Over the past few years, large corporations operating in Africa, have come up with innovative ways of redesigning financial products to cater for an increasing number of individuals unable to obtain services in more traditional ways. One of the most popular financial products has been Microinsurance, a product of the microfinance industry, which has for some time been aggressively marketed as essential – particularly for people in the informal sector – to provide a form of security, enabling people to manage their risks and prevent them from falling into poverty in the event of a crisis.
With the continued rise of mobile phone users in Africa, insurers have a huge opportunity to grow their revenue as they tap into this large consumer base – targeting the population in the middle of the economic pyramid – that does not live on less than $2 a day but cannot afford access to traditional insurance products.
Microinsurance has no doubt been beneficial to some SME’s (small and medium sized enterprises) and may be applauded as an innovative way of reaching a large proportion of people who previously relied on informal ways of managing their risks such as relying on the support of their family or their community. However, the drawbacks of this financial product and the lack of transparency by the companies that offer this mechanism of risk management need to be scrutinised. There have been concerns that microinsurance may not be quite what it seems.
The lack of transparency by some corporations means that more and more unscrupulous insurers are exploiting consumers who are unaccustomed to the concept of insuring their assets and income. There are already some insurers claiming to offer free insurance, who fail to inform consumers that their premiums are linked to product purchases such as mobile phone topup’s.
This deliberate choice by insurers not to disclose the truth to consumers is largely based on the assumption that most consumers will struggle to understand the insurance products being offered. They use marketing tactics that lead consumers to believe they are being offered free insurance. Questions need to be asked with regards to the way in which insurance products are being marketed in an unethical manner.
It may not be a stretch to suggest that because profits in the micro-insurance business are hard to come by as it requires large volumes of insurance contracts to make the business viable, companies are being less open and transparent about their insurance products particularly in some countries where regulation of the industry is not stringent.
While countries like South Africa, have made great strides in the regulation of the insurance industry to ensure customer confidence in the industry, by introducing a “Twin Peak” model of financial regulation aimed at addressing the shortcomings of the regulatory structure, other countries in Africa still have a long way to go.
Better regulatory practices need to be developed to deal with the risks of potential abuse in the insurance business. The regulatory models that currently exist in some countries in Africa are largely ineffective because of the slow law making process and unreliable judicial systems.
Rigorous reform of the insurance legal framework is needed in many countries across the continent as well as the establishment of independent regulatory institutions to ensure consumers are not vulnerable or exploited.
As we approach the end of the year, it’s worth taking a look at some of the issues that dominated legal news. Most of the issues that have been heavily debated will remain in the spot light in the coming months. Amongst some of the most contentious matters that have topped legal news is the idea that the Human Rights Act 1998 is a product of Europe and undermines the ability of the United Kingdom to be a sovereign state. Calls for the Human Rights Act to be scrapped have helped the present government gain popularity and will continue to be used as a political tool in pushing forward an agenda for a more isolated Britain.
The legal Aid bill proposed by the coalition government has come under fire from human rights groups and some sections of the legal profession who feel that the Bill, if passed into law, will make it more difficult for marginalised people to get legal redress. Access to justice has arguably topped the charts in legal news with serious concerns being been raised with regard to the reform of (CFAs) conditional fee arrangements.
Over the past few years, CFAs have allowed individuals to take libel cases to court in situations where they would have had little or no redress to clear their name. A classic case is that of Christopher Jefferies who was depicted as a “Monster” by the press after he was arrested by the police and questioned for the murder of Joanne Yeates. The proposals being made by the government would put those who would like to clear their name at risk of losing their assets if they wanted to take legal action. A potential sum of £100,000 would have to be paid before a lawyer can agree to take up a defamation case. The bottom line is, the rich will be able to fork out to clear their names while the “squeezed middle” as well as those at the bottom of the pile are less likely to put their assets at risk.
A clamp down on referal fees has been welcomed by consumer bodies that have canvassed long and hard to have them banned. The former Labour cabinet minister Jack Straw, condemned “ambulance chasing practices”, when he stated that ” high pressure sales techniques have lead to a phenomenal growth in the number of claims for personal injury”. Critics argue that the push to ban referal fees will not deter “ambulance chasers” from exploiting loophole in the law.
The Bribery Act which came into force this year raised some interesting issues with a significant number of companies raising concerns about how they would be able to distinguish genuine hospitality from bribery. There have been efforts by multinational corporations with offices abroad to sensitise their workers to the Act particularly in some countries where it is claimed business cannot be done without engaging in corrupt practices and bribery.
The introduction of alternative business structures through the enactment of the Legal services Act has been applauded as the way forward and will allow people more choice and better value in terms of legal service. Going forward more and more legal practitioners will be keen to see innovations in the legal sector and a shift from the traditional way of doing things.