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Effective regulation for mutual and co-operative insurers can help protect human rights against natural hazards

May 2015 – Effective insurance regulation promotes financial inclusion and supports people’s basic rights of life, livelihood and shelter. Disruptive insurance regulation, or no regulation at all, deprives the poorest people in our world from this protection. Mutual and co-operative providers of microinsurance are very aware of the sharp reality that inclusive insurance, insurance that reaches all strata of our societies, can only thrive with adequate regulation.

Effective regulation for mutual and co-operative insurers can help protect human rights against natural hazards

Dr Ana Gonzalez-Pelaez and Dr Sebastian von Dahlen

Effective insurance regulation promotes financial inclusion and supports people’s basic rights of life, livelihood and shelter. Disruptive insurance regulation, or no regulation at all, deprives the poorest people in our world from this protection. Mutual and co-operative providers of microinsurance are very aware of the sharp reality that inclusive insurance, insurance that reaches all strata of our societies, can only thrive with adequate regulation.

The regulatory environment for mutual and co-operative (hereafter referred to as “mutual”) insurance in general and mutual inclusive insurance in particular varies significantly amongst countries. Some countries lead the way in implementing effective regulation for mutuals. In others, however, regulatory procedures disallow mutual insurance or do not recognize it at all. Such regulatory deficiencies exacerbate underinsurance with devastating consequences for populations exposed to natural hazards. 

Dr Aris Alip
Picture shows Dr Aris Alip climbing over a fence to reach a CARD MRI branch in Ormoc City as he joins the search team to personally visit members and staff in the affected areas. Copyright ICMIF

This was particularly brought home to us when we participated in ICMIF’s special session The Impact of Mutual Insurance on the Livelihoods of the Poor at the end of January in Brussels. A truly memorable day, held by coincidence just at the time we are finalizing a report on the role of insurance regulation in protecting the basic rights to life, livelihood and shelter against natural hazards. Our report, from the University of Cambridge Institute for Sustainability Leadership (CISL), the entity that hosts ClimateWise of which ICMIF is a partner, aims to elucidate the often overlooked connection between access to insurance and socioeconomic development, and therefore the protection of basic rights against natural hazards. Our report explains these connections as a relevant component for the realization of the new targets for international development under the Sustainable Development Goals (SDGs), currently being negotiated under the auspices of the UN for adoption in September 2015. We plan to launch the report at the Financing for Development conference in Addis Ababa in July, where governments and world leaders will gather to agree both a financing framework for sustainable development and the concrete deliverables to implement it. 

Mutuals are crucial in the SDGs’ journey to make the world safer and less poor. Voice 79 (May 2014) reported the remarkable intervention of ICMIF member CARD MBA in the Philippines in the immediate aftermath of typhoon Haiyan (Yolanda) in November 2013. Haiyan showed the world the terrible levels of human suffering that occur when vulnerability to natural perils scales up into a catastrophe of devastating magnitude. Dr Aris Alip, Managing Director of CARD MRI, reminded us in the meeting in Brussels how within hours the mutual was distributing emergency money, and within days had paid claims to the almost three hundred thousand customers affected by the catastrophe. This was an extraordinary logistical achievement made possible thanks to their well-established community-based local networks. There is a message here of human dignity that joins us all across cultures and frontiers: access to our own financial resources empowers us as human beings when our existence is under threat. Inclusive insurance delivers financial resilience, but can only thrive if insurance regulation creates the right enabling environment. 

Another motivation for improving the regulation of mutuals is the positive impact that insurance can have in altering behaviours towards a more resilient and sustainable society. For example Kumar Shailabh (Uplift Mutuals, India) explained to us in Brussels how Uplift helps reduce claims for major medical interventions by establishing helplines and ways of engagement at an early stage of ill-health. Well-regulated insurance supports behaviours that keep incidents and claims at a lower level, which in turn protects people’s wellbeing. Spreading relevant knowledge across regions and cultures of the role of inclusive insurance is as important as global regulators interacting with national regulators to advance new improved policies. 

Governments create the environment for regulation and establish the priorities that regulators work on. 2015 is a historic year for raising awareness and making commitments to action plans, particularly in the area of natural hazards threatening countries and individuals: the renewal of the Hyogo Framework in March (Sendai) has specifically focused attention on Disaster Risk Reduction and Disaster Resilience, in July the Financing for Development conference of world leaders (Addis Ababa) will address a financing framework on the road to the Sustainable Development Goals in September (New York), and for December (Paris) all hopes are on a new global agreement for delivering climate adaptation and mitigation. 

Womens federation
Members of a women’s federation in Pune (India) vote to join Uplift Mutuals. Copyright ICMIF

Inclusive insurance regulation will form a substantial part of our report, and the members of ICMIF’s newly establish Research Working Group have offered to provide appropriate access to relevant data. The world’s 5 billion uninsured people in developing countries offer a stark reality in a year where world leaders negotiate new targets for lifting people out of poverty. The voice of adequate insurance regulation needs to be heard clearly. Effective insurance regulation, including regulation of mutuals, has the capacity to deliver crucial elements to all these frameworks. A Royal Society (UK) report entitled Resilience to Extreme Weather published in November last year highlighted that between 1980 and 2004 the total cost of extreme weather came to USD 1.4trillion, of which just one quarter was insured. In 2013 alone (according to the Norwegian Refugee Council) three times as many people lost their homes to natural disasters than to war, even though 2013 was a devastating year of conflict. With developing countries suffering the largest share of uninsured loses, the figures speak for themselves. Access to insurance through adequate regulation is a structural requirement for global sustainable economic development.

First published in  ICMIF Voice magazine.

Read more: ICMIF

About the authors

Ana Gonzalez Pelaez 100x100

Dr Ana Gonzalez-Pelaez

Fellow, Cambridge Institute for Sustainability Leadership 

Sebastian von Dahlen 100x100

Dr Sebastian von Dahlen

Chairman of the Global Systemically Important Insurers (G-SIIs) Analysts Working Group at the International Association of Insurance Supervisors (Switzerland)