution efforts. As a consequence, lower acquisition costs may

36 BFA, 2015 (ibid).

37 i2i, 2016. Big data for small policies. Available at: http://www.i2ifacility.org/Big_data_for_small_policies.html
38 Jentzsch, N., 2016. Data protection in the context of digital financial services and Big Data.

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be achieved – as well as reduced churn. 39 However, insurers may choose to focus theirefforts and offers for new consumers who have the potential for churning;•

To reduce overall costs, communication with customers can be undertaken using digitalmeans, across the lifecycle;•

Premium deductions via airtime or mobile money wallets may be used to overcome
premium collection barriers;•

Technology can facilitate the filing and processing of claims – for example, supporting
documentation, including photos, can be uploaded onto digital platforms to support theclaims process. Big data and blockchain can help expedite the process and reduce
assessment costs by quickly identifying fraudulent claims through better profiling andpredictive modelling. 40 Sensor and Wi-Fi technologies like the IoT can be used to detecta variety of conditions such as motion, sound, temperature, humidity and water presence.
This form of detection assists with claims verification and reducing cost. 41

3.5 Implications for regulators and supervisors
Whilst the application of digital technology to inclusive insurance can lead to cost
reductions, outreach and efficiency gains, it also gives rise to particular considerations forregulators and supervisors and may have various risk implications. 42
41.

42.
Technology impacts the scope of existing insurance regulatory and supervisory
frameworks, the nature of the insurance value chain, the parties involved and their roles, andhas implications for the jurisdiction of insurance supervisors. 43 Given the market andsupervisory capacity conditions which are prevalent within inclusive insurance markets, as
outlined in Section 2, these implications have particular relevance within the inclusive insurance
context. Notably:•

The speed of technological innovation challenges existing regulatory and supervisory
frameworks, as these may not proactively provide for the new modalities, functions androles, especially since some roles previously carried out by humans are now being
performed by machines. In particular, supervisors in developing markets may bechallenged to keep up with the pace of these changes and, for example, address ITrelated risks;•Technology forms the basis for a growing tendency towards specialisation and businessprocess outsourcing. Whilst the outsourcing of functions can increase efficiency anddecrease costs, supervisors should be aware of the longer value chain and the power
relationships that exist between insurers and players such as MNOs or payment service
providers who convert airtime into premium payments. 44 To ensure consumer protection,
managing outsourcing and relative power relationships requires proactive engagementby the supervisor;•

Where new players, such as MNOs or TSPs, are outside the traditional jurisdiction of
insurance supervisors, cooperation between different regulatory authorities is required.
New online players may push the boundaries of national jurisdictions as they do not havea physical presence within a certain market;

39 i2i, 2016
40 i2i, 2016

41 Jurgens, B., 2015. How IoT Will Change Your Relationship With Insurance. Available at:https://techcrunch.com/2015/08/17/how-iot-will-change-your-relationship-with-insurance/
42 See annex 2 for an overview of these risks.
43 The concentration level in the telco sector for some of the developing countries is shown in annex 3.
44 A2ii, 2014. Evolving microinsurance business models and their regulatory implications. Available at:https://a2ii.org/fileadmin/file_storage/Documents/Secretariat/final/07_Knowledge_and_Learning/Cross_Country_Sy
nthesis/2014_03_10_Annex_9_A2ii_Cross-country_synthesis_doc_1_for_consultation.pdf
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Page 16 of 42•Some models push the definition boundary of insurance or intermediary services. This
could be the case if data analytics across multiple platforms/customer interaction points
is carried out by the customer interfacing technology firm, in which case the insurer
continues to be the ultimate risk carrier, but is increasingly marginalised with many
products being white-labelled. 45 This requires an informed regulatory response;•

The developments within digital technology make it possible to extend insurance topreviously underserved segments of the population, many of whom will not have had
exposure to insurance before and may be vulnerable to consumer abuse. Where autoenrolment occurs – particularly in m-insurance where consumers themselves do notmake an explicit premium payment to the insurer (eg premium is deducted from airtime
or it is a loyalty benefit for which they do not pay at all) – policyholders might be unawarethat they have an insurance cover. This has implications for supervisors in terms of
consumer protection and financial education;•

Whereas digital technology allows insurance to be extended to the previously
underserved – due to tailored or differentiated risk selection based on “big data” – clients
could be excluded as they are deemed too risky. Differentiated risk selection can also
be caused by faulty or inaccurate algorithms used for “big data” analysis. Supervisors
may want to carry out reviews of such algorithms in order to check for exclusion ofparticular groups of customers. Wider disclosure of algorithms could be beneficial in thesense of better understanding by the interested clients of the company’s approaches toclient assessment;•Collection of personal information for “big data” analysis exacerbates the risk of dataabuse and a breach of data confidentiality, including from cyber-attacks. Therefore, it isnecessary to observe data protection regulation and adequately apply risk management
systems of insurers that employ financial innovations.

The A2ii study “Regulating Mobile Insurance” recommends that supervisors take thefollowing actions to accommodate m-insurance: 46•••

Adopt a proportionate approach:Key considerations include to define m-insurance, ensure oversight of non-insurance
entities, promote consumer understanding and disclosure via digital platforms, effectadequate regulatory changes, and decide whether to permit airtime deduction;
Engage with industry and embrace regulatory flexibility and openness in
response to market innovation:
Regulation should not impede the speed of innovation around m-insurance businessmodels and products. Test and learn approaches or regulatory sandboxes are ameans to ensure the oversight of pilots during product approval process, better
understand m-insurance models, encourage innovation within a controlled andsupervised environment, and collect inputs for regulatory changes;
Deepen client understanding of m-insurance risks:
Policyholder awareness was the most frequently raised concern by consulted
supervisors. This can be addressed through effective disclosure requirements, or
consumer financial education initiatives;

45 See paragraph 66 of the IAIS report “FinTech Developments in the Insurance Industry”

46 Regulating Mobile Insurance, Insurance business via mobile phones: regulatory challenges and emerging
approaches, A2ii (April 2018)(https://a2ii.org/sites/default/files/reports/2018_05_02_mobile_insurance_regulation_web.pdf)

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•

•

•

•

•

•

Improve supervisory oversight of the entire m-insurance value chain:
Adopting a comprehensive oversight of the m-insurance value chain can improveunderstanding of its business model, capture potential supervisory gaps, avoid
regulatory arbitrage and promote accountability. This can be done by means of
indirect supervision through holding insurers accountable for all activities across thevalue chain, despite the power imbalances, or directly through licensing MNOs and
TSPs as intermediaries;
Establish data collection systems to inform evidence-based policymaking:Supervisors need to enhance m-insurance data collection (eg on products, claims andrenewal ratios) through reporting requirements to build an evidence-base to assessclient value and inform policymaking;
Build supervisory capacity on digital approaches to insurance provision:
The growth in m-insurance requires insurance supervisors across functions toenhance their technical know-how on digital approaches to insurance;
Engage with other national authorities with oversight over non-insurance
parties:This may involve exchanging information and cooperating with other authorities (egtelecommunications regulator, central bank) during pilots, drafting of regulations andon-going supervision;
Share knowledge with peers:
Peer-exchanges with insurance supervisors from other countries can promoteknowledge transfer, especially related to issues where there is limited regulatory
precedent, such as effective treatment of TSPs and MNOs, cost effective monitoringof client value, supervisory tools at the intersection of various regulators, or allowing
airtime as payment mechanisms;
Integrate m-insurance into consumer financial education initiatives:
As part of national financial education initiatives insurance supervisors can support
strategies and approaches to educate consumers about the risks and benefits of minsurance.

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4. The Proportionate Application of the Insurance Core
Principles
4.1 Proportionality in general43.
The ICPs provide a globally accepted framework for the supervision of the insurance
sector. The Principle Statements prescribe the essential elements that must be present in the
supervisory regime in order to promote a financially sound insurance sector and to provide anadequate level of policyholder protection. Standards set out key high level requirements, which
are fundamental to the implementation of the Principle Statement and should be met in order
for a supervisory authority to demonstrate its observance with the particular ICP. 47 The ICPs
apply to insurance supervision in all jurisdictions regardless of the level of development,
sophistication of the insurance markets, or the type of insurance products or services being
supervised. 48

This section of the paper provides considerations and guidance for the implementationof various ICPs relevant to the use of digital technology from a proportionate perspective. The
principle of proportionality allows the supervisor to conduct supervision according to the risks
inherent to insurers, and the risks posed by insurers to policyholders, the insurance sector or
the financial system as a whole. This involves using a variety of supervisory techniques andpractices which are tailored to the insurer to achieve the outcomes of the ICPs. Such techniques
and practices should not go beyond what is necessary in order to achieve their purpose. 49 The
proportionality principle in the ICPs gives room for tailored solutions to achieve the desired
outcome of the relevant Principle Statement or Standard when using digital technology within
an inclusive insurance context.
44.

The proportionality principle does not imply that supervisory practices and regulatory
requirements in inclusive insurance should be less intensive or lower compared to conventional
insurance. Following on from the description in Section 3, the use of technology could create
complicated business processes, higher IT risks and other risks. In order to proportionately
apply ICPs, the supervisor should understand the nature and complexity of the risks associatedwith technological innovation and the new business models which are borne from the use of
new technologies. It should be noted that if the approach is only focused on risks and not also
on market development, and if there is not a proportionate response, there could also be
unintended consequences. These consequences may adversely impact technologicalinnovation, which in itself may be significant in overcoming challenges within inclusive
insurance.

45.

Observed practices:•

Ivory Coast: The leading life insurer SUNU wants to refine its new strategy on alternative
distribution. A new unit has been established to handle alternative distribution, enabling
SUNU to embrace activities, which have traditionally been performed by intermediaries.
A project was launched, with the technical support of the ILO, to enable SUNU toprovide life insurance to those within the low-income segment, beyond mobile
customers. The purpose of the model adopted by SUNU is to establish its own systems
and assume functions that are independent of the existing mobile network operator’s
platform. During the pilot phase, the insurer regularly held meetings with the supervisor,
CIMA, during which updates and feedback on the project were shared. In this sandbox 50
approach, the parties assess the risks together and set safeguards to minimise thenegative effect(s) of innovation on the consumer. Once the product is launched,

47 Paragraph 6 of the Introduction of the ICPs

48 Paragraph 8 of the Introduction of the ICPs

49 Paragraph 8 of the Introduction of the ICPs; Paragraph 9 of the revised Introduction to the ICPs

50 A Regulatory Sandbox or Lab has as objective the testing of innovations in a safe and controlled environment

with clear boundaries and safeguards.

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experience in the field will be monitored carefully and the regulatory framework will be
adjusted accordingly.

4.2 Application of the ICPs in respect of the Use of Digital
Technology in Inclusive Insurance
46.
This Application Paper addresses the crucial role of the use of new technologies within
inclusive insurance markets. In the context of inclusive insurance, the following sections provide
guidance on the proportionate application of the relevant ICPs.
47.
Those insurance supervisors operating within an inclusive insurance market may be
confronted with limitations to their legal powers, thereby preventing the application of the ICPs.
They may also encounter difficulties in the application of their legal duties based on
circumstances outside the legal framework, such as a lack of sufficient supervisory staff. In
principle, it is the responsibility of policymakers and legislators to arrange a supervisory
framework that is compliant with the ICPs for insurance supervisors operating within an inclusive
insurance market. The supervisor should raise any issues concerning the proper
implementation of the ICPs with the policymakers and legislators. In addition, supervisors
should take responsibility for the proper application of the provisions as provided in the legal
framework and take measures to address any shortcomings.

4.2.1 Supervision: powers, resources and exchange of information48.
The use of digital technology within inclusive insurance raises various aspects that are
relevant for insurance supervision, such as:•

The insurance supervisor should have adequate powers in order to supervise insurers andthe intermediary’s supervisor should have adequate powers to ensure that the ongoingsupervisory review of intermediaries is carried out; 51•

The supervisor’s authority should sufficiently cover critical entities within the insurance value
chain even if they are not conventional insurance intermediaries. Some examples of these
may be MNOs and TSPs where they are used extensively or increasingly for key elements
of insurance business. MNOs and TSPs may be under the primary supervision of anotherregulatory authority, such as the central bank for a payments provider or thetelecommunications authority for a mobile network operator. The powers of the insurance
supervisor will then relate to the activities or functions that would qualify as insuranceintermediation functions, rather than to their underlying primary business. 52 Also relevant
may be indirect supervision via the supervision of insurers (for example where businessprocesses are outsourced). 53 Where the supervisor deems its current scope is insufficientfor the purpose of protecting policyholders effectively, it should seek to extend its
supervisory scope from the relevant authority or legislature and in consultation with anyother relevant regulator (eg mobile network regulators in the case of extending the scope toMNOs);•

Adequate exchange of information between involved supervisors should be arranged inparticular between insurance supervisors and telecom regulators; 54•

The on- and off-site monitoring carried out by the supervisor should take into account thecomplexity and risk involved in IT processes;

51 Standard 18.2 for intermediaries

52 Standard 18.2 – insofar as they fulfil insurance intermediation functions.
53 Standards 18.2.9 to 18.2.11.
54 Standard 3.1 and 3.2

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Page 20 of 42•The supervisor’s staff should have adequate skills and knowledge of technology used bysupervised firms and of IT risk management to oversee and intervene in businessprocesses involving IT;•

If a supervisor involves third parties to carry out supervisory activities – for example EDP/IT
audits – it should take adequate control measures and safeguard confidentiality.

49.
Multiple competent authorities involved in supervision:
The requirements
described in the previous paragraph imply that the supervisor should have adequate powers to
conduct insurance supervision 55 in an inclusive insurance context. Insurers’ use of digitaltechniques or telecommunication should not limit the formal powers of the insurance supervisor,
particularly if other regulators are competing for jurisdiction. The same principle applies to theongoing review of intermediaries. 56 If the legal framework assigns the supervisory responsibility
based on the type of supervised entity rather than the type of activity – for example to thetelecom regulator for supervising MNOs including their insurance business – there may be alack of power for the insurance supervisor to intervene when needed to protect policyholders.

Figure: Regulatory ambits influencing m-insurance 57

50.
Insurance supervisors operating within an inclusive insurance market may be confronted
with limitations to their jurisdiction over insurers, for example where the telecom supervisor isdesignated by law as the leading supervisor, thereby excluding other supervisors. It could thenbe that the telecom supervisor should be considered the insurance supervisor for the purposeof the implementation of the ICPs. This may not be a desirable outcome, as the responsibilityof insurance supervision may then be split across multiple different authorities, each withdifferent legal powers, priorities and resources, including skilled staff. This could also create the55 Standard 1.2

56 Standard 18.2

57 Source: Section 4.2 of the report Regulating Mobile Insurance, Insurance business via mobile phones: regulatory
challenges and emerging approaches, A2ii (April 2018)(https://a2ii.org/sites/default/files/reports/2018_05_02_mobile_insurance_regulation_web.pdf)

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risk of arbitrage or more favourable treatment of some institutions under supervision. Therefore,
policymakers and legislators should arrange a supervisory framework that avoids these
consequences. The insurance supervisor should raise concerns of this nature with thepolicymakers and legislators.
51.
Supervisory powers in the case of the insurer outsourcing business processes:
When business processes and activities have been outsourced, the insurance supervisor
should have sufficient power and authority to allow for effective oversight and intervention. An
example to illustrate this point is if MNOs are used to distribute insurance or TSPs fulfil pricing,product design or policy administration functions. Some outsourced activities, such as officecleaning or HR management, which are not material or directly linked to the core business of
the insurer, do not need to be included in the assessment of this requirement. The focus is on
any key business function of the insurer, beyond intermediation, such as underwriting, premium
collection, administration, management of insurance claims, loss adjusting and claims appraisal.
Whilst these functions are excluded from the IAIS definition of insurance intermediation, they
may be subject to other ICPs and standards relating to business conduct. 58

Where a key business function of an insurer is outsourced in part or in whole to external
parties (including outsourcing to related entities within the insurance group or financial
conglomerate), the insurer should describe its outsourcing policy and how it intends to maintaincontrol, ownership and oversight over the outsourced function(s). 59
52.

53.
In jurisdictions where multiple supervisors perform oversight functions of the same
companies, albeit from different perspectives, mechanisms should be in place for properexchange of information. These mechanisms should be enshrined within primary legislation,
could be further elaborated upon within a memorandum of understanding, and should be a key
element of the supervisory routines and practices of all supervisors involved. 60
54.
As part of its supervisory review of insurance entities, the insurance supervisor will carryout on-site inspections and off-site reviews of submitted financial or other reports. 61 The
supervisor will adopt a risk-based approach to supervision that includes evaluating the insurer’s
risk profile. The use of IT systems and digital processes will affect this risk profile. The moreadvanced and complex the IT, digital systems, processes of the insurers are, the more
technically able the supervisor’s staff should be in order to fulfil their supervisory responsibilities.
The supervisor’s staffing policies should enable it to attract and retain highly skilled, competentand experienced staff. The supervisor should provide adequate training for its staff.
Alternatively, the supervisor should be able to hire or contract the services of externally-based
experts when necessary. 62 Where there is a lack of technical expertise, additional funding forexperts could be arranged through the existing funding provisions, or funding may be requested
directly from the government. Also, external experts can be used to carry out the work. However,there should be a certain minimum level of expertise within the supervisory body and thesupervisor should maintain adequate oversight over work carried out by external experts.
Safeguards for overseeing the outsourced work should be put in place, including forsafeguarding confidential treatment of information by the experts.

Where supervisory functions have been outsourced, the supervisor should set
expectations, assess the competency and experience of the third party/contractor, regularly
monitor their performance, and ensure their independence from the insurer or any other related
party. External experts whose services are hired by the supervisor, are subject to the same
confidentiality rules and professional standards as the supervisor’s staff. 63

55.

58 Standard 18.0.3 and Standard 18.8
59 Standard 20.9.1

60 Standard 3.2 and Standard 3.3
61 ICP 9

62 Standard 2.11

63 Standard 2.13. 8

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56.
Facilitating innovation: Supervisors could look for ways to facilitate technologicalinnovations and create processes and procedures for insurers to introduce these innovations intheir business. This facilitation by the supervisor would usually start by establishing a point ofcontact to discuss plans and proposals and consider their feasibility from a regulatory andsupervisory perspective. Other facilities may be set up by the supervisor such as regulatory
sandboxes. These typically involve an actual try-out of an innovation using real customers andtend to be limited in scope (number of customers, duration of the trial, and limitation to type of
product or sum insured). While this gives the supervisor the opportunity to monitor closely what
innovative developments are taking place in the market, it should nevertheless be able and havethe resources to adequately understand the technical aspects, related risks, financial impact
and customer outcomes. It should also be mentioned that while often trials using a sandbox
build on a proportionate application of requirements, the level of supervisory involvement willoften be intense as the supervisors will dedicate its resources to close oversight of the firms inthe sandbox. This will pose limitations to the number of insurers that can be part of a sandbox
approach.

Observed practices:•Power to supervise entities that fulfil functions related to digital technology in theinsurance value chain, but are not conventional insurance intermediaries:
Where entities such as MNOs or TSPs conduct insurance value chain functions, themain approach has been to regulate them either as brokers or as corporate agents, asis the case in the Philippines, Bangladesh and Uganda. The alternative approach is todefine a class of microinsurance aggregators or intermediaries, as is the case in
Tanzania and India where the regulation of such functions would be housed. In all ofthese cases, the supervisor has the power to regulate those functions that relate toinsurance provision or intermediation, regardless of whether the entities themselves are
regulated by a separate regulatory authority for their primary business, such as thepayments system authority or the telecommunications authority.

•

Exchange of information and cooperation amongst supervisors:
Supervisors may enter into memoranda of understanding (MoUs) with other supervisory
authorities who are responsible for regulating the primary function of entities which fulfil
functions in the insurance value chain, but which are not conventional insuranceintermediaries. This is particularly relevant for m-insurance. For example, in Ghana, a
MoU is currently being finalised with the telecommunications and payment systems
regulators in order to define the relationship between regulatory authorities relevant tom-insurance and to remove any regulatory gaps.
Cooperation amongst supervisors may also occur via consultation during the productapproval process. With regards to m-insurance product approval, the Tanzania
Insurance Regulatory Authority (TIRA) will check whether the involved TSPs or MNOs
have registered with the Tanzania Communications Regulatory Authority (TCRA). 64•

Dealing with entities in the primary jurisdiction of another regulatory authority:
An A2ii survey of various jurisdictions regarding m-insurance regulation has shown
that, as the use of digital technology cuts across multiple regulatory ambits, applicableregulations under both insurance and non-insurance, legal or regulatory frameworks
would need to be identified and assessed. This assessment would seek to ascertain
how these regulations impact the various aspects of the insurance value chain, as wellas whether they meet the objectives of the insurance supervisor. Consequently,
regulatory changes could be affected either by continuing to use existing provisions orby creating new ones under a separate regulatory framework. The specific market
context will determine which option is more practical and effective. Some supervisors(for example in Ghana, CIMA and Indonesia) indicated plans to introduce a dedicated64 Wiedmaier-Pfister & Ncube (forthcoming). A2ii study on mobile insurance regulation.

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framework for digital insurance or m-insurance. Other supervisors will accommodate
digital models within existing frameworks. In Kenya, microinsurance regulations havebeen developed during the past few years and the Kenyan supervisor (as with manyother supervisors, including in Brazil, Chile, Costa Rica, Philippines and South Africa)
considers these regulations adequate for covering m-insurance aspects. In somecases, it might need to be a combination of both – in particular in such cases as ecommerce requirements, which are based on law and beyond the supervisor’s
purview. For example, India plans to integrate m-insurance under e-channel
regulations. In the Philippines, m-insurance is covered under e-commerce regulations
for insurers, which applies to any type of sale of insurance through the internet and/or
which is supported by the mobile phone as a medium. 65•

On- and off-site monitoring:
In Ghana, additional information is required at the product approval stage for minsurance, more so than for other products. The additional information includes service
level agreements between partners, distribution and branding arrangements, and theprocess for dispute resolution, including how uninterrupted service provision to
consumers will be maintained. Information is also sought on expected claims ratios,
expected expense ratios and the breakdown of premium between the insurer, TSP and
MNO. Ghana is currently the only country requiring TSPs to report data to thesupervisor. The performance of products is monitored using Key Performance
Indicators (KPIs). Market data is recognised as vital to effective supervision and KPIs
are monitored on half-yearly submissions. Market surveys are used for providing further
information. Qualitative measures, such as how a product is marketed, training of sales
agents and the complaints process, are also considered. 66•

Outsourcing of value chain functions, or outsourcing of supervisory functions
to third parties in the context of digital technology:
In South Africa, entities in the value chain are registered according to the function andactivity they perform – either as outsourced activities, such as the administrative
functions fulfilled by a TSP, or as intermediary services, which would cover the role ofthe MNO. The insurer is held accountable for the outsourced activities and must havean outsourcing agreement in place that meets certain requirements. The insurer mustjustify any remuneration for outsourced functions that deviate from the internal cost of
fulfilling the same function(s). In areas where the insurance supervisor does not haveexpertise to regulate MNOs or TSPs, it has authority to obtain such expertise fromexternally-based experts. These experts will be bound by the same privacy rules as
the insurance supervisory authority.

•

Sandbox approach to financial sector innovation:
The UK’s FCA coined the term “regulatory sandbox” in 2015 .There are at least 28
countries with proposed or existing regulatory sandboxes 67. Countries with operational
sandboxes include Australia, Bahrain, Canada, Hong Kong, Malaysia, theNetherlands, Singapore, Thailand, the UAE (Abu Dhabi), the UK and the USA. Suchsandboxes usually apply to FinTech innovations in general and not specifically toinsurance markets.
Kenya’s Capital Markets Authority (CMA) is designing a sandbox that will also follow a
cohort approach, but where applications are limited to firms that want to test capitalmarkets-based FinTech innovations. Bank Negara, Malaysia’s sandbox, is also

65 Wiedmaier-Pfister & Ncube (forthcoming). A2ii study on mobile insurance regulation.

66 Source: 2017 IAIS-A2ii-CIMA Mobile Insurance Conference Report. Available at: https://a2ii.org/en/event/save-date-iais-a2ii-cima-mobile-insurance-conference
67 Jenik, I., & Lauer, K. (2017). Regulatory sandboxes and financial inclusion. Washington: CGAP.
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targeted at specific firms – innovative FinTechs – but it accepts ongoing applications(ie it does not follow the cohort structure).
While formally established sandboxes have thus far mostly been found in thedeveloped world, a number of regulatory authorities in the developing world areconsidering a sandbox or are already implementing a “sandbox-like” test-and-learn
approach to accommodate pilots and innovative ventures that do not fit the existing
licensing structures through, for example, letters of no objection.
The test-and-learn approach allows regulators to observe the impact of an innovationor product adaptation (“test”) and to adjust their regulatory response to it, based on
their improved knowledge of its effect (“learn”). Globally, financial regulators haveapplied test-and-learn approaches for several years. The Philippines Central Bank
(Bangko Sentral ng Pilipinas) began applying a test-and-learn approach to regulating
mobile money in the Philippines in 2001. The Central Banks of Kenya and Tanzania
similarly employed a test-and-learn approach to enable innovation in retail electronic
payment systems to allow telecommunication operators to launch mobile money
services more than a decade ago 68.

4.2.2 Licensing
Operating an insurance business is subject to licensing, authorisation or registration. 69
Where the supervisor issues a licence, it should be able to impose additional requirements,
conditions or restrictions on an applicant, where appropriate. For the use of digital technology
within an inclusive insurance context, additional requirements, conditions and restrictions may
be appropriate, proportionate to the complexity and risk involved in the use of digital technology.
For example, the use of digital technology or outsourcing of functions to TSPs, heightens
technical or operational risks and may create systemic risks, or may lead to the risk of regulatory
avoidance. 70
57.

58.
These requirements, conditions and restrictions could be about the resources available
to carry out the IT related processes, the arrangement of a back-up system for business
continuity purposes or arrangements to protect the confidentiality of customer data collected bythird parties.
59.
In applying a proportionate approach, consideration should be given to the implications
for market innovation, which may arise through regulatory uncertainty and/or through the use ofdisproportionate regulatory requirements.

Insurance legislation should include a definition of those insurance activities which are
subject to licensing and should prohibit unauthorised insurance activities. 71 When the legislative
definition of insurance is unclear, it may be the case that new players, such as a MNO or TSP,
operate without clarity and carry out insurance activities without a valid licence. If appropriate,and based on a proportionate approach, the licensing of an intermediary could be requested in
the form of a lighter touch registration rather than a full licensing process as is done for insurers.
Possible exceptions to certain licensing requirements can be made if any such exceptions do
not encourage regulatory arbitrage or increase the risk to consumers. 72
60.

61.
Through licensing, a jurisdiction controls which entities are allowed to conduct insurance
activities within its jurisdiction. Entities should neither be allowed to present themselves nor act

68 Di Castri & Plaitakis (2017), quoted in Beyers, N., Grey, J. & Hougaard, C., 2018. Regulating for Innovation.
Cenfri report. Available at: https://cenfri.org/publications/regulating-for-innovation/.
69 ICP 4 for insurers and Standard 18.1 for intermediaries.
70 As outlined in Section 4.2 and Annex 2
71 Standard 4.1
72 Guidance 18.1.8

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as licensed insurance legal entities without, or before, having been granted a licence. 73 Anymarket participant involved in digital inclusive insurance should clearly indicate either that it has
been granted a licence to sell insurance or indicate which licensed insurer is actually the risk
carrier of the contracts.
62.
Before adding new classes of insurance to the list of classes already granted to theinsurance legal entity, the supervisor should consider all of the existing licensing requirements,
as applicable. 74 In some cases, mobile insurance or digital inclusive insurance may beconsidered as a new line or class of insurance, subject to supplementary licensing
requirements.
63.
The supervisor ensures that insurance intermediaries licensed within its jurisdiction are
subject to an ongoing supervisory review. 75 This applies to MNOs or players in digital inclusive
insurance when they are regarded as intermediaries. The supervisor should ensure that initiallicensing conditions and ongoing regulatory requirements are maintained, after the licence has
been issued.
64.
The supervisor takes appropriate supervisory action against licensed insuranceintermediaries, where necessary, and has the power to take action against those individuals or
entities who are carrying on insurance intermediation without the necessary licence. 76

Observed practices:•

Licensing of entities that fulfil functions related to digital technology in theinsurance value chain, but that are not conventional insurance intermediaries:
In some countries, TSPs or MNOs are licensed as a broker or as a corporate agent.
Yet these entities, especially the TSPs, also provide other services such as technicalservices and product design and pricing. Knowing how and where to accommodate
such functions within the licensing framework requires further consideration. In CIMA,
even though TSPs are operating like brokers with an agent force, they are not yet
licensed as brokers. In the Philippines, TSPs are licensed and regulated as
microinsurance intermediaries (microinsurance brokers). In India, distribution channels
do not need to be licensed, but they do need to be registered.

•

Imposition of additional or special licensing conditions:
In Zambia, the Registrar of Insurance may determine whether the applicant has thenecessary qualifications, experience and standing before issuing an agent licence. The
current regulatory dispensation grants discretion to the Registrar to apply this provision
to the MNOs and to the TSPs registering as corporate agents, and to tailor therequirements as relevant. In Ghana, the MNOs and TSPs are licensed as corporate
agents. In recognition of the expanded role they play, no commission caps are applied.
In CIMA, a regulatory update is underway to complement current regulation in order tocover m-insurance and, more generally, e-insurance. 77 This framework will include
conditions for the licensing of activities related to the issuing and management ofelectronic insurance contracts.

•

A test-and-learn approach:Some supervisors have been adopting a test-and-learn approach to facilitate
innovation, for example by engaging with TSPs, insurers, MNOs and mobile money
payment service providers. Their plan has been to launch an m-insurance or another
innovative model, even if there is no overarching regulatory approach for licensing
digital insurance or m-insurance. Such an approach is facilitated by principles-based

73 Standard 4.2
74 Standard 4.6

75 Standard 18.2
76 Standard 18.7

77 E-insurance in this context refers to “electronic insurance” and covers insurance provided through digital means.

M-insurance fits within this definition.

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legislation, as in Ghana, where this scope for discretion was leveraged to supervise
TSPs as microinsurance agents.
•

Indirect supervision:
In CIMA, all operators in the value chain are represented by the insurer. CIMA
supervises the insurer to make sure that all partners they work with are legally
established and comply with the requirements of their home regulators. In Brazil andSouth Africa, the insurer is held fully responsible. Brazilian regulation requires theinsurer to monitor the activities of its distribution channels, including those based on
digital technology.

4.2.3 Corporate governance and risk management
65.
With regards to the way in which insurance providers use digital technology, thefollowing aspects are relevant in the area of corporate governance:

•
•

•
•

The corporate governance framework should be adequate for the IT environment anddigital business processes;
Board Members (individually and collectively), senior management and key persons
holding control functions should have adequate knowledge of technology used by the
insurer in any of its business processes and a sound understanding of IT risk
management;
The financial soundness and integrity of significant owners should be assessed,
including where a significant owner is a MNO or TSP;
As part of the approval of changes in control, the financial soundness and integrity ofsignificant owners should be assessed, including for a MNO or TSP. Subject to thenecessary conditions, efforts must be made to avoid conflicts of interest.

66.
Insurers should establish and implement a governance framework that provides forsound and prudent management and oversight of the insurer’s business. Additionally, thegovernance framework should adequately recognise and protect the interests of policyholders. 78
The design and functioning of this corporate governance framework should be tailored to abusiness environment that relies on IT processes and digital technology.

The requirements described in the previous paragraphs imply, in an inclusive insurance
context, that:

67.

•
•
•

There should be an adequate level of IT related competence within the Board and atmanagement level; 79Internal governance practices, internal controls and risk management should becatered to the technical processes – including safeguarding cyber security; 80
Significant owners should possess the necessary financial soundness and integrity. 81

The supervisor will expect the insurer to send notification of any changes in Board
members, senior management, key person(s) holding control functions and significant owners,
and of any circumstances that may materially adversely affect the suitability of these people. 82
A notification to the supervisor would be necessary, for example, if there is a change of astrategic partnership.
68.

The supervisor must takes appropriate action to resolve a situation whereby Board
members, senior management and key person(s) holding a control function or significant

69.

78 ICP 7

79 Standard 7.3

80 Standards 7.3, 7.5 and 7.10; see also the Application Paper on Supervision of Insurer Cybersecurity(forthcoming)

81 Standard 5.2
82 Standard 5.4

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owner(s), no longer meet the suitability requirements. 83 This means that the supervisor shouldintervene if the level of IT-related expertise is inadequate within the Board and/or management.
The same applies if a MNO, as significant owner of an insurer, is not financially sound or does
not possess the necessary integrity – For example, if the Board members have been involvedin fraudulent or other illegal acts.
The supervisor shall exchange information with other authorities, such as the telecom
regulator inside and outside its jurisdiction, to consider the nature of the relationship with the
MNO or the TSP as a potential significant owner. 84 The supervisor should assess whether there
is a conflict of interest in the business of the MNO or the TSP and that of the insurer.
70.

71.
If there is an acquisition or changes in the control of the insurer, then the insurer should
give prior notice to the supervisor. Following this, the supervisor should give approval to theperson(s), legal or natural, who want to acquire significant ownership or a controlling interest in
an insurer. 85 When considering such an approval, the supervisor should check the nature of therelationship with the MNO as a potential significant owner to ensure that there is no conflict ofinterest between the business of the MNO and that of the insurer. 86
72.
Within an inclusive insurance context, the business of the insurer can be limited, in termsof number of policies, nature of the product, size of assets and investments, and number ofstaff. If so, the design and set up of the risk management system could be commensurate. Smallorganisations may not need internal control processes of a complicated nature involving multiple
staff members of the organisation. For example, where the office is run by one director and one
administrative member of staff, the direct visual oversight by the director becomes an important
control measure. In such circumstances, there is a need to ensure that the Board is capable ofeffective challenge.
73.
Notwithstanding the previous paragraph, it is essential that insurers are in control of theirdigital processes, properly manage IT-related risks (including cyber risk), as well as haveadequate processes and procedures to safeguard business continuity in case of IT
malfunctions. Insurers are responsible for ensuring that their IT systems, apps and relevant
algorithms, function properly and lead to fair customer outcomes. Supervisors may want to carryout or arrange reviews to verify this. 87

Observed practices:•

Governing the relationship between the MNO and the insurer:
Relevant governance provisions include whether Board approval is required for entering
into a m-insurance or other technology-based partnership. In Kenya, some insurers, but
not all, require Board approval to venture into m-insurance. The debate in this regard
relates to the broader topic of whether the Board should sign off on all new products(which could be hampered by the irregularity of Board meetings), or just on newpartnerships. Another governance consideration arises when a MNO establishes aninsurer or acquires an insurance licence. In Zimbabwe, the MNO Econet has obtained
an insurance licence, Ecolife. South African MNO Vodacom also established a life
insurance subsidiary named Vodacom Life Assurance Company.

•

Accommodating digital technology elements in a general corporate governanceframework:
In CIMA, there are no formal corporate governance procedures for m-insurance, but
the controller of the supervisor will assess the suitability of Board members as part ofthe licensing process. In South Africa, there are no special governance conditions in

83 Standard 5.5
84 Standard 5.6
85 Standard 6.2

86 Standards 6.6 and 6.7

87 See the Application Paper on Supervision of Insurer Cybersecurity (forthcoming)

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the case of use of digital technology; the general corporate governance code andlegislative framework apply to all insurers. There is a Board notice requiring the board
to have insurance expertise, but there is nothing specific about information
technology. 88 In Zimbabwe, in 2011, an m-insurance partnership broke down, thereby
removing the life insurance cover for a large proportion of the adult population
overnight; this example emphasises the relevance of governance requirements
stipulating policyholder protection mechanisms in the case of m-insurance and othertechnology-based partnerships.

4.2.4 Conduct of Business 89
74.
As part of their conduct of business, insurers and intermediaries need to treat customers
fairly, both before a contract is entered into and through to the point at which all obligations
under a contract have been satisfied. 90 The use of IT systems and digital processes has a
specific impact on the engagement with customers and the extent to which they are treatedfairly. It has consequences in terms of the level of disclosure and information necessary toprovide the customers with a proper understanding of their commitments and entitlement, thepractical operations of IT devices, and knowledge of basic safeguards against misuse byothers. 91
75.

•
•
•
•
•
•
•

In particular and within an inclusive insurance context, the insurers should cater to:Treatment of customers and its policies and procedures in general; 92
Development and marketing of products; 93
Advisory services to customers; 94
Outsourcing of processes and activities and any potential conflicts of interests; 95
Protection of customer data; 96
Claims settlement and complaints handling; 97
Specific care and safeguards to protect client monies, 98 in particular in the case of minsurance. 99

76.
In implementing a proportionate regulatory response, cognisance is needed of thebusiness risks arising from the use of digital technology, the nature of the customer, capacity
constraints and functioning of the market in the inclusive insurance market context, as well as
the implications for innovation that may arise in such contexts from regulatory uncertainty or
disproportionate regulatory requirements. 100

88 Source: IAIS, Application Paper on Approaches to Supervising the Conduct of Intermediaries, 2015

89 Reference is made to the Issues Paper on increasing Digitalisation in Insurance and its Potential Impact on
Consumer Outcomes (November 2018) that deals more generally with conduct of business issues in respect ofdigitalisation.
90 ICP 19
91 As outlined in Section 4.2 and Annex 2, the use of technology and outsourcing of functions to technical service
providers in inclusive insurance may give rise to or heighten sales risk, aggregator risk, policyholder awarenessrisk, payment risk, post-sale risk and data & technology risk.
92 Standards 19.1 and 19.2
93 Standards 19.3 and 19.4
94 Standard 19.6
95 Standard 19.7
96 Standards 19.11 and 19.12
97 Standards 19.9 and 19.10
98 Standard 18.6; the term “client monies” includes monies received from a client for the payment of premiums
to an insurer; and monies received from an insurer in respect of claims or refunded premiums for onward payment
to a client.
99 As part of m-insurance, money is transferred using mobile phones as payment of premium or claims. This could
be transformed into airtime entitlement or stored in another form of currency in a mobile wallet.
100 Refer to Section 2 for a discussion of the features of the inclusive insurance market.

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The A2ii has described conduct of business risks in its report “Regulating Mobile
Insurance”: 101
•
•
•
•
•

Customers are not aware of having coverage;
Customers do not understand the product;
Low client value;
Products may be abruptly withdrawn and have a limited life span;Mis-selling by TSP and/or MNO agents or sales staff.

77.
Arrangements should be made to help ensure that the regulatory framework does notprevent innovation – and thereby ultimately harm the customer, instead of promoting effective
access to insurance. Payment through airtime is indicated in many jurisdictions as the key factor
that could significantly increase the outreach of insurance to low-income population. Also,
consumers seem comfortable with this easy-to-use way of transaction. In such a context,
supervisors, including central banks, may need to consider the airtime as payment means andset safeguards to avoid abuses of the policyholder. A categorical rejection of airtime as payment
means could be non-productive for both insurers and consumers. Deduction of airtime payment
has been key to enabling the unbanked community to access insurance products. There could
however be concerns from a conduct of business perspective if a free insurance productdepends on exceeding a certain threshold in the use of airtime per month. Insurers also needto take care that it is communicated and clear to the customer which deductions are made fromthe purchased airtime including for which services and for which levies.
78.
In many cases, new players such as a MNO or a TSP may be considered asintermediaries. In some jurisdictions, intermediaries are supervised indirectly through thesupervision of the insurers. In applying an indirect approach, the supervisor should consider theextent to which such an approach achieves effective supervision.
79.
Irrespective of whether or not there is a system of indirect supervision of an intermediary,
it is important for the insurer to make sure that reliance can be placed upon an intermediary to
perform processes on its behalf. For example, insurers are expected to obtain appropriate
documentation regarding their customers to demonstrate that appropriate customer due
diligence and/or fact-finding procedures have been carried out. Insurers should be assessed on
the adequacy of the processes carried out and the documentation obtained, including in cases
when the insurer relies upon intermediaries to perform this work and supply the documentation
required.

Observed practices:•

Conduct of business requirements specifically for the use of digital technology:
In Ghana, market conduct rules are planned specifically for m-insurance to cover:scope of rules and prohibitions, approval of commission, mobile insurance
arrangements, mobile insurance contracts, policy summary and claims payment, andinterpretation and final provision. 102 Likewise, the framework being developed in CIMA
will include a number of conduct of business related aspects, including: a definition form-insurance and e-insurance, partnership agreement formats, provisions relating to
the protection of insured persons and beneficiaries of electronic insurance contracts,
and supervision (including reporting requirements), control and sanctions in the caseof m-insurance and e-insurance. In India, the Insurance Regulatory and Development
Authority of India (IRDA) is drafting e-commerce regulations that will focus on theregulation of sales through channels defined as e-channels, including mobile and

101 Section 3.3 of the report Regulating Mobile Insurance, Insurance business via mobile phones: regulatory

challenges and emerging approaches, A2ii (April 2018)(https://a2ii.org/sites/default/files/reports/2018_05_02_mobile_insurance_regulation_web.pdf)
102 Source: https://a2ii.org/sites/default/files/events/mic_report_engl_web.pdf
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internet as mediums. The focus is on the regulation of various conduct of businessactivities (including client data, disclosure and sales processes) to ensure consumer
protection. There is also an allowance for an e-initiative for an online, real-timegrievance management system. Costa Rica is developing a regulatory framework formass insurance and microinsurance that will include technology-based distribution
channels and will specify a range of conduct of business requirements, including
cross-selling practices, disclosure of information to customers, remuneration of
distribution channels, and a simplified complaint system. 103•

Use of airtime payments:
M-insurance often relies on airtime conversion for premium payments, sometimes as
the only means of payment. In some instances, this may give rise to complications interms of the payments framework set by the central bank, as has been the case in
Cameroon and Senegal. Potential safeguards where airtime payments are used include
notification sent to customers on how much airtime was or will be used for premium
deductions. The acceptance of virtual money, especially airtime, has been noted asnecessary for market building, yet can add to the effective cost of the insurance for the
consumer. 104
BIMA sends monthly SMSs to customers to confirm the amount paid for the month andtheir corresponding coverage. This keeps customers updated regularly without
spamming. It noted that overly frequent contact with customers can quickly become anuisance to them eg sending a notification each day when a micro-payment is being
deducted from customers' airtime credit.

•

Digital contracting:
Where insurance is provided on an online or mobile platform, unconventional
contracting procedures are required, entailing electronic signatures and electronic
confirmations (eg sms) rather than wet signatures and hard copy receipts. From a
conduct of business perspective, the regulation of electronic or digital contracting isimportant to ensure that consumer recourse and disclosure mechanisms are in place
to avoid mis-selling and consumer abuse. Often, digital signatures are allowed in acountry’s general e-commerce regulatory framework. Where there is no such generalframework, dedicated provisions may be required. In Guatemala, a study is underway
to consider the regulation of electronic policy delivery. The planned regulatory
framework will establish the procedures that insurers must follow and other obligations
that must be accomplished, like confidentiality, consent of the acquirer, integrity, andelectronic signature. 105•

Protection of customer data:
Supervisors are increasingly considering effective ways of ensuring consumer
protection and proper conduct of business with regard to the acquisition, use andsafeguarding of consumer data. For example, Ghana has a data protection regulatory
framework and an authority has been set up to oversee data protection. 106 The dataprotection topic is particularly pertinent in light of the rise of big data and the tapping ofalternative data sources (such as social media or transaction patterns) by financial
service providers. For example, options for opt-in versus opt-out in terms of data sharing
can be confusing for customers in the inclusive insurance context.

103 Source: Wiedmaier-Pfister & Ncube. Forthcoming study to be published by the A2ii of a survey of Mobile
Insurance Regulation conducted in 2017.
104 Source: https://a2ii.org/sites/default/files/events/mic_report_engl_web.pdf
105 Source: Wiedmaier-Pfister & Ncube, ibid.
106 Source: Ghana Data Protection Commission, 2012. Available at: https://www.dataprotection.org.gh/dataprotection-principles

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Rwanda data protection legislation holds that no data may be hosted outside of thecountry. This has implications for TSPs which, to reduce costs, use cloud-based
systems.

4.2.5 Financial integrity80.
On the one hand, the use of digital technology may increase the vulnerability of insurers
and customers to fraud and money laundering or terrorist financing. Insurers and intermediaries
are required to take effective measures to address these risks. 107 On the other hand, digitaltechnology also allows the implementation of risk controls, which in turn can provide a moresecured and safeguarded way of handling virtual cash compared to direct dealings with people,
paper and liquid assets.
81.
The supervisor requires an insurance intermediary who handles client monies to havesufficient safeguards in place to protect these funds. 108 In the course of carrying out its business,an insurance intermediary may receive monies from a client for the payment of premiums to an
insurer or might receive monies from an insurer in respect of claims or refunded premiums foronward payment to a client. Some jurisdictions may have specific legal requirements withrespect to the cash flows where monies are transferred via an intermediary from the customer
to the insurer and vice versa, including determining whether the customer or the insurer is at
risk in respect of such funds.
82.
The intermediary should be expected to have adequate policies and procedures in place
for the safeguarding of funds, in the interest of its customers.
83.
Where the insurance intermediary acts as agent for the insurer, these funds may beconsidered “monies held at the risk of insurers”. In these circumstances the insurer is
responsible for such funds held by agents on its behalf.

In an inclusive insurance context, in particular for m-insurance, the management of clientmonies requires specific attention from a consumer protection perspective. Mobile devices of
the customers or the servers used by the MNOs may register the entitlements and obligations
in either monetary terms or non-monetary values, such as entitlement to airtime. The lattershould be treated similarly to the monetary values, as is further elaborated below.

84.

85.
In setting requirements for insurance intermediaries in respect of safeguarding clientmonies within an inclusive insurance context, the supervisor may wish to consider
recommending, amongst other things, that the following are adequately covered in insuranceintermediaries’ client money policies and procedures:• the use of separate client accounts clearly distinguishable from the intermediary’s ownbank accounts, such that monies for individual or groups of clients are not mixed withother funds of the intermediary;• ensuring that client accounts are held with licensed banks within the jurisdiction, or within
other specified jurisdictions;• disallowing monies, other than client monies, within the account, except in specificcircumstances such as to achieve or maintain a minimum balance, to receive interest, or
to receive commission due to the intermediary;• ensuring that monies are paid into the account promptly;• ensuring that adequate financial systems and controls are maintained, including
authorisation of payments from the account;• ensuring that adequate books and records are maintained and subject to audit;• ensuring that reconciliations are performed on a regular basis and reviewed;

107 ICP 21 and ICP 22
108 Standard 18.6

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•••

ensuring that discrepancies on the account are followed up promptly and resolved
satisfactorily;
ensuring, for each client, that payments from a client account are not made before
sufficient monies paid into the account have cleared, thus ensuring that any balance held
in respect of each client is not negative;
the treatment of interest.

86.
In the interests of safeguarding clients’ money, it will be important that client accounts
cannot be used to reimburse creditors of the insurance intermediary in the event of its
bankruptcy. However, with respect to the recommendation included in the previous paragraph,consideration might be given to the specific features of airtime payments and deductions in adigital MNO model. A MNO provides airtime top-up for different uses. Deductions for insurance
are made at some point after the customer's money is converted into airtime through the topup. Full premiums are often collected in instalments during a given month before being allocatedto an insurance cover amount for the following month.
87.
The supervisor may wish to ensure that, where insurance intermediaries operate client
accounts, the terms and conditions of such accounts are disclosed to their customers, including
whether funds held in such accounts are at the client’s risk or at the insurer’s risk.
88.
The insurer should take suitable precautions to ensure that claims fraud andintermediary fraud are prevented. As the typical inclusive insurance customer is particularly
vulnerable, the insurer’s sales staff, intermediaries and any third parties involved in the
distribution of insurance, such as aggregators, should be aware of particular risks and ways to
avoid these. The use of digital technology may increase the vulnerability of insurers andcustomers to fraud and money laundering or terrorist financing. Insurers and intermediaries are
required to take effective measures to address these risks. 109

The supervisor regularly reviews the effectiveness of the measures insurers andintermediaries and the supervisor itself are taking to deter, prevent, detect, report and remedy
fraud as well as on anti-money laundering and combating the financing of terrorism (AML/CFT).
The supervisor should take any necessary action to improve effectiveness. 110
89.

90.
In respect of AML/CFT, special procedures are needed to carry out the identification andverification of customers when using mobile phone and other non-face to face insurance
services. As mentioned in the Issues Paper 111 many inclusive insurance target customers will
not have the requisite documents and could thus be denied acceptance. The 2013 FATF
Guidance on Anti-Money Laundering and Terrorist Financing Measures and Financial
Inclusion 112 requires a risk-based approach with adjusted requirements for lower risk customers
and transactions, including low value life insurance policies and products aimed at promoting
financial inclusion. “In such circumstances, and provided there has been an adequate analysisof the risk by the country or by the financial institution, it could be reasonable for a country toallow its financial institutions to apply simplified Customer Due Diligence (CDD) measures.” 113.It

109 ICP 21 and ICP 22

110 Standard 21.4 and Standard 22.4

111 Paragraph 112 Issues Paper on Conduct of Business in Inclusive Insurance
112 Available at: http://www.fatf-

gafi.org/media/fatf/documents/reports/AML_CFT_Measures_and_Financial_Inclusion_2013.pdf; see also the FATF
position on FinTech and RegTech (http://www.fatf-gafi.org/publications/fatfgeneral/documents/fatf-position-fintechregtech.html)
113 Specifically, the FATF recommendations only apply to life and investment-related insurance. Furthermore, therecommendations make it clear that there are circumstances where the risk of money laundering or terrorist
financing may be lower. Instances where this may be the case include life insurance policies where the premiums
is less than USD or EUR 1,000 per annum (or a single premium of less than USD/EUR 2,500), as well as“[financial] products or services that provide appropriately defined and limited services to certain types ofcustomers, so as to increase access for financial inclusion purposes”. Source: FATF, 2012. Interpretative Note to
FATF Recommendation 10. Available at: http://www.fatfgafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf
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should also be noted that RegTech innovations are being developed that can help overcome
barriers in this area.
Observed practices:•

Fraud:
Digital technology is introducing novel approaches to preventing or managing fraud.
For example, in India, insurer IFFCO TOKIO offers a livestock insurance product that
injects radio frequency identification device (RFID) chips under the skin of the animal
and uses sensor technology to help the insurer to prevent and manage fraud.
However, the use of digital technology may also enhance the risk of fraud, forexample through cybercrime whereby personal identification numbers (PINs) on
online platforms or SIM Cards in m-insurance may be compromised.

•

AML/CFT:A number of countries have implemented a KYC exemption or streamlined
requirements for certain types of low-risk insurance. For example: the Philippines
stipulate relaxed KYC requirements for microinsurance in compliance with thecountry’s Anti-Money Laundering legislation. 114

The Application Paper on Regulation and Supervision Supporting Inclusive Insurance Markets confirms that inclusive
insurance products can generally be regarded as low risk, as: inclusive insurance tends to entail low-premium, lowbenefit products with frequent rather than one-off premiums. There is therefore a mismatch between such products
and the “transaction needs” of money launderers. Furthermore, the types of risks normally included in inclusive
insurance are not typically targeted for money laundering.
114 Source: paragraph 115 IAIS, 2015. Issues Paper on Conduct of Business in Inclusive Insurance.

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Annex 1 - IAIS Supervisory and Supporting Papers in respect of Inclusive
Insurance
Issues in Regulation and Supervision of Microinsurance (June 2007)
This Issues Paper aims at outlining salient features of microinsurance in general, and of its
regulation and supervision as an input for high-level expert discussion among regulators,
supervisors and other stakeholders involved in the provision of insurance services for lowerincome segments.
Issues Paper on the Regulation and Supervision of Mutuals, Cooperatives and otherCommunity-based Organisations in increasing access to Insurance Markets (October2010)
As follow-up from the Issues in Regulation and Supervision of Microinsurance (June 2007), thispaper discusses the key elements of such organisations that are relevant to considering theapproach to their regulation and supervision. This paper is superseded by the Application Paperon Mutuals, Cooperatives and other Community-based Organisations in increasing access to
Insurance Markets, published in 2017.
Application Paper on Regulation and Supervision supporting Inclusive InsuranceMarkets (October 2012)
This paper provides guidance on the application of regulation and supervision in ways that help
support inclusive insurance markets. It provides examples of how relevant principles andstandards can be practically applied. Where enhancing inclusive insurance markets is a policy
objective, this document elaborates on guidance for supervisors. It is directed at the objectivesof implementing the ICPs in a manner that protects policyholders, contributes to local and global
financial stability, and enhances inclusive insurance markets.
Paper on Issues in Regulation and Supervision of Microtakāful (Islamic Microinsurance)(November 2015)
This paper was developed as a joint initiative with the Islamic Financial Services Board. Its main
objective is to identify the practices and models used for offering Microtakāful products, and thechallenges and potential issues arising from Microtakāful transactions for regulation andsupervision.
Issues Paper on Conduct of Business in Inclusive Insurance (November 2015)
The objective of this paper is to identify the issues in respect of conduct of business in inclusive
insurance markets that affect the extent to which customers are treated fairly, from before acontract is entered into through to the point at which all obligations under a contract have beensatisfied.
Application Paper on the Regulation and Supervision of Mutuals, Cooperatives andCommunity-based Organisations in increasing access to Insurance Markets (September
2017)
The objective of this paper is to provide guidance on ways in which the ICPs could be appliedin a proportionate manner recognising the specific features of Mutuals, Cooperatives andCommunity-based Organisations. It aims to provide guidance on removing unnecessary barriers
created by disproportionate regulation and supervision, while protecting policyholders. In
addition, it intends to raise awareness among policymakers, regulators and supervisors of therole these types of organisations could play in enhancing access to insurance.
Application Paper on Product Oversight in Inclusive Insurance (November 2017)
The objective of this paper is to provide guidance to inform supervisors, policymakers andmarket participants of ways to implement and apply the ICPs relevant to product oversight ininclusive insurance. The paper defines “product oversight” as different sets of regulations,supervisory tools and processes used by supervisors to ensure the fair treatment of customers
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by insurers when designing, advertising, selling and exercising other rights and obligations
arising out of insurance products.
Issues Paper on Index-based Insurances particularly in Inclusive Insurance Markets(June 2018)
Index-based insurance is increasingly looked at as a means to manage weather andcatastrophic events, support food security and enhance access to insurance. This Issues
Paper provides background on this product, describes practices and actual examples andidentifies related regulatory and supervisory issues and challenges.

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Annex 2 - Overview of risks manifest in digital technology
applications
Prudential risks:
Risk
Technical
risk 115

Definition

Manifestation in digital inclusive insurance

The risk that the insurancecompany incurs a loss or a lower
profit than expected through themiscalculation of premiums andtechnical provisions, thereby
undermining the commercial
sustainability of the product. 116

In m-insurance, particularly for loyalty-based
products, the risk arises that products may be underpriced because the pricing assumes that both paid
and reported claims incidence would be significantly
lower than actuarially correct mortality and morbidity
rates. Insurers may also under-price the risk
component due to the strong bargaining power of the
MNO. 117The potential for scale in m-insurance could strain
small insurers’ balance sheets without effective
reinsurance.
Digital aggregator platforms that avoid the definitionof insurance and have no licensed insurer as apartner generate technical risk considerations. For
example, as part of the shared economy, P2P
insurance may raise questions of adverse and selfselection, pricing and reserving adequacy, and theability to cope with catastrophic events.
Badly implemented technology solutions might lead to
failures and losses may trigger liability claims bycustomers and investors.

Operationalrisk

The risk that inadequate or failed
internal
systems,
staff,
procedures or controls lead tofinancial loss. 118

In digital insurance, a long value chain with amultitude of partners involved can lead to operationalrisk, especially if insurance is sold by staff that does
not have an insurance background.
IT-related failures can include loss of transaction data,
misreporting to a partner, payments getting lost, leakof confidential client data, reconciliation errors withpartners, etc. 119
M-insurance and other digital technology applications
require unconventional and innovative contracting
procedures, such as the utilisation of electronic
signatures (for example via sms) during the digital
self-registration process or smart contracting. All of
this can lead to operational risk.

Compliancerisk 120

This category comprises threekinds of risk:
Regulatory uncertainty risk: The
risk of non-compliance due to theuncertainty in law. This risk may

Regulatory uncertainty risk: The pace of innovation indigital insurance means that it is difficult for regulation
to keep up, giving rise to regulatory uncertainty risk.
Regulatory backlash risk: In m-insurance and otherdigital models an incident such as a change of

115 Also referred to as insurance risk.

116 Ghana National Insurance Comission, 2015. Mobile Insurance and Risk Framework in Ghana. Available at:https://a2ii.org/sites/default/files/reports/2015_mobile_insurance_risk_assessment_ghana.pdf
117 Ghana National Insurance Comission, 2015
118 Wiedmaier-Pfister & Ncube, 2017
119 Wiedmaier-Pfister & Ncube, 2017
120 Can also be described as legal or regulatory risk.

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Risk

Definition

Manifestation in digital inclusive insurance

cause market players not tolaunch innovative ideas orbusiness models.

business practices or termination of a partnershipmay fuel perceptions that digital models orfunctionality are inherently more risky than traditional
cover, leading to regulatory backlash.

Regulatory backlash risk: The
risk that the supervisor imposes
stringent regulatory requirementsthat limit the development ofparticular insurance models.
Regulatory avoidance risk: The
risk of new business models
operating in grey areas thatprovide scope for avoidance ofcompliance.

Systemic risk

The riskof collapse
ordestabilisation of the broader
insurance market due to anegative fallout in one particularinsurer or partnership.

Regulatory avoidance risk: Much of the use oftechnology in m-insurance and other technologybased models entails new players fulfilling outsourced
functions previously done by insurers. Sometimes, asin P2P insurance, these players may try to stayoutside of the regulatory environment. They may
position themselves as outside of the insurance
regulator’s jurisdiction, as they do not carry risk orprovide any consumer advice or services directly, but
merely provide the algorithm and platform toaggregate consumers to provide services amongst
themselves or pool their own risk. Thus new players
may push the boundaries of the definition of“insurance” or “intermediary services” to avoid theneed for regulatory compliance.
Market-wide risk may arise if a negative experience
with a large-scale m-insurance or other technologybased model undermines trust in the market.

Source: adapted from the risk framework as outlined in the A2ii Regulating Mobile Insurance briefing note
(Wiedmaier-Pfister & Ncube, 2017), and the BMZ Responsible Mobile Insurance Discussion Paper (WiedmaierPfister & Leach, 2015), which in turn draws on the risk classification introduced by the A2ii cross-country synthesis
report on microinsurance business models and their regulatory implications (A2ii, 2014). Further insights were drawn
from A2ii’s Consultation Call report on Data protection challenges in mobile insurance (A2ii, forthcoming) and GIZ’s
mobile insurance risk assessment in Ghana (Ghana National Insurance Comission, 2015). Additional digitaltechnology-related risks are largely drawn from a risk overview compiled by Swiss Re (Swiss Re, 2016). 121

Conduct of business risks:
Risk
Sales risk

Definition

Manifestation in digital inclusive insurance

The risk that the sales person is
not well trained and so may
misinterpret the product to theclient, or that the client is sold aproduct that s/he does not need.
Mis-selling occurs for various
reasons, such as i) if subscribers
were “forcibly” sold a product, ii) if
the product was not clearly
explained, or iii) if the subscribers
were given false expectations
about the product. 122

Sales risk arises in m-insurance and othertechnology-based partnerships where thesales staff are the agents of the aggregator,
rather than the insurer, which means thatincentives may be misaligned, with an interest
to sell the insurance to support the underlying
business. High turnover of mobile money
agents can add to this risk.
Sales risk also arises where digital aggregator
platforms or digital brokers are used without
explicit human interaction with clients.

121 Another risk that arises in the context of digital technology, but is not included in this table, is basis risk. This risk
is particular to index insurance and refers to the imperfect correlation between a customer’s potential loss experienceand the behaviour of the underlying index on which the insurance payout is based. It is possible that individuals suffer
losses specific to them but fail to receive a payout because the index does not trigger. On the other hand, lucky
individuals may receive indemnity payments that surpass the value of their losses (IBLI, 2012. How does index-based
insurance work? Available at: https://ibli.ilri.org/faqs/). As index insurance is considered as a dedicated topic by the
IAIS, this risk is not discussed further for the purpose of this paper.
122 (Ghana National Insurance Comission, 2015).

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Risk

Definition

Manifestation in digital inclusive insurance
Many of the new models are moving away froma physical person doing sales in favour of roboadvisors or algorithms that advise on the risk
profile and suggest an outcome. There isincreasing talk of the so-called “black box
algorithms”, where even developers cannot
predict how algorithms will perform or whether
the outcomes suggested will be “appropriate”
given the client’s context or needs. This
challenges the traditional definitions of advice
and means that no individual person can beheld liable, but that the risk of mis-selling has
to be managed at an institutional level.

Aggregatorrisk

The risk of reduced value to theclient or inappropriate products
being sold to clients when an
insurer accesses the aggregatedclient base of a non-insurance
third party to sell its products.
Factors to be considered are
disproportionate
bargaining
power and the dominant position
theaggregator
may hold,
disproportionate costs due to the
distribution structure; and where
products are designed to mitigate
the risk of the aggregator as
opposed to being in the interestsof the client. In addition, the legal
relationship between insurer,
aggregator and client may not beclear and pricing may not betransparent.

Aggregator risk is relevant in m-insurance
models as well as other models using an
aggregator (be it a digital aggregator platform,
as in P2P insurance, or a physical party, as inindex-based insurance).

Policyholder
awarenessrisk

The risk that the insured is notaware that s/he has insurance
cover and is therefore unlikely tolodge a claim, should the risk
event occur.

Policyholder awareness risk arises in minsurance and index-based insurance where
there is auto-enrolment, that is, where theperson covered is not paying the premium
directly and is automatically covered byinsurance by virtue of some other relationship,such as being a mobile network subscriber.
This risk may also arise in smart contracts andis exacerbated by low consumer financial
literacy.

Payment risk

The risk that the premium will notreach the insurer, that thepremium will not be paid on thedue date or that the cost ofcollecting
thepremiumisdisproportionate. Payment riskmeans that there is a heightened
possibility that premiums are notregularly received by the insurer,
leading to policy lapses.

Payment risk is generated where a payment
system provider or platform is used, including
when premiums are converted from airtime,
and there are connectivity challenges or othertechnological glitches that impact on the speed
or reliability of payments. Should this happen
regularly, it could damage the reputation of theinsurance industry. Also relevant would be if
the costs of the payment platform aredisproportionate to the premium level, resulting

In m-insurance, aggregator risk arises in apartnership structure where the MNO serves
as master policyholder or agent. Without clear
legal agreements and accountability, there
exists a power imbalance between the MNO
and insurers or TSPs. 123 MNOs have amassive client base, so in their effort toincentivise insurers or TSP’s to piggyback on
their sales structure or to utilise their branding,the end client might be disadvantaged. For
example, products may be designed to mitigate
the risk of the aggregator and may not be in theinterests of the client. 124

123 Leach & Ncube, 2014
124 GIZ, 2015

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Risk

Definition

Manifestation in digital inclusive insurance
in low claims ratios and, hence, eroded client
value.

Post-salerisk

Data andtechnology
risk

The risk that clients face
unreasonable barriers to maintaintheir cover, change between
products, make enquiries, submit
claims, receive benefits or makecomplaints. It therefore refers to
the risk of poor service and thepotential disincentive for insurers
to be efficient in claims
processing and service provision.

In m-insurance, the footprint and client
relationships of the aggregator are leveraged
for post-sales servicing purposes, implying atleast in principle that post-sale risk should be
reduced. However, limited upfront disclosure
may lead to claims process confusion among
policyholders.

(a) Business data risk: The riskthat the underwriters’ operational
systems do not provide correct,
complete and up to date data on
how the business is managed;(a) This risk applies to both m-insurance andother digital technology models;(b) Data protection risk: The riskthat client data is lost or not kept
confidential;(c) Cyber risks: The risk of cybercriminals compromising dataprotection, or of digital identity
fraud;(d) Data manipulation risk: The
risk that the client manipulates
data to impact on premiums or
claims;(e) Questionable data risk: The
promise of big data and digital
analytics
isbetterrisk
assessment and more tailormade products and coverages.
But the resulting drive to generate
ever more and ever larger
datasets may lead to codification
and “datification” of behavioursand natural phenomena that may
ultimately produce questionable
data;(f) Data information risk: The riskthat data is transmitted via
sensors and an action is triggered
via smart contracting without theclient realising which data is beingtransmitted.

Technological innovations, like blockchain
technologies that automatically lodge claims,
are aimed at more streamlined customer
service. This could be problematic if theautomation is faulty, resulting in reputation
damage for the industry.

(b) The increasing free-flow of data transfer
highlights important consumer privacy anddata protection questions as this processing
may not be done transparently, or may be
without the informed consent of consumers;(c) Cybercrime, espionage and sabotage havegrown substantially. Immature or badly
protected
technology
platforms
areconsiderably exposed to cyber risks.
Furthermore, as the number of social media
accounts grows, so does the risk of identity
fraud. Insurance that relies on personal data,such as health or life insurance, is strongly
exposed to manipulation of digital identities.
Reliance on blockchain technology might
increase the exposure to cyber risks; 125(d) Data integrity may become a problem forinsurance companies collecting data on
consumers, eg via wearables, as there may be
an incentive to manipulate input in order tobenefit from rate discounts or to escape from
regulation. Intrusion into sensors and apps andthe manipulation of data will be amplified withthe adoption of the IoT. This data manipulation
might lead to higher insurance fraud; 126(e) Where questionable data is used for
insurance modelling, risks might be mispriced
or claims unexpected;(f) Especially in models using blockchain orother smart contracting it is important thatclients know which kind of information iscollected about them and how the smart
contracting is set up.

125 Swiss Re, 2016
126 Swiss Re, 2016

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Risk
Exclusion
risk

Definition

Manifestation in digital inclusive insurance

The risk that certain prospective
customers are unfairly excluded
from insurance cover.

There are concerns that using “big data” toselect which risks to cover could lead to certain
individuals being excluded if they are
considered too risky. This ability for moredifferentiated risk selection, which is arguably
the biggest benefit of big data for traditional
insurance, would go against the grain ofinclusive insurance, which is meant to protect
the previously unserved or underserved. Minsurance mostly relies on group underwriting,which reduces exclusion risk.

Source: adapted from the risk framework as outlined in the A2ii Regulating Mobile Insurance briefing note
(Wiedmaier-Pfister & Ncube, 2017), and the BMZ Responsible Mobile Insurance Discussion Paper (WiedmaierPfister & Leach, 2015), which in turn draws on the risk classification introduced by the A2ii cross-country synthesis
report on microinsurance business models and their regulatory implications (A2ii, 2014). Further insights were drawn
from A2ii’s Consultation Call report on Data protection challenges in mobile insurance (A2ii, forthcoming) and GIZ’s
mobile insurance risk assessment in Ghana (Ghana National Insurance Comission, 2015). Additional digitaltechnology-related risks are largely drawn from a risk overview compiled by Swiss Re (Swiss Re, 2016). 127

127 Another risk that arises in the context of digital technology but is not included in this table, is basis risk. This risk

is particular to index insurance and refers to the imperfect correlation between a customer’s potential loss experienceand the behaviour of the underlying index on which the insurance payout is based. It is possible that individuals suffer
losses specific to them but fail to receive a payout because the index does not trigger. On the other hand, lucky
individuals may receive indemnity payments that surpass the value of their losses (IBLI, 2012. How does index-based
insurance work? Available at: https://ibli.ilri.org/faqs/). As index insurance is considered as a dedicated topic by the
IAIS, this risk is not discussed further for the purpose of this paper.
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Annex 3 - Concentration level in Telecoms sector for somedeveloping countries (GSMA data, December 2016)
MobileSubscribers

Country

MNO

Prepaid Market Share

Benin
Benin
Benin
Benin
Benin

MTN
Glo
Moov
BBCom
Libercom

3 533 000
1 772 000
3 719 000
1 122 000
281 000

34%
17%
36%
11%
3%

Burkina Faso
Burkina Faso
Burkina Faso

TelmobAirtelTelecel Faso

5 468 490
4 911 961
2 322 000

43%
39%
18%

Cameroon
Cameroon
Cameroon
Cameroon

YooMeeNexttelOrangeMTN

24 485400 000
6 237 000
9 658 000

0%
2%
38%
59%

Gabon
Gabon
Gabon
Gabon

Libertis
Moov
Azur
Airtel1 182 680
404 692
217 000
1 149 304

40%
14%
7%
38%

Ivory Coast
Ivory Coast
Ivory Coast
Ivory Coast
Ivory Coast
Ivory Coast
Ivory Coast

YooMeeOrangeMTN
MoovKoz
GreenN
Café Mobile

8 897
8 896 000
8 016 000
3 606 000
892 272849 565
27 691

0%
40%
36%
16%
4%
4%
0%

Mali
Mali

OrangeSotelma-Malitel

12 826 000
10 672 700

55%
45%

Niger
Niger
Niger
Niger

SonitelOrangeMoov
Airtel325 750
1 665 000
699 000
2 111 706

7%
35%
14%
44%

Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria

Visafone
Smile
MTN
Glo Mobile
Etisalat
Airtel2 170 000
240 000
59 893 000
28 219 000
21 103 000
27 556 544

2%
0%
43%
20%
15%
20%

SenegalSenegalSenegalExpresso
OrangeTigo

2 904 000
8 097 000
3 017 000

21%
58%
22%

Sierra Leone
Sierra Leone
Sierra Leone

AfricellAirtelSierratel

2 900 000
1 064 301
111 710

71%
26%
3%

Togo
Togo

Moov
Togocel

1 848 000
2 290 000

44%56%

Prepaid Market
Share

HHI
34
17
36
11
3
101
43
39
18
100
0
2
38
59
99
40
14
7
38
99
0
40
36
16
4
4
0
100
55
45
100
7
35
14
44
100
2
0
43
20
15
20
100
21
58
22
101
71
26
3
100
44
56
100

2 871

3 694

4 929

3 289

3 184

5 050

3 406

2 878

4 289

5 726

5 072

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