On the topic: Some countries had, or still have a significant magnitude of informal insurance activity, in particular in areas such as funeral and health insurance, or credit life insurance provided by mutuals or microfinance organisations. Government schemes and pilot programs are also often outside of the purview of supervisors.
Formalisation has been recognised as a considerable challenge by many insurance supervisors.
Although broadly speaking informal insurance is undesirable, the providers of informal insurance products and services often provide their customer with support that they might not otherwise have received, so shutting them down might leave those needs unmet. Also customers could lose money invested or paid as premiums. Therefore, the formalisation of informal insurance activities is generally regarded as a preferable alternative. A key element of a successful transition from a market with lots of informal providers to one with a majority of formal providers is well designed transitional arrangements which safeguard the interests of both customers and other stakeholders.
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