Effect of Insurance Regulation on Market Development



This paper considers the various regulatory approaches implemented by insurance regulators and supervisors globally in order to achieve the objective of inclusive insurance market development. The primary question that this paper seeks to address is: what is the optimal regulatory approach to be followed by a particular country to promote increased access to insurance in a particular product market or across multiple product markets?

From the experience of the countries scrutinised as part of this synthesis process, five distinctive regulatory approaches to the promotion of access to insurance have been identified. These five regulatory approaches can be located on a continuum according to the level of state intervention in or direction of the market. Each of the approaches are defined and described in detail in Section 2.2. They are:

Public provision approach: the state identifies the risk to be covered and either acts as risk carrier itself or directly and/or indirectly subsidises insurance to the population, often to achieve a public policy objective ancillary to the insurance sector, such as health or rural development.

Directive approach: the state requires insurers to meet certain targets in terms of access to insurance. Regulatory tools are therefore used to leverage the market mechanism.

Concessionary approach: this approach relies on creating market incentives rather than direct state intervention to achieve the desired objective of access to insurance. It does so by creating proportionate regulatory concessions to encourage provision of access-friendly products as defined in the local context.

Nudge approach: the state creates an enabling environment for access to insurance and may lower the compliance burden across the board to promote access, but there are no direct state intervention and no explicit concessions for access to insurance.

Long-term market development approach: this approach entails no direct state direction of the market, with the focus instead being on building market and state infrastructure and capacity over time, before access to insurance can be pursued as an explicit objective.



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