Technology and Innovation: Tools to help close the Protection Gap in

Microinsurance Markets

Contributors

Technology and Innovation: Tools to help close the Protection Gap in

Microinsurance Markets

Nigel BrookPartner, Clyde & Co LLP

Bill MarcouxWCM Advisory, LLC

Wynne LawrenceSenior Associate, Clyde & Co LLP

Max BraslavskyAssociate, Clyde & Co LLP

Edward LangelierAssociate, Clyde & Co LLP

Lukas WagnerAssociate, Clyde & Co LLP

Editorial Team

A2ii Hannah Grant, Head of the Secretariat Hui Lin Chiew, Advisor

AgritaskRoderick Panchaud, Insurance Business Lead

AIGEdward Barron, Head of International Government Affairs Gisele Sirot, Director of Business Intelligence, Innovation & Sharing Economy

Allianz Climate SolutionsSimone Ruiz-Vergote, Managing Director

AXAFrancois Vannesson, General Counsel - Head of Legal & TaxGarance Wattez-Richard, Head of AXA Emerging CustomersQuentin Gisserot, Project Manager at AXA Emerging CustomersMark Carpenter, Head of IT at AXA Emerging Customers

Centre for Financial Regulation and Inclusion (Cenfri) Mia Thom, Technical DirectorKate Rinehart-Smit, Senior AssociateJana de Waal, Research AnalystAntonia Esser, Senior AssociateJeremy Gray, Senior Engagement Manager

Clyde & Co LLP Avryl Lattin, Partner Caroline Hedley, Solicitor Dino Wilkinson, Partner Ernie van der Vyver, Partner James Newton, Associate Katharina Wigger, Student Assistant

Marlene McConway, Head of Insurance Sector Research & Development Masha Ooijevaar, Associate Phoebe Whitelaw, Trainee SolicitorRod Smith, Consultant Sumeet Lall, Partner

Geneva Association Dr Kai-Uwe Schanz, Senior Advisor & Director Socio-Economic ResilienceDennis Noordhoek, Director Public Policy & Regulation

International Cooperative and Mutual Insurance Federation (ICMIF) Sabbir Patel, Senior Vice-President, Emerging Markets

InsuResilience SecretariatDaniel Stadtmüller, Advisor

Market MindsSebastian de Zulueta, Founder

MicroEnsureRichard Leftley, Chief Executive Officer

Microinsurance Network Katharine Pulvermacher, Executive Director

Munich ReMichael Roth, Senior Manager Public Sector Business Development

UK Department for International Trade Tom Herbstein, Insurance Prosperity Specialist

Swiss ReIvo Menzinger, Head EMEA & Product ManagementMangesh Niranjan Patankar, Head Agriculture Reinsurance, India

Acknowledgment

Thanks to the global law firm Clyde & Co LLP for their considerable support throughout the development and drafting of this paper. © Insurance Development Forum, August 2020

ForewordsThere are great social, economic, andhumanitarian benefits in increasing access toinsurance at the micro-level – particularly indeveloping countries. Many within theinsurance industry, the global regulatorycommunity and non-government organisations(NGOs), are motivated to develop these markets,and yet the protection gap at the micro-levelremains immense, and progress in closing it hasonly been incremental.

This paper discusses how technology andinnovation can be powerful tools in buildingmore resilient communities. This is true acrossthe insurance marketplace, but there are someparticularly exciting opportunities for progressat the micro-level. Technology can extend thereach of insurers; it can enable better productdesign, more accurate pricing of risk, reducedistribution costs, increase the speed and easeof claims settlements, and assist in frauddetection among other benefits.

Technology is a tool which should be used inthe difficult job of addressing the insurancerequirements of those who require greaterprotection and support from the insurancesector. It does not, however, obviate the needfor continued investment in customereducation and financial literacy, researchingmarket specific consumer needs, buildingregulatory capacity, or establishing trustedworking relationships among all insurancesector stakeholders.

I want to thank Clyde & Co for their great effortin leading the development and publication ofthis paper, especially Nigel Brook as leadpartner, and Edward Langelier, who, along withthe support of a strong team of Clyde & Colawyers and assistants, took primary

responsibility for the research and interviewsthat formed the foundation of this paper. Wealso benefited from the valuable input from theInsurance Development Forum (IDF) InclusiveInsurance Working Group, and more than 15organisations who provided us withinformation, views and ideas, which addedgreatly to the paper. These organisations arelisted on the inside cover, which is modestrecognition for such great service to the IDF, butit comes with our sincere thanks for theircontributions.

We hope you find the discussion and findings inthis paper of interest and of help in addressingthis urgent need for action.

Bill Marcoux

Chair, IDF Law, Regulation and Resilient PoliciesWorking Group

While researching this paper, we were strucktime and again during conversations with ourcontributors, by the sheer amount of energyand innovation in the microinsurance field;much of it enabled by both established andcutting edge technology. Insurance that meetsthe needs of consumers in developing andemerging markets can be truly life-changing,and we witnessed how insurers, intermediariesand innovators are rising to the challenge ofdesigning and distributing affordable cover.

Regulation and supervisors have an importantrole to play. Encouraging innovation whileprotecting consumers is a delicate balance, andwe heard stories of both under- and over-regulation, as well as heartening accounts ofimaginative insurance, and supervisorscollaborating with their counterparts in othergovernment departments: A2ii and others areachieving great work in identifying andpublicising best practice in this area.

Technology by itself will not bridge theprotection gap, but technology is spurring andenabling a range of innovations which couldultimately be transformative.

We are grateful to all of the contributors forgiving their time and input so generously, andalso to Bill Marcoux and other members of theIDF Law, Regulation and Resilient PoliciesWorking Group for their astute observations.

Nigel Brook

Partner, Clyde & Co LLP

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Contents

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Contributors 1

Forewords 3

Introduction 7

1. Technology & Innovation Transforming Insurance 15

DLT 16

AI/Big Data 17

Satellites and remote sensing 19

Enabling new distribution channels 20

Reducing cost of sales 23

Improving customer on-boarding 24

Understanding client needs 24

Underwriting 25

Product Development 25

Gathering premiums and paying claims 25

Building trust, knowledge and engagement 26

Streamlining claims handling and verification 27

Parametric insurance 28

The disruptors: technology-enabled products 28

Parametric insurance and agriculture 30

Peer-to-peer insurance 31

Technology’s limitations 32

2. Legal and Regulatory issues 35

Lack of regulation 36

Overregulation 37

Regulatory prohibitions 37

Lack of harmonisation 38

Approvals and regulatory capacity 38

Regulation duplication and arbitrage 39

Legal definitions 40

Paper-based /anti-digital regulatory requirements 40

Tax treatment 41

Other issues 42

3. Innovative regulatory responses 45

Regulatory reform 46

Case-by-case approvals 47

Test-and-learn 47

Innovation hubs 48

Regulatory Sandboxes 48

Non-regulatory responses 48

Microinsurance laws and regulation 49

Regional coordination 50

Philippines - stage-based approach 50

India - “carrot and stick" approach 51

South Africa - legislation 52

Capacity-building 52

4. Conclusion and key findings 55

5. Glossary of terms and abbreviations 59

Introduction

Technology continues to transform insurancein developed and emerging markets alike. Thedramatic increase in the volume, granularityand timeliness of data – plus the ability toshare and analyse it – have opened upopportunities for the insurance sector to serveits customers better, faster and morecomprehensively.

As examples, the use of satellite data andother platforms to facilitate parametric(index-based) insurance is transforming themechanics, deployment and risk-managementrole of insurance globally. Satellite technologyallows for a more effective means of gatheringdata on certain types of risks that affectindividuals in both emerging and developedmarkets. In addition, the proliferation ofmobile phones allows insurers to connectdirectly with a greater number of new marketparticipants, reaching previously uninsured orunder-insured populations, and therebyenhancing resilience.

But technology is only a tool. It does nottransform unaffordable or ill-suited insuranceproducts into attractive, highly sort-afterinsurance products. And technology can onlybe used where it is available; where customershave the means, knowledge and confidence touse it, and where its use is compatible withexisting laws and regulations.

For those most at risk in emerging markets,technology can help develop and deliverinsurance solutions to close the globalprotection gap. This paper follows thepublication of a similar paper last year by theIDF on the use of technology in connectionwith sovereign and sub-sovereign risks1. In thepreparation of that paper, we recognised thatthere were some unique issues surroundingthe use of technology and micro-insurancewhich deserved separate examination.

By micro-insurance, we mean insuranceproducts which are suitable for individuals orhouseholds making between USD$2.00-$20.00per day on a purchasing power parity basis2.

Accordingly, this paper seeks to address thismarket segment, i.e., the lower end of theeconomic spectrum, while also including theimportant emerging middle class in manymarkets. It also seeks to highlight and discussthe issues that will help determine success orfailure in addressing this market, includingthe role of the public sector and of laws andregulations in supporting the development oftech-enabled solutions. Throughout thisdocument, we will illustrate variouschallenges faced in adopting existing law andregulation, or regulatory architecture toemergent technologies, while includingexamples of innovative regulatory responses.

The urgency to close the protection gap hasincreased with the proliferation of risksassociated with climate change. The COVID-19pandemic has only added to the urgency forsocieties and economies to understand,mitigate and protect against the threats we allface, particularly those faced by the mostvulnerable.3

The role of insurance in driving sustainabledevelopment is incontrovertible, but notuniversally accepted or understood by criticalstakeholders, including many relevantgovernment entities. Enhanced access toinsurance services helps reduce poverty,improve social and economic developmentand resilience, and supports major publicpolicy objectives; such as improving healthpreventing short-term setbacks fromundermining broader development gains andgoals by providing protection and security forfamilies and livelihoods. As a result, insuranceis now understood to be a condition for – andnot a consequence of – sustainable economicdevelopment.

Currently, more than half of the world’spopulation does not have, or has very limitedaccess to insurance as a means of managingand transferring risk. With a lack of access tosuch supportive financial infrastructure, thosewith little disposable income may be one cropfailure or one family illness away fromslipping back into poverty. Such populationsmay then have to resort to copingmechanisms in the face of adverse events,such as selling assets, relying on localcommunity, reducing food consumption,taking children out of school so they can work,or resorting to predatory payday loans.Without the extra formal protection offinancial risk transfer, it can be harder forindividuals and communities to recover fromadverse events, impacting the long-termeconomic growth, development and socialcohesion.

This is an issue that has been recognised bythe Vulnerable Twenty (V20) group ofeconomies, which in September 2018 rolledout its Sustainable Insurance Facility (SIF). Theaim of the SIF was to provide insuranceprotection for micro-, small- and medium-sized enterprises (MSMEs) which account for29% of GDP and 78% of jobs in the V20economies. The SIF aims to enhance resiliencein vulnerable economies and provideincreased protection and reduced pressure onpublic spending following natural disasters.5

Climate change is a risk multiplier and itseffects are already being felt worldwide. Sincethe 1980s, the number of weather-related lossevents has tripled, and inflation-adjustedinsurance losses in the same period haveincreased fivefold to an annual average ofUSD$50 billion. The effects of natural disasterson lives, livelihoods and assets are not evenlydistributed, and as losses from adverse

weather events increase, those most at riskare people living in emerging markets, manyof whom do not have access to insurance.

In the last 10 years, approximately only 30% oflosses from natural catastrophes have beencovered by insurance. In middle or low-income countries, the uninsured proportion ofeconomic losses often exceeds 90%. Naturaldisasters already force 26 million people intopoverty each year, and as climate changecontinues, so too will the frequency andintensity of extreme weather events, furtherthreatening global efforts to sustainablyreduce poverty.

In recognition of the value of insurance toglobal society, the international communityhas sought to improve its deployment anduptake; particularly in emerging markets. Forexample:

- In 2005, the Hyogo Framework for Action2005-2015 (the first global plan to reducedisaster losses to 2015), included arecommendation to states andinternational organisations to implementschemes that spread out risks, reducedinsurance premiums, expanded insurancecoverage, increased financing for post-disaster reconstruction and promoted anenvironment that encourages a culture ofinsurance in emerging markets

- In 2012, at the Conference on SustainableDevelopment, insurance leaders and theUnited Nations Environment ProgrammeFinance Initiative (UNEP FI) launched theUNEP FI Principles for SustainableInsurance (PSI), a framework for theinsurance industry to addressenvironmental, social and governance risksand opportunities

1 Insurance Development Forum, How Technology Can Help Bridge The Protection Gap (November 2019) https://www.insdevforum.org/sites/default/files/Final%20'How%20technology%20can%20help%20bridge%20the%20protection%20gap'%20report%20.pdf2 Rakesh Kochhar, A Global Middle Class Is More Promise than Reality (July 2015) https://www.pewresearch.org/global/2015/07/08/a-global-middle-class-is-more-promise-than-reality/3 NOTE: While this paper was prepared to address issues related to climate change, many of the topics we discuss are also applicable to pandemics and other risks.

4 International Association of Insurance Supervisors, Application Paper on the Use of Digital Technology in Inclusive Insurance (November 2018) p. 5, https://www.iaisweb.org/page/supervisory-material/application-papers/file/77815/application-paper-on-the-use-of-digital-technology-in-inclusive-insurance5 Butch Bacani, Vulnerable Countries to Insure MSMEs Amid Worsening Climate Disasters, LinkedIn (September 2019) https://www.linkedin.com/pulse/vulnerable-countries-insure-msmes-amid-worsening-climate-butch-bacani/

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- In 2015, at the G7 Summit in Schloss Elmau,Germany, the G7 Leaders’ Declarationissued an aim to increase (by up to 400million) the number of people in the mostvulnerable developing countries who haveaccess to direct or indirect insurancecoverage against the negative impact ofclimate change related hazards by 2020

- In 2016, the insurance industry – inpartnership with the World Bank, theUnited Nations and other public andprivate institutions – established theInsurance Development Forum, seeking tooptimise and extend the use of insuranceand related risk management capabilities toclose the protection gap and build greaterglobal resilience to natural catastrophesand the increasing risks posed by climatechange

- In 2017, the InsuResilience GlobalPartnership for Climate and Disaster RiskFinance and Insurance Solutions waslaunched at the UN Climate ConferenceCOP23 in Bonn, Germany. It broughttogether the G20 countries and thosecountries most vulnerable to climatechange (V20 nations), as well asinternational organisations, the privatesector and academics, in an attempt tostrengthen the resilience of developingcountries and protect the lives andlivelihoods of poor and vulnerable peopleagainst the impacts of climate change.

Improving access to insurance in emergingmarkets is not straightforward. Althoughharnessing innovative insurance technology(alongside other factors) may aid in combatingsome of the challenges that need to be faced,there is a need for the insurance sector tothink hard about the products it offers torelevant markets. This includes how it couldbetter serve and interact with its customers(or would be customers), and how itestablishes and maintains a trustedrelationship with key stakeholders. As notedabove, technology is a tool – and it can be a

powerful tool too – but its true value andpower will be in how it is used by the industry.

There are various means by which access toinsurance protections to close the protectiongap may be improved, including:

- Facilitating access to insurance for poorand vulnerable populations through marketbuilding measures, governmentintervention, donor schemes or premiumsubsidies

- Increasing uptake of insurance protectionsin emerging markets through developmentof locally-tailored products that betterrespond to local needs; as well as othermeasures to increase understanding ofinsurance and which foster greaterpenetration of inclusive insuranceproducts.

These other measures may include directengagement and communication withcustomers aiding in improving the tangibilityof the product and service, and increasingtrust and the perceived value in insurance.The emerging middle class can also be apowerful market development enabler, andtherefore greater attention to this marketsegment is needed.

According to the Centre for FinancialRegulation and Inclusion (Cenfri), a think-tankfocussed on financial-sector development inemerging markets, these are a few of the keychallenges:

- Reliable information on asset ownership,health, and claims behaviour for insurancepurposes is vital for adequate risk profiling,product design, sales, servicing, paymentcollection and claims assessment. Low-income consumers engage less often withthe formal sector than traditional, higher-income insurance consumers. Coupled withlower official documentation of ownershipand lower formal employment observed inthe low-income space, this affects theamount and quality of consumer data thatinsurers can obtain to design and deliverclient-relevant products.

- The lack of current or historical dataregarding local weather conditions inemerging markets also makes pricing andmanaging weather-related productsunwieldy. There has been recent progressin this sphere, but there is still more to bedone. Lack of historical data for events suchas flooding, for example, presentschallenges to insurers when pricing risks.At the same time, customers who havelittle to no experience with formal financialservices, and insurance in particular, oftenlack the understanding of (and informationabout) their cover, creating distrust in theproduct as a whole.

- Data gathered through mobile phones canhelp create digital footprints for low-income customers. Advances in technologycan also help reduce the costs of remotesensing, thereby enabling the tracking ofweather data and natural hazards even inremote areas for insurers to price therespective risks. The reach created throughmobile phones and other new technology-enabled distribution channels helps toinform new groups of customers abouttheir cover, often in real time, therebycreating trust in the product.

- Traditional insurance generally relies onbranches, brokers, agent networks andaggregators, such as employers, forinsurance distribution. Physicaltouchpoints and aggregators are largelyconcentrated in urban areas or areas with alarge number of high-income individuals orcommercial enterprises. The reality,however, is that a high proportion of the

microinsurance target market is unbanked(more than two billion adults worldwide),are self or informally employed, and/orengaged in farming and living in ruralareas. This makes it difficult to reach thistarget market to sell policies, provide post-sale services, collect premiums, and pay outclaims. Therefore, the use of alternativedistribution channels, which are properlyincentivized to market suitable products, isneeded.

- Much has been written about cooperationwith mobile network operators (MNOs) toreach customers that are unbanked. Thereis potential here, but also limitations andissues, such as lack of access to a mobilephone by many women, and the lack ofcompetition in the provision of mobilephone services – which can adverselyimpact service and price. As a result, otherpartners must be considered as well.

- Products designed and priced formainstream insurance markets often donot meet the specific needs of low-incomeconsumers (Churchill, 2007). Designingproducts and processes to meet these needsrequires a tailored approach, informed bycareful market research. This includesconsideration of the risk events that will bemost appropriate to cover (i.e. cover forassets not traditionally covered byinsurance, such as individual livestock), themanner and timing of premium collection(seasonal versus monthly), and whatdocumentation is needed to verify claims.

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- Once technology has enabled new datasources and distribution channels, insurersshould be able to understand the differingneeds of their new customers – in order tothen come up with new products tailored tothose needs.

- Low-income consumers often have lowerliteracy levels and are generally lessfamiliar with the formal insurance concept;they can also become discouraged by thejargon used by many financial servicesproviders. This poses a challenge atmultiple interaction points along theproduct lifecycle, given that theinformation provided to the consumerneeds to be adequately packaged.

- Once new ways of communication, such asshort message service (SMS), areestablished, these can then be used topackage adequate information regardingthe cover into short snippets delivered inreal time, thereby approaching these newcustomers in a way that is familiar to them.

The ‘build it and they will come’mentality doesn’t work here. It’skey to establish trust andunderstanding first, so thatindividuals feel empoweredrather than discouraged. We dothis by using plain language toexplain what they gain fromparticipating today, tomorrow,and in the future.

Katherine Li, Co-Founder ofButterfly FX

- Nominal and unpredictable premiumincome may discourage insurancecompanies from offering low-value, high-volume products to emerging consumers.Low-income consumers have by definitionlimited incomes, and therefore struggle toafford expensive insurance premiums. Thisis often compounded by unpredictability ofthis target market’s income streams.Insurance premiums therefore need to beadequately priced to be affordable andattractive to this consumer segment.

- The traditional approach to insurancedelivery, however, involves costlyinfrastructure (both front- and back-end). Alow-premium environment constrainsbusiness models for insurers, requiring lowcosts and high volumes for the businesscase to be viable. Simple products likeparametric covers that do not requirebespoke underwriting and claims handling(and which are also easier to price) can helpreduce administrative costs, and therebythe affordability of the cover and itsdelivery. As the triggers for pay-outs areclearly defined in advance and easy todetermine, customers can also be informedin real time about a trigger being met andthe respective pay-out being made.

- Technology can be, and has been, used toovercome some of these challenges bymaking insurance more transparent,accessible, affordable and appealing, bydriving the incremental cost down.

Technology, particularly mobilephones, has been a game changeras it has reduced administrativeoverheads

Hannah Grant, A2ii (Access toInsurance Initiative)

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Technology & Innovation Transforming Insurance

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Technology & Innovation Transforming Insurance

Technology in insurance

InsurTech has a number of different types oftechnology at its core. The following areexamples of new technologies that have foundapplications or ‘use cases’ in insurance:

Distributed Ledger Technology (DLT)

In a nutshell, the defining feature ofBlockchain and Distributed Ledger Technology(DLT) systems is the exchange of data using acommon ledger or another form of ‘singlesource of truth’ which is secured againstforgery through cryptography. It is thereforeessentially an information coordination toolbetween many parties. Another frequentfeature of such systems is the concept ofsmart contracts, computer programs thatenable automated (standardised) transactions,which are particularly well-suited forparametric covers. In the case of publicblockchains like Ethereum, the informationcoordination tool can become a financialcoordination tool. This is fundamentally alsowhat insurance is: financial coordinationbetween many parties to address risks.

The use of blockchain/DLT in emergingeconomies is still in its infancy and presentssome significant challenges. Blockchainapplications for insurance (particularly inemerging markets), may be over-engineeredfor current requirements. Nonetheless, theWorld Economic Forum’s research10 suggeststhe use of DLT will increase significantly inthe next decade, as banks, insurers and techfirms see the technology as a way to speed upsettlements and cut costs. Some are alreadyusing it in an insurance context.

A prominent example has been a joint projectbetween Aon, the Blockchain start-up Etherisc,Oxfam and local insurer Sanasa, offeringparametric insurance to farmers in Sri Lankabased on Etherisc’s Decentralised InsurancePlatform on the Ethereum Blockchain.11 Basedon the same platform, Raincoat is alsodeveloping HurricaneGuard,12 a parametrichurricane insurance,13 while Sprout Insure,together with ACRE Africa, is developing theBlockchain Climate Risk Crop Insurance forSub-Saharan Africa, South and SoutheastAsia.14

These applications show that DLT solutionscan add value, in particular where they fill infor currently non-existent or insufficientinfrastructure, such as payment ordistribution systems. While payments throughpublic blockchains – such as the Bitcoinnetwork – have traditionally suffered from thehigh volatility of Cryptocurrencies, so-calledStable Coins (such as DAI which are pegged tofiat money like USD), erase that issue.

In addition, an increasing number of centralbanks are launching their own digitalcurrencies (so-called Central Bank DigitalCurrency, or CBDC) on a DLT basis. ThePeople’s Bank of China, for example, launcheda first pilot in four large cities in April.15

Furthermore, the automation enabled throughsmart contracts can create greater certaintyand speed in the loss adjustment process,thereby reducing mistrust in the insurer’sclaims handling.

1

Technology is transforming and will continue to transform almost every aspect ofthe insurance sector; from customer due diligence and gathering premiums, topaying claims and loss adjustment processes, even the types of products availablewill be transformed. The global growth in mobile phone use in particular, meansthat financial services – including insurance – can be delivered ever more cost-effectively to a greater number of people.6

We see technology impacting allareas of the insurance valuechain, from the use of data andanalytics, to better pricing of risk,all the way to automated claimsassessment and processing

Cenfri

Digital/mobile platforms

Digital and mobile platforms (through theinternet or smartphones) can replace one orseveral face-to-face or human-based elementsof the traditional insurance value chain withan online service. This service can be eitherconsumer-facing or provider-facing, i.e. theplatform is built to be accessed by insuranceconsumers directly, or as a support for theback- or front-end operations of an insuranceprovider. This has particular applications forinclusive insurance, where ‘high-touch’interaction with customers or administrationcan be overly costly as a proportion of thepremium value.

6 Global Partnership for Financial Inclusion, G20 Principles for Innovative Financial Inclusion (May 2010) https://www.gpfi.org/sites/gpfi/files/documents/G20%20Principles%20for%20Innovative%20Financial%20Inclusion%20-%20AFI%20brochure.pdf7 For more information visit https://microinsurancenetwork.org/groups/insights-mobile-network-operators-distribution-channel-microinsurance-asia8 For more information visit https://www.hippo.co.za/9 For more information visit http://www.africargroup.com/

Digital platforms also provide the baselinedigitisation required to facilitate moretechnical applications. The introduction ofsuch technology makes it possible to includeretailers, MNOs, banks and others in newpartnerships with insurance capital providersand intermediaries, allowing those parties toleverage existing infrastructure, paymentsystems or consumer bases. In particular,access to embedded payment mechanismsoffered by MNOs that can be used to collectpremium from potential policyholders (whichmight otherwise be difficult or time intensiveto collect), make them an attractive choice ofpartner in emerging markets for insuranceactors.7

10 World Economic Forum, White Paper – Blockchain Beyond the Hype: A Practical Framework for Business Leaders (April 2018) http://www3.weforum.org/docs/48423_Whether_Blockchain_WP.pdf11 Etherisc, Oxfam, Etherisc, and Aon Deliver Pay-Outs with First Blockchain-Based Agricultural Insurance Policies for Smallholder Farmers in Sri Lanka (November 2019) https://www.prnewswire.com/news-releases/oxfam-etherisc-and-aon-deliver-pay-outs-with-first-blockchain-based-agricultural-insurance-policies-for-smallholder-farmers-in-sri-lanka-300949728.html12 For more information visit https://hurricaneguard.io/13 For more information visit https://www.teamraincoat.com/14 Climate Finance Lab, Project: Climate Risk Crop Insurance, https://www.climatefinancelab.org/project/climate-risk-crop-insurance/15 WSJ, China roles out pilot test of digital currency, https://www.wsj.com/articles/china-rolls-out-pilot-test-of-digital-currency-11587385339

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Digital or mobile platforms used in this wayare not usually separate insurance-specificplatforms, but more often enable insurancesales as an add-on to existing financialproducts, services or e-commerce, withpartners finding opportune moments to offerinsurance to the consumer. These may bemore demand-based or short-term productstied to the specific product or service, so maynot provide more general cover, but they aremore affordable to customers and socialise theuse of insurance.

In Africa, for example, there is now aproliferation of online platforms offering pricecomparison between insurance providers.Hippo is one example.8 Another example isAfricar Group9, a platform used to buy and sellsecond-hand vehicles. Africar Group operatesin more than 20 African countries, and uponcompletion of the purchase, the purchaser isoffered insurance.

Even in existing structures, DLT can lead todrastic reductions in transaction costs, whichin turn, can increase the deliverability ofinsurance products to underinsuredpopulations. The advent of this technologythereby effectively democratises the provisionof insurance, as, from a technical point ofview, large parts of the administrativeinfrastructure of traditional insurers could berendered redundant, with new players relyingon low-cost infrastructure – which is oftendigital and Open Source. Such new playerscould even come up with new forms of risk-pooling, like tokenised ILS traded in a DLTsystem, thereby making risk transfers intocapital markets more inclusive.16

Although there may not yet be manyapplications of this technology in emergingeconomies, given its potential – particularly inlight of the rise of CBDC17 – there is a need forinsurance regulators to understand thistechnology and its applications within theframework of legislation and regulation.

That being said, there are significant hurdlesthat must be overcome in order for DLT/smartcontract products to be rolled out widely. Inorder for such products to be cost effective,simplicity and uniformity (in comparison totheir current form) is required of theunderlying contracts that are encoded into theDLT. This may require the foregoing of morebespoke-type contracts and/or provisions thatmay have been included previously for tacticalor other reasons.

Another concern regarding the cost-effectiveness of DLT being used in emergingmarkets is the energy cost associated withproof-of-work consensus algorithms, whichare required to add transactions to ablockchain. To date, on blockchains such asBitcoin and Etherium, competitor cooperationand the formation of consortia have beennecessary to address the costs of investing inthe DLT infrastructure. Further technologicaladvances are likely to be required beforeproducts are financially suitable to emergingmarkets and/or attractive to single privateinvestors.

AI/Big Data

Leaps in computing power and the increase inthe amount of data available has given rise tothe use of Artificial Intelligence (AI), Big Dataand Data Analytics. Sub-categories of thesetechnologies range from Machine Learningand the more sophisticated Deep Learning, tospecific applications such as Natural LanguageProcessing, in forms like Named EntityRecognition or Sentiment Analysis.

Another application of machine learning isRobotic Process Automation. This softwareautomates unsophisticated, repetitive tasks,leaving employees more time to focus on jobsthat actually require human input. Aspects ofBig Data, like data mining and data harvesting,enable predictive analytics which open newhorizons in risk modelling, in particular incombination with new data sources.

16 Etherisc DIP Whitepaperhttps://etherisc.com17 Regarding the associated risks and wider implications of CDBC, see the BIS’ assessment of CBDC: https://www.bis.org/cpmi/publ/d174.htm

In the insurance market, Big Data and DataAnalytics are being used in processes such asproduct offerings, risk selection, pricing, crossselling, claims prediction and fraud detectionto offer customised products, or to automateor improve claims handling or customerservice, and allow automated or moregranular underwriting.18 Cenfri sees machinelearning and AI as an “emerging trend”, notingthat these technologies are often used inconjunction with other technologies (such aschatbots).

Despite the progression in the technologyavailable to insurers to process data moreeffectively, in emerging markets it may bedifficult to access accurate or reliable data, orindeed obtain data on certain parts of thepopulation at all. This is because individualsmay not possess official identificationdocuments (passports etc.), officialdocumentation of ownership of assets, or evenhold bank accounts or other such facilitiesthat might require or present a good source ofdata.

To address this issue, insurers might need towork with local governmental or quasi-governmental partners who may hold certaindata on their citizens. Another option wouldbe to develop new technologies to obtain andsubsequently verify data directly frompotential consumers outside of traditionalnorms. Issues such as privacy debates orlegislation, however, will always need to beconsidered in this context.19

While technology may be viewed as a ‘netpositive’, one should be mindful of financialexclusion and the need for consumerprotection. In particular, concerns overprivacy and the need to ensure that customersare not unfairly discriminated against as aresult of applying new technologies, must beborne in mind. As noted herein, improvementsand a potential reduction in cost in satellitetechnology might also be a means to improvethe quality of data on various types of risksaffecting people.

18 International Association of Insurance Supervisors, Application Paper on the Use of Digital Technology in Inclusive Insurance (November 2018) p.10 https://www.iaisweb.org/page/supervisory-material/application-papers/file/77815/application-paper-on-the-use-of-digital-

technology-in-inclusive-insurance#19 For Digital Identity initiatives in Africa, visit https://www.yoti.com/blog/digital-identity-in-the-last-mile-lessons-from-africa/

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Advances in satellite technologyand data analysis help avoid thepitfalls of high transaction costsand therefore expand thepotential reach of insurancepolicies to rural areas previouslyconsidered uninsurable22

The Research Programme onClimate Change, Agriculture andFood Security

Satellites and remote sensing

Following the recent proliferation and advancesin satellite technology, remote sensing andother earth observation data sources (weatherstations, drones or aircraft) are increasinglybeing used in insurance to gather risk data andassess loss.20 Nanosatellites are moreaffordable and easier to launch than traditionalsatellites, and can provide much more detailedand granular information about risk or loss. Aflock of these nanosats in low Earth orbit canprovide high-resolution images of the planet ona daily basis.

20 International Fund of Agricultural Development (IFAD), Remote Sensing for Index Insurance: Findings and Lessons Learned for Smallholder Agriculture (January 2018) http://www.ifad.org/documents/38714170/40239486/RemoteSensing_LongGuide_2017.pdf/f2d22adb-c3b0-4fe3-9cbb-c25054d756fe21 https://www.climate-kic.org/success-stories/winners/22 CGIAR, Climate Change, Agriculture and Food Security Research Program, Climate Services and Safety Nets, https://ccafs.cgiar.org/themes/index-based-insurance23 ACCION Insights, The Tech Touch Balance: How the Best Fintech Startups Integrate Digital and Human Interaction to Accelerate Financial Inclusion(October 2018) https://content.accion.org/wp-content/uploads/2018/10/1122_TechTouch-RO6-Singles.pdf

The WINnERS Project in Tanzania integratesremote sensing and field observations tomodel agricultural losses for maize farmsbased on weather-related risk, such as rainfalldeficit or heat stress.21 In India, agriculturalindex insurance will usually include provisionfor an Area Correction Factor (ACF), which iscrucial from a regulatory standpoint. Satellitetechnology is used to establish whether all orsome of the declared crop subject to YieldIndex cover has been planted, or whether anACF need apply. This is a way of checkingwhether over-insurance has taken place.

Governmental agricultural insurance schemesin India also involve some physical crop-cutting experiments to assist measuring andpredicting loss in an effort to reduce basis risk.While technology develops, theimplementation of more traditional andphysical processes alongside technology maybe necessary and useful.

The value of technology in insurance

It is clear that the development anddeployment of these new technologies has thepotential to transform insurance provisionand risk management in developed markets,while addressing some of the issues insurersface when entering emerging markets.Technology, such as adequate IT

infrastructure, however, must be available tobe utilised.

For example, while 4G may be available incities, rural areas might only have 2G – if any –cellular service. Moreover, not all customershave access to mobile phones and laptops, orthe knowledge to use them. Technology,therefore, needs to be deployed along withbetter human interaction and service, which isexpected by customers in emerging economiesas it builds trust.

Studies have shown that in financial servicessuccess comes from a combination of “techand touch”23. For emerging economies inparticular, this often means having trusted“feet on the ground”, i.e., intermediaries orother contact points that the insured knowsand trusts.

Technological advancements can thereforehelp facilitate insurance market transactions,fill knowledge gaps, foster trust, enablebundling of products and services, increaseconsumer engagement, and encourage uptakeof insurance protections. These issues,however, aren’t magically overcome: it is theresponsible and imaginative use of technologythat will lead to success in closing theprotection gaps that exist globally.

To provide some greater detail, below aresome examples of the ways in whichtechnology may help bridge the protectiongap:

Enabling new distribution channels

Partnerships for insurance delivery are notnew, but the introduction of technology(particularly mobile phones) makes it possibleto include retailers, MNOs, banks, digitalplatforms and others in partnership for moreeffective distribution, therefore reaching newpolicyholders, often as part of a bundledservice/product offering, or with insuranceoffered as an add-on to existing services(where suitable).

MNOs are able to offer wide distributionchannels owing to large customer bases,which insurers could find difficult to engagewith in the absence of such a partnership.Furthermore, MNOs will hold certain levels ofKnow Your Customer checks (KYC) on theirconsumers that (subject to local regulation)can be utilised to decrease the administrativeburden on the consumer (or insurer) whensigning up to an insurance policy. However,Cenfri’s update to its InsurTech24 tracker(report forthcoming), suggests that InsurTechshave shifted from a focus on MNOpartnerships to a focus on digital delivery oronline platforms.

There can be a power imbalance for insurersworking with MNOs; firstly because MNOscontrol both the customer base and access tothose customers, and also because MNOs willnot always have insurance as priority. MNOscan also ask for high levels of commission

upon the sale of insurance products throughtheir platforms in return for offering access totheir customers in emerging markets. Thisclearly has the potential to artificially increasethe transaction costs on insurers, which inturn can strongly impact upon value andaffordability to potential customers.

At the same time, MNOs can be used in a morelimited role. While Etherisc is piloting the useof MNOs for SMS onboarding onto theirblockchain-based crop insurance in Sri Lanka,the KYC process itself is done by linking thefarmers to their profiles with their farmers’organisations, which they have to confirm inthe onboarding process.25 Paycasso is anexample of a company which has developedproducts that allows verification and KYC tobe undertaken through mobile phones in aquick, secure and trusted format that hasalready been approved or validated by variouscompanies or governments26.

While MNOs are able to offer wide distributionchannels, they may not be the best-suited orpositioned intermediary for particular types ofinsurance. For example, an agriculturalcooperative might already be the trustedintermediary for farmers and may be bestplaced to make crop insurance available tothem. While MNOs often have thetechnological infrastructure, they may not bethe best placed distribution channel availableto disseminate new insurance products. Afully “open” digital ecosystem should in theoryallow such an agricultural cooperative topartner with and provide services through theplatform (as permitted by local regulations).

24 https://cenfri.org/databases/insurtech-tracker/25 https://aon.mediaroom.com/2019-07-01-Aon-Oxfam-and-Etherisc-launch-first-blockchain-based-agricultural-insurance-policies-for-smallholder-farmers-in-Sri-Lanka26 For more information visit https://paycasso.com/product/

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With the emergence of digital super platforms,we are witnessing a move away from theMNO-centric model in emerging marketstowards digital ecosystems. This is particularlyevident in Asia; for example, Zhong An inChina.

In India, agricultural insurance is oftendistributed via banks, where the product issold in support of loans to farmers (much likea home policy in conjunction with a mortgageapplication, i.e., where the loan/mortgage isconditional upon a valid insurance policy).This is supported or subsidized by the Indiangovernment, however, this distribution modelis limited as not every farmer will have accessto loans.

In South Africa, fire insurance for informalsettlement or township homes is beingprovided along with fire detectors. Lumkani,for example, is addressing the risk of fires andthe widespread damage they can cause, byproviding a fire detector along with fire and/orfuneral cover for a monthly fee. Fire detectorsin a particular area are connected via anetwork so that the spread of fires can belimited. As well as mitigating the risk of firesitself, Lumkani’s product provides cover forhomes, business, belongings and stock up toR40,000 for when fires do break out. Theproduct targets those in informal, small orlow-cost homes and businesses, which wouldotherwise be excluded from the provision oftraditional insurance products.27

Initiatives can include an insurer, distributionpartner and technical service provider (TSP).TSPs are increasingly key to connect insurerswith emerging market distribution partners.

Innovative InsurTech firms are able to usedigital platforms and technology-enabledpartnerships to design bundled products thatcombine insurance cover with other services;this better enables consumers to meet theirfinancial and non-financial needs, increasingthe attractiveness and uptake of insurance aspart of a suite of products/services.

27 For more information visit https://lumkani.com/

Stonestep28, MicroEnsure and Zingsure29

facilitate partnerships with other actors toinclude insurance as an add-on to anotheroffering, rather than selling insurance on itsown. Technology enables this to be done atscale by tying insurance offerings on toexisting systems and networks. This scalemakes otherwise unviable products financiallyviable.30

Digital platforms which match buyers andsellers of goods and services can enable thedistribution of insurance products toindividuals and small and medium businessesthat were traditionally outside the reach offormal financial services. For example,SweepSouth31, a platform in South Africa thatallows users to book cleaning services withinseconds, has recently partnered with Simply32

to provide basic accidental death anddisability cover at no cost to SweepSouth’sdomestic cleaners. Similarly, insurancepartnerships with e-hailing or other onlineplatforms fulfil a similar role.33

In Nigeria, Kobo36034, a logistics and courierplatform that connects drivers and owners oftrucks with companies who want to transporttheir goods, has an embedded insuranceproduct which covers goods from point of

pick-up to point of drop-off. Another logisticson-demand service in Nigeria is ShapShap35,which provides platform users the choice toinsure the goods that they are havingdelivered. There is also Jumia36, one of Africa’sbiggest online shopping platforms, whichpartnered with insurance company AXAMansard to offer device protection, health,and life insurance products in Nigeria. Theseinsurance products are sold as add-on’s andcan be simply added to a consumer’s onlineshopping basket and paid for either online orin cash.

These examples show that insurers are oftenhighly dependent on cooperation with otherlocal service providers. This not onlyfacilitates entrance to a particular market, butcreates trust within the local community,which many market participants will cite asbeing one of the central issues relevant toinclusive insurance. Therefore, it is often moreimportant for insurers to concentrate on thebusiness relation with these local providers,rather than on a direct marketing to theinsured person37.

28 For more information visit https://stonestep.com.mm/29 For more information visit https://zingsure.com/30 Cenfri interview 31 For more information visit https://sweepsouth.com/32 For more information visit https://www.simply.co.za/33 https://www.allianz.com.my/e-hailing-add-on34 For more information visit https://www.kobo360.com/35 For more information visit http://www.shapshap.com/36 For more information visit https://www.jumia.com.ng/37 Munich Re, M. Roth interview

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The main conclusion to be drawnfrom the analysis is that reducingtransaction costs is one of themajor challenges facingmicroinsurance. Making progresson this front will reduceadministrative overheads, withdirect impact on customers’premiums

International Labour Organisation40

Reducing cost of sales

Transaction costs in mobile insurance are minimised ifmarketing, distribution, claims and policy management areconducted through the mobile channel only.38 Such lowercosts help support scalability, and ultimately enabledevelopment and distribution of more affordable andaccessible products.39

38 Cenfri interview 39 Institute of International Finance, Insurance Inclusion: Reaching Underserved Populations With Tech (September 2016) p.2, https://www.iif.com/Publications/ID/1248/Insurance-Inclusion--Reaching-Underserved-Populations-with-Tech40 Technology for microinsurance scoping study, Author: Eric Gerelle and Michiel Berende: International Labour Office - Geneva: ILO (2008)

https://microinsurancenetwork.org/sites/default/files/MIP2_technology_and_microinsurance.pdf p.2141CENFRI, InsurTech for Development: A review of insurance technologies and applications in Africa, Asia and Latin America (March 2017) p. 22

For example, MicroEnsure, a TSP operating throughpartnerships in six countries across Africa and Asia, offerspolicies which cover low-cost health, life, property andpolitical risk insurance. It uses the mobile network providerAirtel to allow access to its platform by dialling anUnstructured Supplementary Service Data (USSD) code ontheir mobile, and then sends the policy to the customer bytext. MicroEnsure has been able to provide up to 42 millionpeople with insurance cover through its network.41 In time,DLT solutions may further reduce transaction costs.

42 MicroEnsure Richard Leftley interview 43 David Shrier, Frontiers of Financial Technology: Expeditions in future commerce, from blockchain and digital banking to prediction markets and beyond (September 2016) 44 How Blockchain Technology Can Help Poor People Around the World, Nir Kshetri, (2017) http://observer.com/2017/05/how-blockchain-technology-can-help-poor-people-around-the-world-banking-emerging-markets/

Improving customer on-boarding

A regular impediment for many insuranceproviders in underinsured markets is theinability to undertake customer due diligenceand verification. Customer on-boarding can bedifficult or costly. In addition, the requirementfor an individual consumer to providepersonal information to an insurer in advanceof signing up to an insurance policy – even ifthis information is fairly minimal – can lead tosignificant drop-off rates in the number ofconsumers who ultimately decide to purchasethe product42.

The process can require collection, validation,plus verification of proof of identity, addressand birth. Collecting even such basicinformation may pose a considerable obstacleif the person does not know their birthday,does not have a proper address or is illiterate.Issues such as these can be a massive barrierto sales, in that traditional on-boardingmodels, such as using call centres, can berendered ineffective as sales cannot becompleted over the telephone; instead, theyrequire a customer to physically go into abranch to complete the on-boarding process.

Technology may assist in overcoming thischallenge by developing efficiencies in theseprocesses, and excluding potential customersdue to the lack of KYC documentation may benegated by the rise in e-KYC, like biometrics,for example.

Digital technologies may also assist with clientidentification and claims validation. Acustomer can use a smartphone, for example,to establish their identity through facialrecognition, or by reading out on-screen text.43

Such data can then be stored on blockchainplatforms or elsewhere and accessed later byanyone who needs to check that person’sidentity.44 The CIC Insurance Group, forexample, has linked up with the KenyanIntegrated Population Registration System(IPRS) to facilitate such rapid cross-referencingof individuals’ sign-up data. This has greatlyreduced the time involved in completing asign-up process and provides the insurer withgreater confidence in the identification ofclients, which means fewer clients are rejecteddue to identification issues.

Understanding client needs

Through technology such as the Internet ofThings (IoT), or remote sensing in combinationwith Big Data or AI, insurers can also useclient data to better understand client needsand improve product development and sales;this helps solve difficulties faced in emergingmarkets in affordably identifying clients andtheir needs. Big Data, for example, allows for amore consumer-centred approach, both interms of product development and selectingthe types of consumers to approach about theconcerned product.

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Underwriting

Insurers may use “non-traditional” data, suchas phone call logs or social media profiles, totailor both insurance premiums and cover.These can make purchasing insurance moreconvenient for the consumer, while raisingawareness of the customer’s needs at aspecific time; this can create efficiencies inproduct design, risk selection and premiumpricing.

Behavioural data can also improve sales anddistribution, resulting in lower costs andreduced churn.45 One example of this isPicsure46, which uses pictures to automaticallycalculate premiums of residential properties.In Sri Lanka, mobile phones are being used forthe same purpose, combining pictures of theinsured object with the respective family, ageocode and bank account data. Start-upssuch as Docudiet47 are developing AI-drivenassistants that support underwriters to betterdetermine premiums by making past premiumdecisions in similar cases easily available.Agricultural insurers (such as Pula48 or Acre49)use Geographic Information Systems (GIS) andsatellite data to identify the crops farmed bycustomers, helping them understand theassociated risks they are exposed to. In India,many states have digitized land records whichare also used to check land use.

Product Development

Etherisc offers ‘request new product’ and‘build your own product’ dialogues on theirDecentralised Insurance Platform which, tosome extent, democratises a previouslyinternal and time-consuming process.Predictive analytics can be leveraged to bettertailor products to insured’s needs; however,one of the hardships of this developingtechnology is actually determining what theneeds of the vulnerable populations are.

Gathering premiums and paying claims

Technology-enabled partnerships canfacilitate premium collection – a challengetraditionally faced by insurers in emergingmarkets, particularly for unbanked customers.MNOs can facilitate payment of premiumsand claims as they can deploy existingpayment methods in the form of prepaidairtime or direct billing (if such methods arecommonly used in the relevant jurisdictionand/or permitted). Insurance can be offered byMNOs as a loyalty product with no direct costto the consumer, or payments can take theform of airtime deductions. With “freemium”models, customers can upgrade from a freeproduct to a higher value paid product. Asnoted above, Cenfri considers that such MNOmodels are decreasing in popularity, but theuse of mobiles to expand insurance reachremains important.51

45 International Association of Insurance Supervisors, Application Paper on the Use of Digital Technology in Inclusive Insurance (November 2018) p.16 https://www.iaisweb.org/page/supervisory-material/application-papers/file/77815/application-paper-on-the-use-of-digital-

technology-in-inclusive-insurance#46 For more information visit https://picsure.ai/picsure-object-recognition/47 For more information visit https://www.docudiet.com48 For more information visit https://www.pula-advisors.com49 For more information visit https://acreafrica.com50 For more information visit https://etherisc.com/#products51 Cenfri interview

52 eHealth Network, Remedinet Partners with Bajaj Allianz for Cashless Health Insurance, https://ehealth.eletsonline.com/2015/09/remedinet-partners-with-bajaj-allianz-for-cashless-health-insurance/https://www.forbes.com/sites/abehal/2016/07/26/why-an-indian-tech-company-is-digitizing-health-insurance-53 Millcom Media, Tigo Insurance Passes 2.7m Active Users, https://www.millicom.com/media-center/features/tigo-insurance-passes-27m-active-users/54 International Association of Insurance Supervisors, Application Paper on the Use of Digistal Technology in Inclusive Insurance, (November 2018) p. 16 : https://www.iaisweb.org/page/supervisory-material/application-papers/file/77815/application-paper-on-the-use-of-digital-technology-in-inclusive-insurance#55 Swiss Re India, Mangesh Niranjan Patankar interview

Insurers may work closely with MNOs bycollecting premiums using mobile phoneairtime, or paying claims via digital paymentchannels or mobile wallets. Remedinet inIndia, for example, has pioneered cashlesshealth insurance through a cloud-basedplatform connecting hospitals directly toinsurers.52 Another example is Tigo FamilyCare Insurance in Ghana. Tigo provides thiscover to its customers without charge as aloyalty product for Tigo’s prepaid airtimepackage. Customers can even double theirinsurance coverage by paying a premiumusing the company’s airtime.53

Technology can also be used to support thefiling and processing of claims, with insuredsable to upload supporting documentation andproof of loss onto digital platforms, ultimatelyreducing the time involved in such processes.Big Data can also assist with identifyingfraudulent claims and therefore speed upverification.

Additionally, IoT and sensor data can be usedto verify conditions such as motion, sound,temperature or humidity, and assist withclaim verification, thereby reducing cost.54 In

parametric insurance, this can lead to fullyautomated pay-outs without a need for theinsured to even file a claim.

In India, yield index claims adjustment ismanual and can be slow, with a person beingsent to assess yield in that area. A stateinspector may record the information on anandroid app while they are in the area beingassessed, with the information thenassimilated on a database; this reduces thetime significantly. Eventually, satellitetechnology may also assist in this process,speeding up claim administration andpayments.55

Building trust, knowledge and engagement

As explored above, MNOs are considered oneof the key potential partners in emergingmarkets for a number of reasons. Of particularimportance is the fact that MNOs are oftentrusted by their users – an opportunity spottedearly on, partly owing to the fact that theyoffer technology that is regularly used by theconsumer. This intrinsically develops trust inthat service and/or brand, which would alsobe true of other technology, such as Google oronline banking.

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This usage is effectively the opposite of how apolicyholder would utilise insurance, wherecontact with its insurer might be limited toonce or twice a year.56 A recent GenevaAssociation customer survey concluded thatfor 50% of participants, an increased level oftrust in insurers and insurance intermediarieswould encourage the purchase of moreinsurance.57 Developing trust for burgeoninginsurance companies in emerging economiesis therefore key to increased insurancepenetration.

Irrespective of the size and sophistication ofthe concerned insurer, a new insurer to aparticular jurisdiction (particularly inemerging markets) might find it difficultand/or costly to develop the trust in a brand orservice that an MNO or other technologyofferings have already established. As a result,the ability for an insurer to use the name of itspartner MNO when contacting a consumermay greatly increase the likelihood that theconsumer will ultimately decide to purchasean insurance policy; this can assist withincreasing insurance penetration.58

Technology can also be used to educate clientsand potential customers about insuranceproducts. Similar to marketing and sales,automated messages, chatbots and robo-advice are becoming more common ininsurance. In Indonesia, Allianz has beenapplying automated telephone messages usinga fictional character called Ms Ali to automatepost-sales calls and educate customers abouttheir microinsurance product. Similarly, otherforms of chatbots can carry out directconversations and provide a useful, cost-

effective way of fostering client engagement.Some insurers have developed their ownchatbots as part of their service offering.Examples include Denkim Insurance59 inKenya, which – as an online broker – has achatbot that integrates into messaging apps,including Facebook.

Many of these strategies will be most effectiveat the upper range of the micro-insurancemarket, targeting the emerging middle class.As noted above, at this transition point fromlow income to middle income, there areinsureds who may be early adaptors and canplay a critical role in market development andconsumer acceptance.

Streamlining claims handling and verification

Traditional methods of claim verification andloss adjustment can be lengthy and deterunsophisticated users of insurance fromrepurchasing following a difficult claim. Newtechnologies can assist with speeding up andincreasing the effectiveness of claimsverification and loss adjustment. In 2016 forexample, the InsurTech company Lemonade,famously used technology to pay a claimwithin three seconds.60

Technology can assist in this area by gatheringevidence at an early stage of claims handling,allowing customers to more actively engage inthe process. In South Africa, Discovery Insureallows its customers to upload pictures on adigital platform to support claims,61 while inIndia, electronic chips implanted into livestockare used by IFFCO Tokio to verify the numberand location of the insured cattle.62

56 MicroEnsure Richard Leftley interview 57 The Geneva Association, The Role of Trust in Narrowing Protection Gaps, (November 2019) : https://www.genevaassociation.org/sites/default/files/research-topics-document-type/pdf_public/role_of_trust_web.pdf58 MicroEnsure Richard Leftley interview 59 For more information visit https://www.denkiminsurance.com/60 Daniel Schrieiber, How A.I. Jim Broke a World Record Without Breaking a Sweat (January 2017) https://www.lemonade.com/blog/lemonade-sets-new-world-record/61 https://www.the-digital-insurer.com/dia/vitalitydrive-telematics-based-car-insurance-from-discovery/62 CENFRI’s InsurTech for Development: A review of insurance technologies and applications in Africa, Asia and Latin America, March 2017, p.18

63 Cenfri interview 64 Munich Re, M. Roth interview 65 For more information visit https://www.ibisa.network/66 Sinergise, Sentinel Hub Supporting IBISA in the Crop Micro-Insurance Field (July 2019) : https://medium.com/sentinel-hub/sentinel-hub-supporting-ibisa-in-the-crop-micro-insurance-field-7c754499dac668 CENFRI, InsurTech for Development: A review of insurance technologies and applications in Africa, Asia and Latin America (March 2017) p.18

In addition, Chat-bots can pre-filter newclaims or, over time, be part of a fullyautomated claims process (so-called StraightThrough Processing).63 Remote sensing canalso be used in that context for onlineinspections, even if sometimes still combinedwith concrete inspections by village officialson site.64 Ibisa,65 for example, uses earthobservation through ‘crowd-watching’ anddecision making on a public blockchain toreduce the costs for its parametric cropinsurance in India and Nigeria.66

The disruptors: technology-enabled products

In addition to facilitating access to insuranceand reducing frictional costs associated withtraditional products, technology has given riseto entirely new species of insurance products.

The overall trend seems to be thestreamlining rather thandisruption of the insurancesector. However, some disruptiveapplications are emerging

Cenfri

Parametric insurance

Conventional insurance indemnifies thepolicyholder for the loss suffered in an insuredevent. Parametric insurance by contrast paysa fixed amount upon the occurrence of atriggering event. The amount payable can bebased on a modelled forecast of the loss thatthe policyholder will incur. The nature of theproduct means that no loss adjusting needtake place, and as soon as a pre-determinedthreshold has been met, the policy is triggeredand payment is made.

A parametric trigger is often set by referenceto a measure of a natural event which isdeemed likely to lead to a loss or a series oflosses. For example, a product designed torespond to hurricane losses could be triggeredby wind speeds reaching a certain pre-agreedintensity and in a specified location, allaccording to a trusted and verifiable providerof weather data. While for drought andagricultural cover, the parameters might bebased on satellite images of the colour of theground, or volume and frequency of rainfallover defined periods.

Technology is foundational to parametricinsurance. Parametric products may rely onBig Data for modelling and analytics to definethe trigger, or they may use satellites, remotesensing or other IoT sensors to act as thetrigger for payment. They may also usebespoke software with various real-worldinputs calculating satisfaction of the indextrigger, or automated processes enabledthrough smart contracts built on DLTtechnology, automatically executing thecontract for payment in response to the triggerbeing met.

Some parametric products will pay claims viamobile wallets, or provide other notificationsto insureds via mobile phones. Etherisc plansto use SMS to update farmers on the currentstatus of their parametric crop insurancepolicies, and to inform them once a paymenthas been triggered. In Senegal, PlaNetGuarantee uses satellites as a means ofverifying data gathered from weather stationsmeasuring rainfall against satellite images toassess payment through its parametricproducts.68

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Parametric insurance, however, presentsunique consumer protection issues, including“basis risk” i.e., the possibility that relevantparametric triggers – for example averagerainfall over a two month period – are nottriggered and payments are not made, despitesome policyholders having crop failures. Inaddition to leaving insureds exposed, thesecircumstances can lead to reputationalproblems and a loss of trust in the insurancecompany. To minimise basis risk, it isnecessary to have these triggering eventsdefined as accurately as possible; however, thebalance must be kept in regard to cost intensityand transparency. 69

Interestingly, some have reported that inemerging markets parametric products arebeing sold as insurance, whereas in developedmarkets such products are often sold asderivatives. In Australia, agricultural index-based products may be offered as a derivative,paying out when the weather data is triggered;this may sidestep certain regulatoryrequirements on insurance products orinsurers, being regulated as a financial productrather than a retail product. In otherjurisdictions, the insurance approach ispreferred, potentially due to the way suchpolicies are funded by international donors: thefact that insurers will generally have betterdistribution channels and that people andinstitutions may be unfamiliar with derivativesarrangements, and therefore may default toinsurance approaches and the attendantconsumer protections offered by insuranceregulation instead.

In the face of weather shocks – usually dryseasons or excess rain – timing and speed ofpayment is critical, and the ability ofparametric products to pay out quickly is animportant and invaluable feature. Insuredsneed to act fast to replant, recover or rebuild.

69 M. Roth, Munich Re. interview70 International Association of Insurance Supervisors, Report on FinTech Developments in the Insurance Industry (February 2017) Section 371 NOTE: This product was not sold prior to the Covid-19 pandemic. For more information visit https://www.slipcase.com/view/inside-in-full-pandemic-product-saw-no-takers-before-coronavirus-marsh-broker?track=0&utm_medium=email&utm_source=slipcase72 For more information visit http://metabiota.com/73 Risk Management Magazine, Andrew W. Singer, The Evolution of Parametric Insurance (April 2019) : http://www.rmmagazine.com/2019/04/01/the-evolution-of-parametric-insurance/

Parametric products can cover risks that arenot otherwise easily insurable, and allow formore scientific pricing of products thatrespond to specific isolated parameters, ratherthan the physical losses which might resultfrom any number of a wide range ofoccurrences. Together with lower claimsmanagement costs, this may make lines ofbusiness commercially viable that were notpreviously.

By its nature, with swift payment mechanismsupon satisfaction of the trigger, parametricinsurance also brings with it the ability toaccelerate claims payments and rapid fundingfor relief, recovery and reconstruction efforts;as a result, it may have the greatest potentialimpact in countries most dramaticallyaffected by natural perils and where theprotection gap is currently large. In addition,the metrics used in parametric covers canhelp insureds better understand their riskexposures and therefore lead to better riskmanagement and loss mitigation efforts. Thatsaid, there will no doubt be operationalchallenges in determining the most effectiveand safest way to channel these funds, and –in developing partnerships – to allow insurersto do so.

Parametric insurance can also facilitate thedevelopment of trust in insurers. If welldesigned and presented, parametric insurancecan help provide customers with certaintythat claims will be paid. There are a range ofexamples of parametrics in action, includingPula Advisors74, Oko75, PlaNet Guarantee andWorldCover76.

Parametric insurance and agriculture

Parametric models have wide-rangingapplications in agriculture, and agriculturalinsurance is an important product in manyemerging economies. Crop indemnityinsurance for smallholder farmers in rural

areas, for example, is costly to implement.Individual field visits for loss assessment canbe time-consuming and incur high costs, thusreducing the affordability of such insurance.77

Index-based insurance can address some ofthe issues in serving smallholder farmers.

Parametric products can be tailored to theunique requirements of agricultural riskwhere insurance may in fact only be requiredfor key stages in the growth cycle. Insurers ofagricultural products need to start with a solidunderstanding of the risk and partner withcrop modellers to model critical times in thecrop’s particular growth cycle from themoment the seed is sown.

To help small sesame growers in Paraguaymitigate risk associated with drought, the Tajycrop insurance company developed animproved weather index-based insuranceproduct with the support from the Inter-American Development Bank (IDB) andMultilateral Investment Fund (FOMIN). Thisinnovative index was developed by EnsoAgLLC, a start-up company that providesweather and climate-based solutions to theagricultural industry.

EnsoAg LLC developed an advanced web-basedplatform to provide growers, cooperatives andthe Tajy technical staff with access to the Tajyweather stations network, as well as a varietyof climate and weather monitoring andforecast products. Growers can also checktheir current index accumulation andcompare to insured thresholds via weekly SMSmessages.78 In addition, applications based oncrop models are being developed to evaluatealternative management practices, e.g.regarding planting dates, crops, and varieties.This combination of a service (guidance anddata) and a product (parametric risk transfer)may offer a dual benefit; helping policyholdersimprove their crop yield, and provide a pay-out if the rains fail.79

74 For more information visit https://pula-advisors.com/75 For more information visit https://www.oko.finance/76 For more information visit https://www.worldcovr.com/77 Society of Actuaries, Technology in Microinsurance: How New Development Affect the Work of Actuaries, p. 13 (May 2019) : https://www.soa.org/globalassets/assets/files/resources/research-report/2019/2019-technology-microinsurance.pdf78 IDB Lab, Dr. Clyde Fraisse, Lorena Rios and Nestor Robles, Innovative Weather Index Insurance Help Small Growers in Paraguay Mitigate Climate Risk, (February 2018) : https://bidlab.org/en/node/12479 Engineering Solutions for Agriculture, Crop Yield Risk : http://ensoag.com/crop-yield-risk/

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It may also be the case that certain industries,such as agriculture or livestock, may not onlybenefit from insurance coverage, but willequally benefit from the services that can beprovided by advances in technology andproducts that actively manage risk. Suchofferings may not only help the overallsustainability of the industry in question, butalso the affordability of the insurance offeringto the consumer, by lowering pricing, renewalrates and assisting insurers in scaling up therelevant offering.

80 Insurance Development Forum, How Technology Can Help Bridge the Protection Gap (November 2019) p. 27 - 68 : https://www.insdevforum.org/sites/default/files/Final%20'How%20technology%20can%20help%20bridge%20the%20protection%20gap'%20report%20.pdf81 https://www.swissre.com/institute/research/sigma-research/sigma-2016-04.html82 For more information visit https://nexusmutual.io/

Parametric covers will not replacetraditional insurance products.When used properly, they cancomplement existing insurance toprovide comprehensive andaffordable protection – inagriculture and many otherbranches of the insuranceindustry

Michael Pickel, board member ofHannover Re and CEO for E+S ReParametric agricultural insurance, however,

has yet to find a sustainable way to scale themarket to ensure financial viability. Manyagriculture insurance products are reliant ondonor funding to reach this market, withsignificant subsidies by governments beingpaid; a necessary in developed countries.Another obstacle to the expansion ofparametric insurance is the lack of awarenessand understanding among prospectivepolicyholders. Data, partnerships, distributionand basis risk are other constraints to drivingadoption and scale.

More fundamentally, parametric insurancecarries with it “basis risk” – the risk that thecover is not triggered when the policyholderhas incurred a loss (or vice versa), or that thepredetermined payment differs from thepolicyholder’s actual loss. This issue wascovered at length in the IDF’s 2019 report onthe use of technology in connection withsovereign and sub-sovereign risks.80 Becausethis is an inherent feature of parametricinsurance, there is enhanced risk of mis-selling the cover when offering it toindividuals.

Peer-to-peer insurance

Peer-to-peer (P2P) has been called “themutual of the 21st century”,81 allowing risksharing between individuals who share thesame or similar risks. Peer groups, such asowners of houses or cars, families or friends,team up to absorb each other’s risks, witheveryone contributing premiums to insureeach other’s losses. This system relies ondigital technology to connect the individualswith each other on a digital platform ormarketplace, independent of location.

Early attempts at P2P insurance were oftenarranged by intermediaries of traditionalinsurers that sold products with adeductible, where part of the premium paidby the group was kept aside by theintermediary to pay the deductible on behalfof a group member having a claim, therebysharing part of the overall risk (in theamount of the deductible) with the group.More recently, however, and powered byinfrastructure-replicating technologies likeDLT, there are more and more P2P risksharing initiatives where no traditional riskcarrier is involved. Nexus Mutual82 is onesuch example.

P2P can deploy social networks to limit fraud,and funds from the risk pool that were notspent can be returned to users (after theplatform has deducted a management fee). Toensure risk-pools are not exhausted, P2Pnetworks will reinsure to ensure thatpolicyholders are not themselves liable.Examples include Pineapple83 and Granadilla,84

both based in South Africa.

The use of P2P insurance in emerging marketsmay be some time off, but there are elementsof it that could be beneficial, includingbuilding trust in coverage and facilitating acommunity sense of responsibility formanaging risk; similar to rotating savingsgroups or group loans in microfinance.

Technology’s limitations

New technology is not a panacea to solvingthe problem of the protection gap.85 Itsgreatest potential is where innovative use oftechnology is combined with greater focus andeffort by insurers to develop and deliverproducts that are suitable and responsive totheir customer needs. This means adaptingproducts and practices to local requirementsand being responsive to the market.

Good conceptual ideas for technology may stillfail in practice if there is inadequate marketresearch. Most importantly, technology cannotbuild trust where there is none to begin with.It also risks excluding the most vulnerable ofall, can only reduce costs and limit damage tosome extent, and it may still fail when theoverall exposure is just too high. The savingsthrough the use of technology are thereforenot sufficient to make the risk insurable.86

As evidence of this, despite the array of cost-effective technology solutions, some insurersstill choose to deploy traditional high-touchapproaches in emerging markets – such as

local agents – to support consumerunderstanding and build trust. Distribution viaagents, for example, is one of the keycomponents of the BIMA model. With morethan 3,500 salespeople across the developingworld, it has signed up 24 million customers inAfrica, Asia, and Latin America. Their callcentre in Honduras houses more than 100agents to support a team of 40 field agents.

Technology does not have to be cutting-edgeto be of value, and can be coupled withtraditional approaches to foster insurancepenetration. In India, Swiss Re notes there are“village based centres” where there is directaccess to insurance through a local person in avillage with a computer and access to theinternet; this person is able to process ordersand pass on the necessary information neededto secure cover for those who are basedremotely and do not have direct access to theinternet. This system is not only used foragricultural insurance, but a wide range ofinsurance products are acquired this way.

In addition, certain technologies in isolationmight not be able to gather the trust ofpotential consumers in emerging markets,especially when the solutions on offer areprovided by non-local providers that have notpreviously or rarely engaged with the localmarket. This is also the case if the technologyis still widely unknown or little understood(such as blockchain/DLT).

Technology offerings or solutions shouldtherefore be adapted to the specificrequirements and particularities of the targetmarket; this might include various factors,such as the climate in the particular countrybeing considered, infrastructure restrictions,socio-economic factors or consumers’knowledge of and historical attitudes towardsinsurance.

83 For more information visit https://www.pineapple.co.za/84 For more information visit https://granadilla.ai/85 Stefanie Zinsmeyer, Access to Insurance Initiative (A2ii) and Katharine Pulvermacher, Microinsurance Network (MiN), InsurTech – Rising to the Regulatory Challenge: A Summary of IAIS-A2ii-MIN Consultive Forums 2018 for Asia, Africa and Latin America, p.7 : https://microinsurancenetwork.org/sites/default/files/Report_ConsultativeForums_2018-en.pdf86 Munich Re, M. Roth interview

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The most innovative technology or idea mightfail in practice, especially if consumers do nothave the technological resources andunderstanding to use it. As a result, extensiveand specific market research is required toensure that the product and the deliverymeans will meet the needs of the potentialconsumer base.

MicroEnsure suggests that while someconsumers in emerging markets would acceptthat the climate is changing and that thispresents increased risks to them or theirlivelihoods, they would not place parametricagricultural and/or crop insurance as theirmost pressing risk-transfer need. In contrast,such consumers might be more interested inlife insurance as a result of the threats posedby increasing volatile weather-relateddisasters, or health insurance for familymembers as a result of increased risks ofillnesses, such as malaria (owing to wetterconditions). Consequently, when developingnew technologies to combat the protection

gap, care should be taken to appropriatelycanvass and engage those most exposed tothese risks, to ensure that such technologiesare effectively meeting their requirements.

While technology can be used to substantiallyreduce the costs of providing insurance toconsumers, the cost of tech-enabled solutionscan still be a barrier to consumers in thepoorest parts of the world who might not beable or willing to pay commercial insurancerates that cover the cost for delivery of theproduct.87 Why should someone pay everymonth for an insured event that might onlyoccur every five years, while other issues suchas health problems or unpaid tuition fees areoccurring at all times?88 As such, governmentsubsidies or engagement of sovereigns or sub-sovereigns, are often required to ensure thatcertain products, such as parametricinsurance, are economically viable for thecommercial insurance market to offer inemerging markets.

87 MicroEnsure interview88 Munich Re, M. Roth interview

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Legal and regulatory issues

IDF| Technology and Innovation: Tools to help close the Protection Gap in Microinsurance Markets| 34

Legal and regulatory issues

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Legal and regulatory issues

2

Innovation by definition means somethingoutside of the traditional. The development ofinnovative products, or distributionarrangements harnessing new technologies,can often fall outside traditional regulatory,legal or accounting categories. The productsthemselves may be novel and unfamiliar toregulatory authorities.

Regulators also have to consider theemergence of new players, with newinsurance market entrants or participantsranging from FinTech/InsurTech start-ups, toTSPs or MNOs. The use of technology alsoaffects the distribution chain with the mergerof traditionally more distinct roles of broker,agent, and carrier. This poses a perceived orreal threat to some market incumbents, aswell as challenging existing regulatory orlicensing categories.

Licensing and prudential requirements cancreate barriers for entry for potentialparticipants in financial services markets.Providers who are unable to meet theregulatory entry requirements will struggle toenter into the relevant markets. “Disruptor” orinnovative firms – especially start-ups – maybe even less able to comply with theregulatory requirements due to limitedresources or personnel. As such, InsurTechstart-ups may be effectively prohibited fromentry or may need to dedicate a considerableand/or disproportionate part of their resourcestrying to navigate the regulatory environmentand to avoid overstepping the boundaries setby regulators.89

Start-ups and new innovators may find thisparticularly challenging, as they often need atrack record to attract investment orpartnership. In fact, start-ups regularly findfundraising challenging during their first raise,regardless of regulatory challenges. If start-ups are unable to get a track record without at

least temporary entry to market to prove theirproduct in a pilot format, they might be lesslikely to attract investment.90

Additionally, new market entrants or projectpartners may not have the same level offamiliarity with rules and requirements, orthey may be operating to different timeframesand with different priorities. New technologiescan also challenge existing national regulatoryarchitecture. With tech-enabled insurancetraversing boundaries of technology andinsurance, while being offered as part ofbundled products with other goods or services,the resulting offering may be something thatis not easily defined simply as insurance, but ahybrid product with some insurance elements.If law and regulation do not keep pace withdevelopments, it can stifle innovation, owingto the potential for regulatory uncertaintiesfor potential new entrants or “disruptors” tothe market; this may foster a more cautiousapproach by such actors or regulators who arenot adequately equipped to supervise new andinnovative market entrants providingInsurTech solutions.

There are a number of ways in which laws andregulation may prove to be a barrier to thedevelopment or deployment of InsurTechsolutions. This section addresses some of thekey hurdles that can arise when regulation orthe regulatory architecture is not able to keepup with the pace of change.

It is important to note that many regulatorsunderstand and support the use of newtechnology or the innovative use of existingtechnology to better serve consumers.Accordingly, insurers and other innovators inthe market need to engage with regulators toexplain their innovations and to explore andrespond to legitimate regulatory concerns.

89 Cenfri interview 90 Cenfri interview

IAIS regulation principles

The International Association ofInsurance Supervisors' (IAIS) InsuranceCore Principles (ICPs)91 provides aglobally accepted framework for thesupervision of the insurance sector.

One of the challenges facing regulatorscentres on attempts to balance theadherence to the ICPs, with theprovision of some flexibility to allowinsurers to develop innovative productsthat will aid in closing the protectiongap..

91 International Association of Insurance Supervisors, Insurance Core Principals : https://www.iaisweb.org/page/supervisory-material/insurance-core-principles/92 Stefanie Zinsmeyer and Katharine Pulvermacher, Micro Insurance Network, InsurTech – Rising to the Regulatory Challenge: A Summary of IAIS-A2ii-MIN Consultative Forums 2018 for Asia, Africa and Latin America, p. 5 : https://microinsurancenetwork.org/sites/default/files/Report_ConsultativeForums_2018-en.pdf p.5

Many industry stakeholdersstressed the fact that the need towait for regulatory change mightkill an innovation. Theyunderlined the importance ofregulatory certainty and clearsignals from supervisorsthroughout the process92

Cenfri

Lack of regulation

On the other hand, inadequate regulations or alack of regulation may result in the risk of new“disruptive” entrants enjoying degrees offreedom which incumbent players do not –compromising customer protection and trustto the detriment of all players in the market.

Ensuring trust is a key factor in addressingthe protection gap in emerging markets. Therisk of mis-selling parametric products andthe risk of triggers failing to release fundswould quickly erode trust in such productsin emerging markets, and would act as abarrier to progress. At the same time,innovative new insurers or offerings maythemselves benefit from the absence ofoverregulation or entrenched regulatorycategorisation.

In some instances, lack of regulation orregulatory “gaps” can be a problem. This lackof regulation may go beyond insuranceregulation. For example, there may bejurisdictions where a lack of cohesivecontract law can have a detrimental effecton consumers’ trust of insurance agreementor the industry more generally. Wherecarriers do not know what the requirementsare, or these are imprecisely or inadequatelydefined or enshrined in written instruments,the resulting uncertainty can cause delays ordifficulties for would-be innovators or newmarket entrants. Where there is uncertainty,it can create hesitancy amongst carriers orwould-be market participants, andconcerned about breaching law or fallingfoul of existing regulation inadvertently, theymay not risk entering a new market at all.

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In some instances, such issues can beovercome by active engagement and opendialogue with regulators. Some regulators,despite lack of regulatory categorisation, willmaintain a relatively open door, which enablesa frank discussion of the contours of tech-enabled products and systems. This, however,depends on sufficient regulatory capacity todeal with inquiries.

Overregulation

At the other extreme is overregulation:excessive or prohibitive regulations which caneasily stifle innovation and prevent progress.93

Regulation can raise barriers to entry andprotect existing players from competition,thereby also depriving the country of theability to address protection gap issues due tothe lack of innovative and effective insurancesolutions developed locally. It may also renderexperimentation virtually impossible, asregulated activities usually require expresspermission from the regulator.

The costs of seeking approvals or ensuringcompliance may mean that less funds areavailable to spend on research anddevelopment. Where new technologies areinvolved, the value chain can be significantlyshortened, with a merging or blurring of linesbetween “traditional” roles of introducing,broking, claims administration, marketing andunderwriting. Regulatory categories that arestrictly defined may be maladapted to theparticipants in technology-enabled valuechains. Furthermore, there are instanceswhere regulators have not supportedinnovative models due to concern over thepotential disruptive impact on the traditionalinsurance model. A supportive, open-mindedregulatory culture is required for tech-enabledproducts to flourish in the market.

Some countries have restrictive Foreign DirectInvestment (FDI) policies in the insurancesector to ensure that domestic insurers are

protected from being engulfed by largeinternational brands looking to expand intonew markets. Such regulation risks limitingthe access to innovative and effectiveinsurance solutions that international insurershave developed and are able to offer in orderto bridge the protection gap. If a country haslow insurance penetration and restrictive FDIpolicies protecting domestic insurers,consumers may be precluded from accessinginsurance solutions suited to their needs.

Regulatory prohibitions

There may be specific requirements foroutsourcing functions and specific licensingrequirements for partners operating indesignated regulatory roles. A thoroughunderstanding of regulatory and licensingcategories and delineation of responsibilitieswill be all-important. In China, insurerscannot distribute insurance products throughnon-admitted channels. Specifically, Chineseinsurers are only permitted to distributeproducts through themselves or throughlicenced brokers or agents. In light of thedevelopment of mobile distribution, themobile distribution of insurance products canalso only be carried out by licenced Chineseinsurers, brokers or agents.

Some countries will require intermediarieswho arrange insurance to be licensed, so as toensure they have the requisite knowledge andskills to advise customers. Inclusive insuranceproducts in emerging markets, however, areoften highly simplified and distributed bypartners – such as MNOs or supermarketchains – who do not usually fall within theregulatory framework of insurancesupervisors. Online P2P platforms (like China’sTongJuBao) may challenge the need forobtaining an insurance licence in anyparticular jurisdiction. Where certain types ofinsurance are prohibited or carriers restricted,it could mean that whole types of innovationmay inadvertently be stifled.

93 The Geneva Association, Harnessing Technology to Narrow the Insurance Protection Gap (December 2016) p.26 : https://www.genevaassociation.org/sites/default/files/research-topics-document-type/pdf_public/harnessing-technology-to-narrow-the-insurance-protection-gap.pdf

Lack of harmonisation

For some products to be brought to scale ormarket-tested, carriers may wish to deploythem across jurisdictions or regionally, whichmeans that costs of compliance are repeated,limiting potential economies of scale. This isnot just an issue in emerging markets; in theUS, insurance regulation is often on a statebasis, meaning start-ups have reported beingslowed in bringing products to market by theneed to secure regulatory approvals in 50different jurisdictions.94

Approvals and Regulatory capacity

The age of digitalisation and rapiddevelopment presents a “moving target in amoving environment”.95 The fast-movingenvironment in which InsurTech operatespresents a challenge for existing regulatoryframeworks and regulators that can inevitablylead to regulatory gaps that might not be filledfor long periods of time, particularly incircumstances where regulators may not havethe funding or capacity to keep up with thepace of change in real time. SupervisingInsurTech activities requires technologicalliteracy and a new set of supervisory skills,96

which may take time to develop.

There are competing timescales whereinnovative products are concerned.97 Start-upsmay have timescales of 12 to 18 months, inwhich they have to bring a “use case” to proofof concept, and then scale to attractinvestment. Without regulatory approvals atkey stages, great ideas could wither on thevine or become surpassed by competitors whoare better able to leverage capital, rather thanbeing necessarily best in class as a

technological solution. Incumbents orinnovators from established economies maybe at an advantage to home-grown solutionsin emerging markets and seeking productapprovals, given they are more readily able toaccess further capital and venture capitalinvestments. Partnering insurers who providecapital or sponsorship, or are assisting on thecompliance side with product approvals, maynot have the same time constraints oroperational timelines. Regulators, too, may beworking to different timescales.

Lack of regulatory capacity can mean thatregulators themselves may be stretched andunder-resourced, or lack the skills, experienceand knowledge to understand the contours ofthe new technology solutions; due to a lack oftime or resources, they may also be unable toleverage contacts and resources to assist inunderstanding. The natural inclination insuch circumstances can be to “say no first, askquestions later”, which can act as a break oninnovation. The most innovative products,however, are those that require the mostinvestment of time and resources to properlyunderstand, and as a result, may face longertimescales for product approval.

Poor experiences with one regulator may leadinnovators to move on to new markets, whereregulators are both more open to working tounderstand and better resourced.Unfortunately, this may lead to anoversaturation of new ideas and innovation intested markets, rather than those whereinnovations and market solutions may bestrespond to local challenges in bridging theprotection gap, particularly in emergingeconomies.

94 Christopher Munro, Insurance Insider, US Regulation Remains a Hurdle for InsurTech (June 2019) : https://www.insuranceinsider.com/articles/127060/us-regulation-remains-a-hurdle-for-InsurTech95 Stefanie Zinsmeyer and Katharine Pulvermacher, Micro Insurance Network, InsurTech – Rising to the Regulatory Challenge: A Summary of IAIS-A2ii-MIN Consultative Forums 2018 for Asia, Africa and Latin America, p. 4 : https://microinsurancenetwork.org/sites/default/files/Report_ConsultativeForums_2018-en.pdf96 Stefanie Zinsmeyer and Katharine Pulvermacher, Micro Insurance Network, InsurTech – Rising to the Regulatory Challenge: A Summary of IAIS-A2ii-MIN Consultative Forums 2018 for Asia, Africa and Latin America, p. 4 : https://microinsurancenetwork.org/sites/default/files/Report_ConsultativeForums_2018-en.pdf97 Ton Herbstein, Insurance Prosperity Specialist, UK Department for International Trade

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Regulatory duplication and arbitrage

With some transactions it may be unclearwhich regulator(s) have responsibility forregulatory oversight and control, as productsor companies may traverse the remits ofcommunications, banking or other regulators(or even health or other regulators whereinsurance is offered as an add-on part of abundled product). There is clearly, however,the potential for new modalities, functionsand roles.98 Where innovation fundamentallychanges a market, those categories – or themeans by which categorisation is determined –may prove to no longer be fit for purpose, andamendment or revision may be necessary.

In Australia, agricultural index-based productsare being offered as derivatives, paying out onweather triggers rather than being offeredexpressly as insurance products. This finedistinction would impact on whether theseproducts are to be governed by the insuranceregulator, or whether they should be regulatedas a financial product as opposed to a retailproduct.

Innovative developments may intersect theauthority of multiple sector regulatoryauthorities, particularly as tech-enabledinsurance can cross the boundaries oftechnology and insurance, and many are beingoffered as part of bundled products with othergoods or services. Accordingly, innovativeproducts may be subject to more than one setof regulatory requirements, or may operate ina “regulatory grey area”.99 The need forsupervisory coordination and cooperation iskey to combatting these potential issues.

Regulators will also need to respond to the riskassociated with the bundling of products whenan asset is insured a number of times undermultiple policies. This may in turn erode trustin burgeoning insurance sectors attempting todevelop a foothold in emerging economies.Regulators will therefore need to take abalanced approach to the introduction ofInsurTech to address the protection gap andthe potential regulatory relaxation or leewaythat may be required to do so; however, theymust ensure that the regulatory framework isrigid enough to ensure there is sufficientcapital available, and there is no mis-selling toa population that may be less financiallyliterate.

Where the various concerned regulators donot co-ordinate, or refuse to concederegulatory authority to another regulator inrelation to the concerned product, there is thepotential for significant regulatoryuncertainty. Each of those bodies may havedifferent priorities, requirements or timescalesfor approvals and, in some instances, mayactively compete with, or seek to establish,jurisdiction in preference to “competitor”regulators nationally. Overlappingjurisdictions of regulators and supervisors hasthe potential to increase costs andsignificantly increase approval timeframeswhere these regulators seek to establish theirown jurisdiction over others. This may resultin innovative firms incurring substantial costsin trying to navigate the relevant environment,which in turn might affect their ability toattract investor funding.100

98 International Association of Insurance Supervisors, Application Paper on the Use of Digital Technology in Inclusive Insurance, p. 16, : https://www.iaisweb.org/page/supervisory-material/application-papers/file/77815/application-paper-on-the-use-of-digital-technology-in-inclusive-insurance#99 Cenfri interview 100 Cenfri interview

101 International Association of Insurance Supervisors, Application Paper on the Use of Digital Technology in Inclusive Insurance, p. 16 : https://www.iaisweb.org/page/supervisory-material/application-papers/file/77815/application-paper-on-the-use-of-digital-technology-in-inclusive-insurance#102 Cenfri interview 103 Quote from Christoph Mussenbrock, Etherisc.104 Cf. https://nexusmutual.io/

There can also be overlapping boundaries ofnational jurisdictions at the supranationallevel, requiring cooperation betweensupervisory authorities internationallythinking outside of the jurisdictional “box”.101

International remittances are increasinglyimportant in many countries and, similarly,an individual based in the US may wish topurchase an insurance product for a person orrisk based in another jurisdiction. Reflectingthis potential market, the Philippines isworking on a pilot where insurance can bepurchased from another jurisdiction for riskslocated locally. Such schemes may requirecollaboration between regulators and acrossjurisdictions, and have the potential to createtax and other issues for national regulators.However, if appropriate Memorandums ofUnderstanding (MOU) and other agreementscan be worked out between countries toprotect consumers, data and provide clarity,there is no reason why in principle, such tech-enabled schemes could not be feasible in thefuture.102

Legal definitions

Legal definitions for insurance can createdifficulties for innovative products. Forexample, parametric insurance products maybe subject to legal or regulatory uncertainty injurisdictions where: 1) the insured must havean “insurable interest” at the time the policy isunderwritten and/or at the time the lossoccurs; and 2) the size of the insurance pay-out must correspond to the actual losssuffered by the insured. This “indemnityprinciple” can mean that in certainjurisdictions, an insurer may only restoreinsureds to their pre-loss financial position:such losses must be valued or assessed beforeclaims can be paid, limiting one of thepotential benefits of parametric solutions(speed of payment).

At the same time, tweaking the way theoffering is structured might also offer a wayout of insurance regulation, e.g. by erasing thepromise or legal obligation traditionallyrequired under insurance definitions andclaiming instead that the service of a smartcontract is offered which, in case of an actualloss, might only pay out once itspredetermined triggers are met – with no legalremedy should such payment ultimately notoccur. Using that model, Etherisc has obtainedconfirmation from the German regulatorBaFin that such an offering does not fallwithin the regulatory perimeter.103 Similarly,P2P offerings may be qualified as discretionarymutual, where the members vote on any claimmade, with no legal recourse against thedecision, and therefore not subject toinsurance regulation.104

Paper-based / anti-digital regulatoryrequirements

In some jurisdictions, there may be existingrequirements for contract formation thathamper innovation; for example,requirements for insurers to provide proof ofcover in paper format, or for insureds tophysically sign the policy document. Here, thecurrent COVID-19 crisis demonstrates howapproaches from regulators can differ andoften be prohibitive.

This can cause issues for tech-enabledunderwriting and distribution, or the volumeof transactions required, to achieve economiesof scale for some inclusive products. In manycountries, regulation stipulates that mobilemoney accounts be linked to bank accounts,which can mean that the potential for mobilepayment systems to reach the unbanked areminimised. There may be specific legislativerequirements governing distance selling andconclusion of contracts over the internet ormobile networks, which may not be adaptedto current or nascent technologies.

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Tax treatment

As discussed above, technology enables agreater number of bundled products, whereinsurance is offered as one part of a widerservice or product offering, such as an adjunctto healthcare services, business services or aproduct purchase. In such cases, it may bechallenging to delineate what element of theproduct offering and pricing is insurance, andwhat relates to the other product or services.Even between inclusive insurance products,there might be unequal treatment, with somebeing treated more favourably than others. InGermany, drought insurance – unlike hail,storm, heavy rain and frost insurance – wasnot covered by the heavily subsidisedinsurance tax rate of 0.3 per mile for inclusiveinsurance products until recently.

This presents both authorities and insurerswith challenges to determine the applicabletax to any such product, because each elementof the same may in theory attract differenttaxes, such as Insurance Premium Tax (IPT)for the “insurance element” or VAT for the“services element”. Active engagement fromthe tax authorities in each jurisdiction may berequired in order to achieve clarity on theapplicable taxes, which may also slow downthe pace of innovation, as insurers will want toincorporate applicable taxes into their pricing.

Data protection regimes

A good understanding of the law surroundingdata protection is essential for any insurer,due to the large amount of personal data andsensitive personal data processed by insurersoperating in emerging markets; this isparticularly the case where inclusiveinsurance products are offered to individualconsumers, and where customer data is beingshared between distribution partners, such asmobile network operators and insurers.

The IAIS has warned of the high degree ofinformation asymmetry between insurers

offering inclusive insurance for theircustomers, and considers this a particular areaof conduct risk. While overly restrictive dataprotection regulations may be seen as animpediment or obstacle, laws and restrictionsaround these issues are important to protectcustomers, particularly in developingcountries where the end customers may bevulnerable and within communities that don’thave access to the same education andresources as developed nations.

New data protection laws have emerged on aglobal level, particularly with the introductionof the EU General Data Protection Regulation(GDPR) in May 2018. GDPR is having asignificant impact on the insurance industry,as it imposes a wide range of tight dataprotection requirements for businesses whichhandle personal data in Europe, or personaldata of individuals located in Europe, as wellas heavy penalties for non-compliance.Compliance with GDPR is would be relevant toEuropean-based insurers looking to provideinnovative microinsurance products inemerging economies.

GDPR is applicable to personal data processingcarried out by a data controller (a companythat determines the purpose and means ofprocessing data), or a data processor (acompany that processes data on behalf of adata controller) based in the European Union(EU). It also applies to personal data processedby data controllers or data processors outsidethe EU, where such processing involves thesupply of goods or services, or the monitoringof the conduct of individuals located in the EU.Therefore, insurance brokers or non-EUcompanies selling policies to individualslocated in the EU will be subject to GDPR.Additionally, companies that operate branchesoutside the EU should check whether theactivities of those branches fall under GDPR(for example, if they rely on an EUestablishment for data processing, or carry outany processing on behalf of their EU affiliates).

It is important to note that GDPR concernscompanies of all sizes. There are generally noexclusions by sector or corporate dimensionfrom the applicability of GDPR; therefore,GDPR is equally applicable to emergingInsurTech companies.

GDPR introduces a number of new compliancerequirements. Companies have to notify dataregulators or affected individuals about anypersonal data breaches which are likely toresult in a risk (or high risk) to affectedindividuals. Notification significantlyincreases the costs of responding to a databreach, as well as the chances that affectedindividuals will make claims against datacontrollers.

A significant portion of the personal data thatinsurers hold about individuals is sensitive innature: e.g. about a person’s health or medicaltreatment. Sensitive personal data cannot beprocessed unless individuals have given theirexplicit consent to that processing or underother limited circumstances. Direct marketinghas also been significantly restricted by GDPR:“opt-out” mechanisms, such as pre-tickedboxes, are no longer a valid method ofobtaining consent from individuals. Moreover,cross-border transfers of personal data tobranches or third parties based outside the EU,where data laws are not considered“adequate” by the European Commission, willrequire companies to put in place contractualsafeguards, such as Binding Corporate Rulesor EU Standard Contractual Clauses.

Furthermore, GDPR introduced the “right to beforgotten” which allows individuals to makeapplications for erasure of all of their personaldata. This creates a concern regarding the useof DLT in that once customer data is added tothe blockchain, it is very difficult to remove,making the fulfilment of such erasureapplications challenging.

Data protection and data privacy is a growingissue on a global level, particularly in anumber of emerging markets. All consumersdeserve robust and adequate data protectionregimes, and rules must reflect marketrealities and needs, and not unnecessarilyrestrict access to protection or inject excessivecosts into the system. In the Middle East, lawsare being developed that not only attachmonetary fines (similarly to GDPR), but alsocriminal sanctions against non-compliance.Consideration must therefore be given to thevarious data protection regulations that maybe relevant to cross-border data transfers, asthere may be more than one data protectionregime that is applicable.

Other Issues

This paper is not intended to be a summary ofall possible regulatory issues that may arise.For example, when products are offeredthrough or alongside connected devices andother technologies, regulators and othermarket actors may need to consider otherregulatory requirements, such as marketingstandard or intellectual property rightsassociated with those technologies, and howthose technologies are deployed.

Another potential issue worth highlighting isthat there may be a lack of understanding orresources within InsurTechs to allownavigation of significant or burdensomeregulatory regimes. On some occasions,regulations can be straightforward and whatInsurTechs are intending to do does not falloutside of the existing regulation. It issometimes the case that InsurTechs perceivethe navigation of the regulation aschallenging, onerous and a major obstacle,when in reality it is not. Regulators shouldtherefore make efforts to build awareness andunderstanding of their regimes, as well asworking on breaking down this perception bywelcoming open discourse.

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Innovative regulatory responses

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Innovative regulatory responses

3

The ability of new technologies to penetrate previously under- or uninsuredmarkets and address the protection gap, is dependent upon supportive regulatoryregimes in which to operate.

105 Geneva Association, Harnessing Technology to Narrow the Insurance Protection Gap (December 2016) p. 8 : https://www.genevaassociation.org/sites/default/files/research-topics-document-type/pdf_public/harnessing-technology-to-narrow-the-insurance-protection-gap.pdf106 Center for Financial Inclusion at Accion and the Institute of International Finance, Inclusive Insurance: Closing the Protection Gap for Emerging Customers (January 2018) p.44 : https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/Inclusive-Insurance-Final-2018.06.13.pdf107 A2ii, Regulating Mobile Insurance, Insurance business via mobile phones: regulatory challenges and emerging approaches (April 2018) p.36 : (https://a2ii.org/sites/default/files/reports/2018_05_02_mobile_insurance_regulation_web.pdf)

108 Global Partnership for Financial Inclusion (GPFI), G20 Principles for Innovative Financial Inclusion - Executive Brief, p.5, “Principle 8 –Proportionality: Build a policy and regulatory framework that is proportionate with the risks involved in such innovative products and services, and is based on an understanding of the gaps and barriers in existing regulation” : https://www.gpfi.org/publications/g20-principles-innovative-financial-inclusion-executive-brief109 IAIS 2012

The proportionality principle

The principle of proportionality has beenimplemented by financial regulators innumerous jurisdictions and is advocated bythe A2ii in approaching m-insurance.107 It isone of the G20 Principles for InnovativeFinancial Inclusion.108 Insurance supervisorsimplementing this principle adapt specificsupervisory requirements, so that they alignwith “the nature, scale and complexity of risksposed”.109 This principle often forms the basisfor tiered regulatory requirements orlicences, as well as risk-based supervision.

Regulators and insurance supervisors need tohave sufficient technological skills andresources themselves and they must havesufficient knowledge of the insurance needs oftheir consumers in order to strike a balancebetween fostering new insurance models,while also continuing to maintain the trust in,and proper functioning of, the insurancemarket and financial system as a whole.

The key theme and aim for regulators is tofind a proportionate solution, creating abalance between innovation and safety;105

between growing the inclusive insurancemarket, thus closing the protection gap, whilemaintaining adequate protection forconsumers.106 Indeed, consumer protection ina digital technology driven market raises anumber of new issues for consideration,including product suitability.

On a practical level, the regulator needs tohave a flexible and accommodating approachto innovation that provides regulatorycertainty and transparency to existing andpotential market players. There are a range oftools available to the regulator to encourageresponsible innovation in its market that,when employed, can achieve the “balancingact”. These include both regulatory and non-regulatory responses available to a regulatorto encourage and facilitate innovation in itsmarket. However, not all of them will apply orbe appropriate in every context.

Regulators have adopted various approachesand solutions to encourage innovation withintheir mandate. We examine a few of themhere:

Regulatory reform

Law and regulation governing insurance maynot be fit for purpose and may requireadjustment or the creation of new categoriesor classifications. In some markets, existinginsurance regulations require proof ofcoverage and policy signature in paper format,and regulations might need to be adjusted toaccommodate digital transactions e.g. throughallowing digital signatures on mobile phonesand electronic receipts as confirmations. Inmany countries, regulation still stipulates thatmobile money accounts be linked to bankaccounts. In light of low levels of bankaccount penetration, more countries arerelaxing regulations to enable customers touse mobile money (e.g. through E-wallets)without having a bank account.

Law and regulation can also act as inhibitorsto innovation or insurance uptake in the sameways that such requirements can hamperother types of financial inclusion. Forexample, it is estimated that 200-300 millionAfricans do not have access to the relevantdocumentation required to open a bankaccount (such as proof of address), and yet asignificant amount of people in Africa willhave access to SIM connection or other suchresources.110 Accordingly, changing legalrequirements around KYC documentation, orusing a more proportional or risk-basedapproach to anti-money laundering, may besensible for jurisdictions wishing to buildfinancial inclusion, including insurancemarkets.

Technology may assist in this, with otherforms of KYC or identity verification beingenabled through social media, biometrics and

blockchain. Many jurisdictions do not yetpermit e-KYC and still require there to be aface-to-face sale, which can limit what onlineinsurers can do, or prevent solely digitalsolutions from being offered. Regulatoryreforms to enable digitisation of client dataand the creation of national databases whichleverage individual biometric data, forexample, will be important to capturing thefull potential of mobile insurance to targetprospective client segments.

Legislators may also need to take morefundamental reforms and adjust the overallregulatory architecture to proportionatelyregulate for responsible innovation or ensure aclear delineation between the remit andpriorities of various regulators (reducing therisk of regulatory arbitrage or duplication ofcosts, as innovators seek approvals frommultiple regulators). This can take time,however, provided there is sufficient in-builtflexibility, regulators may adopt other meansof fostering innovation with a proportionalapproach to regulation.

Law and regulation can support and enabletechnological innovation and thereby enablegreater insurance penetration. There are oftenno exemptions, reduced capital or complianceoptions offered by regulators for potentialdisruptors like InsurTechs or start-ups thatcannot yet comply with the capital,partnership or managerial experiencerequirements. It may be the case that thecapital or personnel requirements that aninsurer or insurance stakeholder considersnecessary or economical for offerings – likemicro insurance – is much lower than theminimum capital or personnel requirementsrequired by legislation in the concernedjurisdiction111. Contrastingly, if a regulatorreduces its capital or licensing requirementswithout careful consideration, there is also theincreased potential for consumers not beingadequately protected.

110 Cenfri interview 111 MicroEnsure interview

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There are a number of countries that arestarting to see some benefits after introducingregulatory reforms, such as an increased takeup in microinsurance products and insurancepenetration more generally. Mongolia andGhana are two examples, where theprogression of regulatory microinsurancereforms have been documented by A2ii.112 Inthis regard, it was estimated by the GhanaianNational Insurance Commission that up to29% of the population in Ghana had access tomicroinsurance cover, and up to 65% of thepolicies issued in Ghana in 2019 weremicroinsurance policies.113 Some of thissuccess has been attributed to (amongst otherthings) regulatory reforms, approval times andalso the enabling environment adopted by theregulator.

Case-by-case approvals

In some jurisdictions, regulators take a case-by-case approach to innovation. In thosecases, close collaboration between insurers orproduct developers and regulators can resultin impressive progress. In China,microinsurance and parametric insuranceproducts are approved by the regulator on acase-by-case basis. Close collaborationbetween the innovators and the regulator hasallowed for specific, highly-tailored productsto enter the market. Products are beingdesigned and sold locally with the backing ofthe regulator to great effect. For example, alow-temperature weather parametricinsurance product is being sold locally withthe support of local governments. However,the case-by-case approvals may not always bethe most effective option, particularly if theregulator does not have sufficient capacity, asthis has the potential to lead to significantdelays in the implementation of products.

Test-and-learn

While regulatory frameworks can be adjustedto accommodate innovations, the pace andnovelty of change mean that it may be best totest new ideas before entrenchingrequirements in regulation. With the test-and-learn approach, regulators observe the impactof an innovation or product adaptation (“test”)and to adjust their regulatory response to it,based on their improved knowledge of itseffect (“learn”).

In close cooperation with the innovator, theregulator crafts a framework to test aninnovative product or technology in a liveenvironment, with safeguards and keyperformance indicators in place. Test-and-learn approaches can ensure the oversight ofpilots during product approval process, betterunderstand m-insurance models, encourageinnovation within a controlled and supervisedenvironment, and collect inputs for regulatorychanges.114

Globally, financial regulators have appliedtest-and-learn approaches for several years.The Philippines Central Bank (Bangko Sentralng Pilipinas) began applying a test-and-learnapproach to regulating mobile money in thePhilippines in 2001.115 The Central Banks ofKenya and Tanzania similarly employed atest-and-learn approach to enable innovationin retail electronic payment systems to allowtelecommunication operators to launchmobile money services more than a decadeago.116 The test-and-learn approach has alsobeen incorporated into the G20 Principles forInnovative Financial Inclusion.117 Nonetheless,official guidance on the manner in whichregulators should adopt test-and-learnapproaches is limited. The test-and-learnapproaches encountered in many emergingmarkets tend to be ad hoc in nature and on acase-by-case basis, and are often nottransparent to other market players.118

112 Hui Lin Chiew, A2ii: 10 Years On (September 2019) : https://www.a2ii.org/index.php/en/media/913/download113 Hui Lin Chiew, A2ii: 10 Years On (September 2019) : https://www.a2ii.org/index.php/en/media/913/download114 International Association of Insurance Supervisors, Application Paper on the Use of Digital Technology in Inclusive Insurance, p.17 : https://www.iaisweb.org/page/supervisory-material/application-papers/file/77815/application-paper-on-the-use-of-digital-technology-in-inclusive-insurance#115 GSMA, 2012116 Di Castri & Plaitakis, 2017117 AFI, 2011 118 Cenfri interview

Innovation Hubs

Innovation hubs are physical locationsbringing together innovators, incumbents,service providers and regulators, which offeradvice, guidance, connections and a financialspringboard to nascent companies with brightideas. Innovation hubs can provide adedicated point of contact for firms to raiseenquiries with competent authorities, and topotentially seek non-binding guidance onregulatory and supervisory expectations,including licensing requirements.119

In the UK, the FCA’s Innovation Hub has adedicated team that assists in preparingapplications for authorisation. Lloyd’s Lab atLloyd’s of London works with cohorts ofInsurTech start-ups, providing access totechnical expertise, funding and partnershipswith incumbents, and facilitating knowledge-sharing to encourage familiarisation andcompliance with regulation. In the MiddleEast, the Dubai Financial Centre (DIFC) – theregion’s leading financial centre and one ofthe world’s top ten financial and FinTech hubs– offers a platform for InsurTech innovationthrough its accelerator program, FinTech Hiveat DIFC. A new tech hub was also launched inMarch 2019 in Abu Dhabi, called Hub 71, tosupport start-ups in a number of industries,including insurance.

Regulatory Sandboxes

Some regulators set up a “regulatorysandbox”120 – a term coined by the UK’s FCA in2015121 – for firms to trial innovativetechnologies. Singapore’s Monetary Authorityis a leader in regulating for innovation in thisway, and today, more than 20 countries haveadopted a financial regulatory sandbox, or arein the process of setting one up.122

Regulatory sandboxes represent a moreformalised approach to test-and-learn, withstructured application procedures and a clearset of eligibility criteria for would-beparticipants.123 These structures allowinnovators that do not yet comply withexisting regulations to test their products withregulatory safeguards applied and a planagreed and monitored by the supervisor; thislimits the extent of the risk to consumers andthe market. The purpose is to create a safeenvironment for market participants byimplementing a light-touch regime, whichdoes not risk client money or financialstability.124

Operating a regulatory sandbox requiresadequate resources on the part of theregulatory body (staff and funding) to selectproposals, provide advice to companies, andevaluate innovations. In practice, noregulatory sandbox looks the same, andsometimes less formalistic or resource-intensive approaches may be better suited.

Non-regulatory responses

There can be less resource-intensive ways tomake as much – if not more – of an impact,particularly where a regulator does not havethe means or ability to implement and operatea regulatory sandbox. Fostering innovationmay not require any amendment oradjustment of laws or regulation, or even aformalised test-and-learn process, but simplersolutions may be a first port of call forregulators. It may take a long time toimplement changes in law or regulation, andsuch solutions may be ill-fitting to swiftmoving InsurTechs. Regulators, too, mayprefer a less involved process.

119 European Banking Authority, 2018 120 Cenfri, Nichola Beyers, Jeremy Gray, Christine Hougaard, Regulating for Innovation (January 2018) p.16 : https://cenfri.org/wp-content/uploads/2018/02/Regulating-for-innovation.pdf121 Jenik & Lauer (2017)122 Cenfri, Nichola Beyers, Jeremy Gray, Christine Hougaard, Regulating for Innovation (January 2018) p. 6 : https://cenfri.org/wp-content/uploads/2018/02/Regulating-for-innovation.pdf p. 6123 Cenfri, Nichola Beyers, Jeremy Gray, Christine Hougaard, Regulating for Innovation (January 2018) p.3 : https://cenfri.org/wp-content/uploads/2018/02/Regulating-for-innovation.pdf p.3124 Geneva Association interview

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Enabling innovation may simply requirecommunication between the regulator andinnovators. The regulator (or others) can offercompliance support or convene industryparticipants to build awareness of regulatoryrequirements. The regulator will often have agreat deal of convening power and can issueguidance, hold meetings, or otherwise signalto industry that they are open to innovationand willing to work with innovators.

Regulators may also be able to provide support(beyond regulation) to innovators in order tofacilitate the roll-out of new InsurTechproducts. In Australia, flood data has beenmade open source, which enables the industryto better price flood risks.125 Regulators mayalso undertake research and surveysthemselves to better understand the demandfor InsurTech solutions. In Malaysia, theUnited Nations Capital Development Fund(UNCDF) conducted research with low- andmiddle-income customers to betterunderstand their digital and financial lives inorder to better inform the production ofproducts.126

Sometimes, the biggest barrier to InsurTechsentering the market may be perceivedregulatory challenges, rather than actualregulatory challenges. In that case, theunderlying challenge is that InsurTechs arenot familiar with and do not know how to (orfind it daunting to) navigate the regulatoryarchitecture. It may be of benefit forregulators to set up briefings, workshops ormeetings to walk InsurTechs through thelandscape of laws and regulations. That beingsaid, the effort at dialogue has to be bilateral,and while regulators should give clarity,efforts must be made to understand theregulatory position, as well as providingregulators with explanations of businessmodels to garner productive and collaborativerelationships between the two. This is theexpectation imposed by the Singapore

regulator in creating a regulatory sandbox inorder to allow for the testing of innovativeInsurTech products.127 Ultimately, forregulators, the immediate threat of consumerprotection may loom larger than the uncertainbut possible benefit of innovativetechnological solutions; it is thereforeimperative for industry to communicatedirectly with regulators in order to addresstheir particular concerns.

Microinsurance laws and regulation

The regulatory treatment of microinsuranceand its distributors is of particular relevanceto m-insurance and tech-enabled provision ofinclusive insurance in emerging markets.Regulators have been developing policy andregulatory and supervisory approaches to theprovision of inclusive insurance for more thana decade.128

Some jurisdictions have specific regulatoryregimes for microinsurance/microinsurersbased on the concept of proportionality, withreduced entry and operating requirements forinsurers offering products that fall within thedefinition of “microinsurance”. Specificmicroinsurance regulations have beenimplemented by at least six insurancesupervisors in Africa, while at least anothereleven African countries are in the process ofdeveloping a microinsurance regulatoryframework.

Such regulations can permit lighter capitalrequirements or innovative distributionchannels such as mobile phones, with specificconsumer protections built in, or capacity formicroinsurance providers to evolve with themarket in time. Such regulations can lowerthe costs of entry or the costs of compliancefor market entrants, thereby enablinginnovative developments in products andbusiness models.129

125 For more information visit https://www.ga.gov.au/scientific-topics/community-safety/flood/afrip126 UN Capital Development Fund, How Low- and Middle-Income People Experience Digital Financial Services in Malaysia (October 2019) : https://www.uncdf.org/article/4530127 Monetary Authority of Singapore, Fintech Regulatory Sandbox Guidelines (November 2016) : https://www.mas.gov.sg/-/media/MAS/Smart-Financial-Centre/Sandbox/FinTech-Regulatory-Sandbox-Guidelines-19Feb2018.pdf?la=en&hash=B1D36C055AA641F580058339009448CC19A014F7128 Martina Wiedmaier-Pfister and Hui Lin Chiew, Regulatory Impacts Assessments: Microinsurance Regulations in Peru and the Philippines (October 2017) p.4 : http://www.impactinsurance.org/sites/default/files/MP49.pdf129 Wiedmaier-Pfister, et al., 2016

The disadvantage of microinsurance licensesis that with low insurance penetration, theycould result in the exclusion of the middlemarket. The top end of the market will beserved by incumbents, and if new entrantswant to expand insurance reach, they will belimited to lower-income and lower coveroptions, rather than the natural marketprogression to expand to the easy to reachfirst.130 In order to assist the development ofmicroinsurance markets, regulators need toprevent regulatory arbitrage betweenconventional and microinsurance markets.There must be clear understanding of theboundaries between the two areas so as toavoid undesired market distortions.131

Regional coordination

Some regional initiatives have sought toestablish cross-border collaborations, withregulatory responses deployed acrossjurisdictions to streamline bringing to markettech-enabled risk transfer and managementsolutions within a region.132 In East Africa,Kenya’s regulator often acts as a regionalleader, such that securing approval from theKenyan regulator can, in certaincircumstances, smooth the path inapproaching other regulators in the region. MrRavi Menon of Singapore’s financial regulatoryauthority, has cited an integrated Associationof Southeast Asian Nations (ASEAN) market asone of the “four key enablers” in narrowing thewide natural-catastrophe protection gap in theASEAN Market.133 In this regard, Singapore hasalso announced plans to set up a centre ofexcellence called the Global Asia InsurancePartnership (GAIP), whose aim is to fostercollaboration between the insurance industry,regulators and academia, to deepencapabilities in risk management andinsurance.134

A formalisation of such grouping of regulatoryapprovals for tech-enabled insurance, ormeans of pooling resources in understandingnew technology, sharing knowledge andknow-how on a regional basis, may ensuregreater transparency for insureds, reducecosts of approaching new markets, andthereby reduce costs of market entry.

Examples of regulation in action

Philippines – Stage-based approach

In the Philippines, a stage-based approach hasbeen adopted to develop regulatoryframeworks in which technological innovationin insurance can flourish. The InsuranceCommission (IC) has used the three-stageapproach of pilot, monitoring and adaptationto develop regulation that provides protectionto consumers, while allowing for thedevelopment of innovative insuranceproducts.

An initial circular was produced in 2006,which defined set standards of consumerprotection with regards to microinsurance andcreated a new tier of microinsurance providers– Microinsurance Mutual Benefit Associations(MI-MBAs). Following the monitoring andadaptation stages, this was developed into theNational Microinsurance Strategy 2010, whichbrought legislative and regulatory instrumentsinto force. Following further monitoring andadaptation, the Enhanced MicroinsuranceRegulatory Framework 2015 was introduced.The organic development of regulation in thisway allowed regulators to see where therewere gaps in the framework which could beaddressed in further regulation.135

130 Cenfri interview 131 Cenfri interview 132 https://www.eiopa.europa.eu/content/eiopa-analyses-licencing-approaches-insurtech_en133 Claire Huang, Business Times, Insurance can help Asia cut economic losses from disasters: MAS chief, (August 2017) : https://www.businesstimes.com.sg/banking-finance/insurance-can-help-asia-cut-economic-losses-from-disasters-mas-chief134 For more information visit www.asiainsurancereview.comhttps://www.asiainsurancereview.com/Archives/Conference-Dailies/SIRC/SIRC2018/Day2135 Martina Wiedmaier-Pfister and Hui Lin Chiew, Regulatory Impact Assessments: Microinsurance Regulations in Peru and the Philippines (October 2017) p.29 : http://www.impactinsurance.org/sites/default/files/MP49.pdf

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Regulators set particular requirements forinclusive insurance products, and in thePhilippines, for example, premiums must bebelow 10.5% of the minimum wage. Initially,there was reluctance on the part of insurers inthe Philippines to provide microinsurance aspart of their portfolios of products. Inresponse, an order was issued in 2012 relaxingcapital requirements for insurers whoseportfolios were comprised of at least 50%microinsurance products, directlyincentivising insurers to providemicroinsurance products.136 By 2017, 31million new microinsurance policies had beenwritten in the Philippines, clearlydemonstrating the effectiveness of the newregulatory framework.137 It is clear that animpact-based adaptation of regulations withina clear overarching framework is a practicethat is working in that context.

India – “Carrot and Stick” Approach

Microinsurance regulations were first issued inIndia in 2005 by the Insurance Regulatory andDevelopment Authority of India (IRDAI), andthe Indian Insurance Act 1938 was revised in2015 to delegate more powers to the IRDAI tocreate regulations.138 The IRDAI also issued anupdated microinsurance regulation in 2015.139

Some feedback from insurers contributing tothis paper, however, has been that thisregulation has implemented some additionalconstraints on potential entrants to themarket, and that the usual framework forregistration of an insurer or products is seenas more efficient.

There have been two key regulatoryinnovations recently implemented by IRDAI toimprove access to insurance for those in needof it:

1. The Indian government has subsidisedinclusive insurance for many years. Overtime, the form of this subsidy has changed;whilst originally, the governmentsubsidised claims after disasters occurred,now they subsidise premiums.140

2. The government has made it mandatoryfor insurance companies to provide acertain percentage, as set by the IRDAI, ofinsurance to rural and social sectors.141

This is an approach favoured by manycountries; for instance in Brazil, there is abill currently awaiting congress’s finalapproval, which would make insurance forenvironmental risks mandatory.142

The innovation in India’s approach comesfrom complementary regulation of thosepurchasing insurance products, alongside theabovementioned regulation of those providinginsurance products. In this way, the IRDAI iseffectively closing the protection gap fromboth sides (via insurers and insureds), asopposed to many other approaches whichsimply work top-down (via insurers only). It issoftening this somewhat invasive approach byproviding significant subsidies which, it isassumed, can slowly be reduced as the systemstabilises.

136 Martina Wiedmaier-Pfister and Hui Lin Chiew, Regulatory Impact Assessments: Microinsurance Regulations in Peru and the Philippines (October 2017) p.35 : http://www.impactinsurance.org/sites/default/files/MP49.pdf / Micro Insurance Network, The State of Microinsurance : The Insider’s Guide to Understanding the Sector, 2015, p.20 https://microinsurancenetwork.org/sites/default/files/MiN_State%20of%20Microinsurance_0.pdf137 Martina Wiedmaier-Pfister and Hui Lin Chiew, Regulatory Impact Assessments: Microinsurance Regulations in Peru and the Philippines (October 2017) p.47 : http://www.impactinsurance.org/sites/default/files/MP49.pdf138 International Monetary Fund, India : Technical Note on Insurance Sector Regulation and Supervision (April 2018) p.4 : https://www.imf.org/~/media/Files/Publications/CR/2018/cr1886.ashx139 https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=RL&mid=26.1 Insurance Regulatory and Development Authority of Inda, MicroInsurance Regulations 2015 : https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=RL&mid=26.1140 https://documents.worldbank.org/en/publication/documents-reports/documentdetail/471931468179672837/undefined141 Insurance Regulatory and Development Authority, Obligations of Insurers to Rural Social Sectors, Regulations (2002)142 ICLG, Environment and Climate Change Laws and Regulations (2020) : https://iclg.com/practice-areas/environment-and-climate-change-laws-and-regulations/brazil

South Africa – Legislation

In South Africa, microinsurance regulationhas been recently enshrined into law. The newSouth African Insurance Act 2017 specificallyprovides for licensed microinsuranceproducts, giving effect to the NationalTreasury’s Microinsurance Policy Document inan attempt “to introduce a legal framework formicroinsurance to promote financialinclusion”.143

South Africa's innovative solution is one ofsimplicity – it brings microinsurance withinthe existing legal regime for insurance, whilemaking specific modifications formicroinsurance as necessary to ensureconsumer protection and encouragecompanies to register as microinsuranceproviders. The requirements for microinsurersunder the Insurance Act 2017 are lessrestrictive than those for regular insurers. Forexample, there is no requirement thatmicroinsurers be public companies, as there isfor other insurance companies. Microinsurersare also exempt from licensing restrictionsand restrictions on providing both life andnon-life insurance.144 The Insurance Act 2017also includes significant consumer protectionmeasures, such as a 12-month maximumpolicy period, restrictions on waiting periods,and restrictions on exclusions.

Capacity-building

Although not a regulatory response per se,international organisations and fora can act ascatalysts for enhancing regulatory responses,or sharing best practice in regulating forinnovation. Such organisations can also act asconvenors, providing the support to allowinsurance providers and regulators to worktogether to foster innovation that is well-adapted to, and cognisant, of relevantregulatory frameworks. By way of example,

A2ii published a regulatory toolkit and surveyto help regulators assess how enabling theirlegislation is for inclusive insurance andinnovation.146

Similarly, public entities can act aspolicyholders, pooling risks for certain regionsor groups of individuals; such entities,however, might be subject to differentregulatory treatment and may have somedegree of autonomy in determining the rulesthat apply to them.147 On the other hand, theymight also be able to add much needed trustto the offering, particularly in the context ofcustomers who have never purchasedinsurance before. This may be the only way topool enough resources to follow through witha project to the point where the product ismarket ready, and public tender regarding theactual provision can be launched.

At the same time, however, there might be acertain bias towards private actors gettingengaged with local authorities, posing a risk tothe local stakeholders involved.148 One keycapacity-building organisation is theInternational Labour Organisation (ILO)through its Impact Insurance Facility. TheFacility offers various training modules whichaddress key skills gaps identified withpractitioners. They provide this trainingthrough local partnerships in many emergingmarkets; these training modules are tailoredto insurance practitioners, regulatory orsupervisory authorities and other entitiesinvolved in the provision of microinsurance.One key training module option is the ‘ImpactInsurance Academy’, which is a five-daymodule, involving training classes from theFacility’s experts in the field ofmicroinsurance. It also provides theopportunity for microinsurance providers topresent their products and gain feedback fromother insurers and experts.

143 South African Government, Insurance Act 18 of 2017 : https://www.gov.za/xh/node/776387144 Republic of South Africa, Government Gazette (January 2018) : https://www.gov.za/sites/default/files/gcis_document/201801/41388gon32insuranceact2017.pdf145 Micro Insurance Netowrk, The State of Microinsurance: The Insider’s Guide to Understanding the Sector (2017) p.40 : https://www.microinsurancenetwork.org/sites/default/files/State%20of%20Microinsurance%202017_Microinsurance%20Network.pdf146 International Association of Insurance Supervisos, Reviw on Regulation and Supervision supporting Inclusive Insurance Markets (October 2017) :

https://www.a2ii.org/index.php/en/media/156/download147 InsuResilience Secretariat, D. Stadtmüller interview148 Munich Re, M. Roth interview

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The Facility’s 3-D Client Value AssessmentTool allows insurers to measure the value oftheir agricultural index insurance products. Ituses a wide range of indicators provided by acombination of the Facility's PACE tool, andthe Feed the Future Innovation Lab for Assetsand Market Access’s (AMA Innovation Lab)calculations for Minimum Quality Standards,to provide a comprehensive understanding ofthe value of the product. There are differentversions of this tool, adapted for both existingand proposed index-based insurance products,so it can assist with either analysis of theviability of products pre-product launch,and/or improvement of products' pre-productlaunch already on the market. There arevarious tools provided by Impact Insurancealongside the 3-D Client Value Assessment

Tool, which assist with inputting data toachieve an accurate assessment, such asguidance on analysing data for each indicator.

The Facility’s capacity-building self-assessment guide for microinsuranceproviders is a questionnaire which allowsinsurers to self-assess their readiness to startmicroinsurance activities. It consists ofquestions which identify further knowledgerequired by insurers prior to startingmicroinsurance activities, as well as questionswhich identify any weaknesses in insurers’existing microinsurance products. Thisenables insurers to address any gaps in theirknowledge and to improve their existingmicroinsurance products.

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Conclusion and Key Findings

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Conclusion and Key Findings

4

Insurers, governments, and others who seek to better serve consumers at themicro-level, should continue to think carefully and innovatively about howtechnology can be a force multiplier in closing the protection gap. In doing so, wemust all focus on the consumers’ needs, abilities and resources.

As discussed, there are numeroustechnological developments that provide newopportunities, but these raise a variety ofcommercial, legal and regulatory issues. In thespace of this paper, it is only possible to

provide a partial review of the opportunitiesand challenges in this area.

We urge action by all relevant stakeholders. Indoing so, we believe the following key findingsfrom this paper should be kept in mind:

Key Findings

• Technology is a tool, and a powerful onewhen used appropriately; but it is not asolution in itself.

• Insurers need to carefully consider theproducts and services which are needed inany given market. There will be significantdifferences between – and within – markets,so due consideration should be given to thedifferent needs and interdependenciesbetween low income and emerging middleincome segments.

• The use of technology must match thetechnological skills and resources of thetarget market.

• A combination of technology and humaninteraction or “boots on the ground” hasproven most effective in developingmarkets.

• Insurance regulation must evolve toaccommodate and appropriately regulate

InsurTech and other innovations.Regulators need appropriate technologicalresources and skills themselves.

• Regulatory sandboxes and regulatorydialogue at national, regional, and globallevels are important; the IAIS, A2ii, andseveral regulatory jurisdictions, are takingimportant steps in this regard.

• The insurance industry needs to engagewith regulators to educate them abouttechnological developments and otherinnovations.

• Data collection and use raise manyregulatory and legal issues that must beconsidered by industry and regulators.

• The global nature of data calls for acoordinated approach, where possible, toglobal learning and supervision.

• The insurance sector needs to build andmaintain trust among consumers,regulators and other stakeholders.

There is tremendous scope for the insurancesector to help close the protection gap thatexists at the micro-insurance level. Realprogress in this area will depend on those

actions tailored to meet individual marketneeds. Technology can have a significant andpositive impact in supporting this action – wehope this paper helps demonstrate how.

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Glossary of terms and abbreviations

A2ii (Access to Insurance Initiative)

A global partnership with the mission toinspire and support supervisors to promoteinclusive and responsible insurance,thereby reducing vulnerability.153

The study of how to produce machines thathave some of the qualities that the humanmind has, such as the ability to understandlanguage, recognise pictures, solveproblems, and learn.154

Big Data

Very large sets of data that are produced bypeople using the internet, and that can onlybe stored, understood, and used with thehelp of special tools and methods.155

Chatbot

A computer program designed to have aconversation with a human being,especially over the internet.156

Data Analytics

The process of inspecting, cleaning,transforming, and modelling data with thegoal of discovering useful information,trends and conclusions.

Deep Learning

A type of artificial intelligence that usesalgorithms (sets of mathematicalinstructions or rules) based on the way thehuman brain operates.157

FinTech (Financial Technology)

A term that refers to the companiesproviding software, services, and productsfor digital financial services: often used inreference to newer technologies.158

IAIS (The International Association ofInsurance Supervisors)

A voluntary membership organisation ofinsurance supervisors and regulators frommore than 200 jurisdictions in nearly 140countries. The mission of the IAIS is topromote effective and globally consistentsupervision of the insurance industry inorder to develop and maintain fair, safeand stable insurance markets for thebenefit and protection of policyholders andto contribute to global financial stability.

IDF (Insurance Development Forum)

The IDF is a public/private partnership ledby the insurance industry and supported bythe United Nations, World Bank and otherinternational organisations which aims tooptimise and extend the use of insuranceand its related risk managementcapabilities to build greater resilience andprotection for people, communities,businesses, and public institutions that arevulnerable to disasters and their associatedeconomic shocks.159

Inclusive insurance

Products designed to sell insurance to theunder or uninsured but not specificallyfocused on a low-income target market, aswith microinsurance. “Inclusive insurance”is used broadly in this Application Paper,denoting all insurance products targeted tothe excluded or underserved market, ratherthan just those for the poor or a narrowconception of the low-income market.

153 For more information visit https://a2ii.org/154 Definition from the Cambridge Dictionary : https://dictionary.cambridge.org/dictionary/english/artificial-intelligence155 Definition from the Cambridge Dictionary : https://dictionary.cambridge.org/dictionary/english/big-data156 Definition from the Cambridge Dictionary : https://dictionary.cambridge.org/dictionary/english/chatbot157 Definition from the Cambridge Dictionary : https://dictionary.cambridge.org/dictionary/english/deep-learning158 International Telecommunication Union, Digital Financial Services Glossary (2017) : https://www.itu.int/en/ITU-T/focusgroups/dfs/Documents/201701/ITU_FGDFS_DFS-Glossary.pdf159 For more information visit https://www.insdevforum.org/about

Index-based insurance

An insurance contract: (a) under which theliability of the insurer to make a paymentto the policyholder is triggered by, and theamount of that payment is determined inaccordance with, one or more indices,rather than on an assessment of thepolicyholder's actual loss; and (b) where thepayment is designed to provide a level ofcompensation, although not necessarily anindemnity, to the policyholder in respect ofeither or both of the following – (i) losses,including consequential losses, that thepolicyholder is expected to suffer; or (ii)costs, including mitigation costs, that thepolicyholder is expected to incur, in theevent that payment is triggered by theindex.160 Also see parametric insurance

InsurTech (Insurance Technologies)

An insurance company, intermediary orinsurance value chain segment specialistthat utilises technology to either competeor provide valued-added benefits to theinsurance industry.161 InsurTech is theinsurance-specific branch of FinTech thatrefers to the variety of emergingtechnologies and innovative businessmodels that have the potential totransform the insurance business.162

IoT (The Internet of Things)

A global infrastructure for the informationsociety, enabling advanced services byinterconnecting (physical and virtual)things based on existing and evolvinginteroperable information andcommunication technologies.163

Machine Learning

The capacity of a computer to learn fromexperience, i.e. to modify its processing onthe basis of newly acquired information.164

Microinsurance

Risk pooling products that are intentionallydesigned—in terms of costs, coverage,distribution, and marketing—forindividuals, families, and businessesearning between $2.00-$20.00 a day.

MNO (Mobile Network Operator)

An operator that manages one or moremobile networks.165

M-insurance (Mobile insurance)

Any insurance that is sold or subscribed tothrough a mobile phone and/or inpartnership with a mobile networkoperator (MNO).

Parametric (index-based) insurance

Insurance contracts in which a claim isdefined with reference to a predeterminedindex.166

160 National Council for Law Reporting Library, Kenya Gazette Supplement (2019) p. 589 : http://kenyalaw.org/kl/fileadmin/pdfdownloads/AmendmentActs/2019/Insurance_Amendment__Act_No.11of2019.PDF161 Sia Partners, 2016162 International Association of Insurance Supervisors, FinTech Developments in the Insurance Industry (February 2017) p.4163 Calum McClelland, What is IoT? A Simple Explanation of the Internet of Things (July 2020) https://www.iotforall.com/what-is-iot-simple-explanation/164 Definition from the Oxford English Dictionary : https://www.oed.com/view/Entry/111850165 Definition from the ITU : https://www.itu.int/net/ITU-R/asp/terminology-definition.asp?lang=en&rlink=F571D60A-CBCE-408A-A452-8E685830B913166 International Association of Insurance Supervisors, Issues Paper on Index Based Insurances Particularly in Inclusive Insurance Markets (June 2018) p.12 : https://www.iaisweb.org/page/supervisory-material/issues-papers/file/75169/issues-paper-on-index-based-insurances-particularly-in-inclusive-insurance-markets#

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Glossary of terms and abbreviations

P2P (Peer-to-Peer) Insurance

Platforms allowing groups havingcommon interests to negotiate coveragein “communities.”167

Predictive analytics

The use of data, statistical algorithms andmachine learning techniques to identifythe likelihood of future outcomes basedon historical data.168

Remote-sensing

The process of detecting and monitoringthe physical characteristics of an area bymeasuring its reflected and emittedradiation at a distance from the targetedarea.169

Straight Through Processing

Automated processing of a series ofoperations, throughout the executionchain and by a single data entry.170

167 International Association of Insurance Supervisors, Report on Fintech Developments in the Insurance Industry (February 2017) p. 15 : https://www.iaisweb.org/file/65625/report-on-fintech-developments-in-the-insurance-industry168 Definition from SAS Insights : https://www.sas.com/en_gb/insights/analytics/predictive-analytics.html169 Definition from the USGS (U.S. Geological Survey)170 Definition from FranceTerme : http://www.culture.fr/franceterme/result?francetermeSearchTerme=Straight+Through+Processing

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