Responsible Finance Forum

“Pure” Intentions and Practice: Challenges and Good Practices in Consumer Protection in Microinsurance

Emily Zimmerman, Barbara Magnoni and Andrea Camargo
03 March 2014
Source:  Microinsurance Network

This paper explores challenges and good practices in consumer protection in microinsurance, defining “consumer protection” as the effective use of microinsurance products by low-income consumers to protect themselves against risk. Consumer protection challenges fall into four main categories, 1) education and information, 2) product and process design, 3) regulation and financial soundness of providers and programs, and 4) capacities and responsibilities of stakeholders. The paper develops a “checklist” of attributes that an effective consumer protection regime will exhibit in each of the four categories, and elaborates examples of particular ways in which these challenges are manifested and interesting efforts to address them throughout the world. These examples are followed by case studies that explore consumer protection issues in the Philippines and Colombia in more detail, showing how the market, context, and interplay among these issues can influence the effectiveness of consumer protection.

We find that, in accordance with the definition above, consumer protection is best viewed as an outcome (rather than an infrastructure or set of processes); this view requires all stakeholders, including consumers themselves, to play an active role in consumer protection. Interventions aimed at improving consumer protection outcomes fall broadly into two categories: 1) re-balancing the roles and responsibilities of stakeholders given their current capacities, and 2) improving the ability of stakeholders to more effectively meet consumer protection needs over time. Regulators, supervisors, and other government bodies should play a leading role in determining how responsibilities for consumer protection should be allocated among industry, government, consumers themselves, and other parties. Capacity-building efforts should target stakeholders throughout the value chain, from regulators and supervisors (as they learn how better to meet consumers’ needs) to industry players and end consumers (as they become more informed, empowered, and able to represent their own interests). Governments, donors, and industry (through individual insurers and delivery channels and through industry associations) can all play roles in capacity-building.

Both types of interventions should be informed by market conditions (and changes that may happen in these conditions over time) and ongoing monitoring to understand the effectiveness of existing measures and to raise red flags as new needs may emerge. Such efforts can support continuous improvement in consumer protection outcomes, the effective use of microinsurance by low-income consumers. These efforts can further support the value proposition for microinsurance among low-income consumers and also for other stakeholders, as they increase trust and help to ensure that microinsurance is valuable, effective, and sustainable for all stakeholders throughout the value chain..