# **Annex II: Improving access to mainstream insurance markets**

While the main access to insurance emphasis has been on microinsurance (including index based insurance) the World Bank, working with the private sector and regulatory bodies, has also been supporting initiatives to expand mainstream insurance markets to less well off working populations. These projects have targeted emerging markets where institutions and infrastructure are already established and have been focused on Islamic risk sharing (Takaful), bancassurance (to take advantage of developed bank branch networks), helping to make motor third party insurance systems work more effectively and efficiently, and consumer protection. What literature exists has been largely produced by the World Bank and academics working in Islamic institutions.

Feyen et al (2013), found that in strongly Islamic countries traditional risk insurance mechanisms based on risk transfer are likely to have only 50% to 60% the penetration they would elsewhere, ceteris-paribas. Reasons for this include a number of prohibitions under Sharia law inherent in traditional insurance mechanisms. Takaful mechanisms which involve separation of the profit motive from the mutuality concept, offer an opportunity to overcome this constraint. In its 2013 global survey Ernst and Young forecasts that Takaful contributions will increase from US9.4 billion in 2012 to US$17.1 billion in 2017, with Takaful growing substantially faster than mainstream markets (although this growth is presently confined to a few markets). They point to a need to consolidate this sector and for regulators to facilitate its development while monitoring solvency. Rahman (2009) points out that Takaful operators are now being established in industrial countries (including the UK and US) and Gonulal et al (2012) in a wide ranging review of mutual insurance mechanisms, point out that the mutuality concept appeals to a wider audience than the Muslim population.

Bancassurance uses a bank’s customer relationships to market life and non life insurance. It accounts for well over 50% of life insurance sales in a number of industrial countries and is becoming the major channel for life insurance in emerging markets, including Brazil, China, India, Morocco, Malaysia and Thailand. Gonulal et al (2012) highlight the opportunities inherent in developing this channel, while laying out the business model, consumer protection and privacy challenges that it presents.

The World Health Organization (WHO, 2013) reports that road traffic injuries are a huge public health and development problem. 1.2 million individuals a year are killed , and between 20 million and 50 million more are injured or disabled. Road traffic injuries are the leading cause of death for young people aged between 15 and 29. Over 90 percent of the world’s fatalities on the roads occur in low-income and middle-income countries, which have only 48 percent of the world’s registered vehicles. WHO and World Bank data shows that, without appropriate action, these injury rates will rise dramatically, particularly in rapidly motorizing countries. Although data on the costs of traffic accidents are sparse, particularly for low- and middle-income countries, these injuries clearly have an enormous economic impact on individuals, families, communities, and nations, costing countries between 1 and 2 percent of their gross national product. Gonulal (2010) explains that Motor Third Party Liability Insurance (MTPL<sup>48</sup> ) accounts for more than 50% of non life premiums in many developing and emerging markets, and lays out the requirements for such a market to operate successfully and to support road safety measures.

Lester (2009) explains that ‘ _At its heart, the need for consumer protection arises_ from an imbalance of _power, information and resources_ between consumers and their financial service providers, most often placing consumers at

> 48 MTPL insurance is typically mandatory, and ensures that damage to third party health and property caused by an accident for which the driver and/or owner of the car is responsible, is compensated.

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