Although the evidence suggests that insurance market deepening should be a priority in the financial sector strategies of developing countries, awareness of the role of insurance lags behind that of banking and capital markets. For these reasons, it is important to raise the visibility of this sector and to clarify what unique regulatory provisions might be needed to enable insurance market development along side other facets of financial deepening. Form any countries, a good starting point would be to include analysis and recommendations specifically for insurance in financial sector assessments.
1: Institutional Foundations for Insurance Market Development
The development of robust insurance markets generally requires many of the same foundations as for banking and financial market deepening: reasonable macroeconomic and political stability, clear property rights, enforceability of contracts, and safeguards against corruption. However, these are necessary but not sufficient conditions. Insurance market deepening also depends on the scale and growth of related markets, including sales of cars and other consumer durables, residential and commercial mortgage markets, business establishments, disposable income, and commercial and trade transactions, to name a few. Growth in these related markets is critical in order for the nascent insurance industry to reach scale in developing shared infrastructure, underwriting capacity, statistical databases for actuarial purposes, and the associated skills.
A variety of public goods are critical for jump starting and sustaining the growth of insurance markets. These include the collection and sharing of data on a consistent basis, common supervisory principles, for instance on reserves and solvency, and consumer education.Recognizing the critical role of such public goods, several of the multinational development banks, international associations of regulators and supervisors as well as private sector associations are...