Cracking the code of InsurTech for climate risks and agriculture

Weather-related natural disasters are increasingly affecting the low income population in Asia. Highly dependent upon agricultural income, the vast majority of small farmers however are still without appropriate risk management tools to provide protection from such events. In his opening remarks, the Deputy German Ambassador to Sri Lanka, Andreas Berg, therefore emphasized  the need to develop insurance solutions to manage climate risks more efficiently. The goal of the InsuResilience programme  in Germany is to reach 400 million people with access to climate risk insurance by  2020. To achieve this, he added that “digitalization, including the use of blockchain technology, is a cross cutting priority”. Host MEFIN member, Damayanthi Fernando, Director General of the Insurance Regulatory Commission of Sri Lanka (IRCSL), underlined that the conduct of PPD5 is timely because Sri Lanka has just launched the National Financial Inclusion Strategy (on 21 March 2018). From the insurance perspective, the strategy aims are to recognise and regulate informal insurance activities. One of the outputs will be the formulation of a Regulatory Framework for Inclusive Insurance.

Proportionality and a “sandbox approach” enable innovations
The speed of change of technology, frequently described as the “Fourth Industrial Revolution”, is unprecedented. With the growth of numerous Fintech and InsurTech companies, the industry is facing disruptive solutions offering great opportunities as well as creating new challenges. One of these challenges for regulators is to ensure stability and consumer protection, and at the same time to be flexible to allow new developments. Peter van den Broeke, Senior Policy Advisor at the International Association of Insurance Supervisors (IAIS), reminded the attendees that “supervisory measures should be appropriate to attain the supervisory objectives of a jurisdiction and should not go beyond what is necessary to achieve those objectives”. For regulators as well as  testing and learning environments, a "sandbox approach" is important to enablers of new applications  for keeping up to speed with rapid changes. The regulatory approaches of Pakistan and India were showcased as good examples in this regard.

Data is key but education remains fundamental
Despite the rapid technological developments, in the field of mobile technology in particular, data availability remains one of the key challenges in the development of climate risk insurance. The example of the Sri Lankan SANASA showed that, in the absence of reliable public weather data, insurance providers had to organize data collection on their own before the product could be developed and implemented. This is not a core competence however and unnecessary costs would be added to the products. In addition to the data issue, insurance experts agree that outreach as well as understanding and trust remain key challenges. Five conclusions were drawn from the sessions:

Governmental investments in the provision of reliable weather data will substantially boost the insurer’s activities in developing climate risk insurance. Establishing independent institutions providing reliable weather data is key. Insurers need a single-stop solution to source weather data. Investment in infrastructure, internet and technological skills is needed.

Clearly mark the playing field and define the role of the private sector and government. Subsidised products might increase outreach. But industry should be allowed to play its role and not be crowded out. A combination for example of free, basic governmental cover combined with additional insurance products may be the way to go. However, insurance is only part of the solution and risk prevention remains fundamental.

Identify key distribution channels and allow them to keep up with rapid technological developments. Promising distribution channels in Sri Lanka for example have been identified - such as mobile cash networks, transport organisations, postal networks and the farmer mutual organisation. They need to be empowered to implement technology to increase efficiency and outreach.

Invest in education. Understanding insurance is still a main barrier. Financial education at school level and financial education campaigns for adults are needed. In addition, insurers need to showcase the benefits of insurance to their clients to increase outreach.

Antonis Malagardis, Program Director of GIZ RFPI Asia, summarized the conference by saying that “there is a need to address the basics and be cautious in advancing to new solutions”. The Munich Re Foundation together with GIZ RFPI and other partners will continue to support this process. The findings of this event will also feed into the next International Conference on Financial Inclusion taking place in Lusaka, Zambia, from 6 to 8 November 2018.

The MEFIN PPD5 and Learning Sessions were held by the Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) Program of GIZ/MEFIN in partnership with the Insurance Regulatory Commission of Sri Lanka (IRCSL) and the Munich Re Foundation.

The Mutual Exchange Forum on Inclusive Insurance (MEFIN) Network is a network of insurance policy-makers and regulators in Asia. It currently comprises seven Asian countries (Indonesia, Nepal, Mongolia, Pakistan, Sri Lanka, the Philippines and Vietnam). MEFIN serves as a platform of peer-to-peer learning among policy-makers and insurance regulators in the region since it develops and implements programmes that provide mutual benefit to its members in advancing inclusive insurance solutions. Generally, the network aims to create impacts of regulation and supervision along the dimensions of market development, institutional development and client value for the benefit of the poor. The Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) Program of GIZ promotes MEFIN and serves as the Secretariat of the Network.

D.R. - 03/04/2018