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News | 2020

A2ii Newsflash | Madagascar: the new Insurance Law for a healthy and inclusive financial services sector

In September 2020, Madagascar passed a new Insurance Law with the objective of transforming the current insurance industry into a ‘strong and resilient sector, promoting financial inclusion’.

It introduces several provisions that set the scene for the development of inclusive insurance in the country, including: 

  • enabling the establishment of reinsurance companies and branches, something that was not previously provided for;
  • broadening the types of insurance permitted, taking into account market needs and technological developments by introducing microinsurance, digital insurance and index insurance;
  • strengthening financial inclusion by firstly extending compulsory insurance previously limited to third party liability insurance.  Secondly, financial inclusion will be strengthened by introducing appropriate provisions and regulation regarding distribution channels, among others: banking service providers, other non-bank financial institutions, non-governmental organisations (NGOs), associations, mobile phone operators and distribution chains. And thirdly, group insurance is now not restricted only to life insurance - an important change for the development of inclusive insurance;
  • strengthening consumer protection by requiring greater transparency of financial information and introducing a complaints management mechanism to restore consumer trust in financial services.;
  • establishment of a crisis resolution framework and a safety net to limit the impact of the failure of an insurance company.  This includes provisions relating to  the impact on the wider economy and the importance of protecting the interests of policyholders;
  • establishment of an independent supervisory body, which will be provided by the Banking and Financial Supervisory Commission (CSBF) (La Commission de Supervision Bancaire et Financière - CSBF).

According to the background note accompanying the Law, the current level of insurance penetration is low in Madagascar: 62% of adults have no knowledge of insurance, and 92% of adults are uninsured.

The insurance sector consists of four insurance companies and one mutual insurance company.  Two out of these five insurance companies are publicly owned, which creates conflicts of interest and a low level of competition.

It has been recognised that the supervision of the sector would benefit from improvements in line with international standards and best practices.

One month after its passing, the new Insurance Law has already led to new forms of coverage made available to smallholder farmers in Madagascar.

Since 2018, GIZ has been working on improving access to climate risk insurance products for smallholder farmers. This October, together with a local insurance company, one drought index-based pilot product has been launched, shortly followed by another pilot yield index insurance supported by the World Food Programme. With the new insurance code in place just before the start of the main agricultural season, the regulator showed support for the development of this segment of the market.

-Sarah Favrichon, Component Lead, Climate Risk Insurance, PrAda project, GIZ Madagascar

 

This new Insurance Law replaces the previous one adopted in 1999 and is a part of an in-depth reform of the sector.

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