Case Study. The Philippine experience on Microinsurance Market Development

Transcription

1 Case Study The Philippine experience on Microinsurance Market Development For Training Program of Insurance Supervisors in Asia Organized by Access to Insurance Initiative, AITRI, GIZ-RFPI and Toronto Center Manila, Philippines / September 16-20, 2013 Prepared by Mr. Dante O. Portula Senior Advisor, GIZ-RFPI Asia Mr. Reynaldo Vergara Division Chief, Philippine Insurance Commission August 2013 Case Study: The Philippine experience on Microinsurance Market Development Page 1

2 Table of contents 1 Country overview 1.1 Basic demographic and economic data Financial sector landscape 3 2 The Insurance Industry 4 3 Evolution of Microinsurance development 3.1 Financial inclusion, an overarching goal Microinsurance policy milestones and circular issuances 5 4 Building capacity and provision of incentives to the private sector 8 5 The approach: Public and Private sector collaboration 10 6 Market Response 10 7 Key Lessons and Challenges 12 8 The way forward 13 9 References 13 Tables 1 Philippine policy reforms on Microinsurance 6 2 Microinsurance circular issuances 7 3 Market response 11 Case Study: The Philippine experience on Microinsurance Market Development Page 2

3 1. Country overview 1.1 Basic demographic and economic data The Philippines is an archipelago of 7,107 islands with a total land area, including inland bodies of water, of approximately 300,000 square kilometers. It is a constitutional republic with a presidential system. The Philippines is divided into three island groups: Luzon, Visayas, and Mindanao. As of March 2010, these were divided into 17 regions, 80 provinces, 138 cities, 1,496 municipalities, and 42,025 barangays. Population is around 97.6 Million. Literacy rate is 92.6%. It is considered a middle income country with a per capita income of $1,790. GDP growth rates from were robust at 7.6%, 3.9% and 6.6%, respectively. The economic growth in 2012 was mainly driven by increased investment from the private sector, robust overseas Filipino remittances and higher government spending. Despite of this however, almost a third of its population still lives below the poverty line. Latest available data on poverty shows that on the average, 28 out of 100 Filipinos are living in poverty between the 1st semester of 2006 and 1st semester of The 2012 cash operations of the government showed a fiscal deficit of 15.8%, up from 14.5% revenue deficit in 2011 fiscal year. Borrowings in 2012 were 35.1% of total tax and non-tax revenues, 87% of which were from domestic sources and 13% from external sources. 1.2 Financial sector landscape The total resources of the Philippine financial system as of June 2012 reached Php10.45 trillion (USD Billion), 8.3% higher than a year ago. The banking industry s total assets accounted for 80% of the total resources and 76.2% of the country s Gross Domestic Product (GDP). Nonbank financial institutions (which include private and public insurance companies, among others) contributed for the remaining 20%. The number of banking institutions (head offices) dropped further to 705 as of end-september 2012 from the year-ago level of 730, denoting the continued consolidation of banks as well as the exit of weaker players in the banking system. By banking classification, banks (head offices) consisted of 37 Universal/Commercial Banks, 69 Thrift Banks, and 599 rural banks. Meanwhile, the operating network (including branches and other offices) of the banking system increased to 9,301 in September 2012 from 8,965 during the same period the previous year, due mainly to the increase in the branches/agencies of universal and commercial banks. The banking system s asset quality as measured by the Non-Performing Loan (NPL) ratio sustained its downtrend, easing to 2.6 percent as of end-october 2012 from the 3.2 percent registered a year ago. Banks initiatives to improve asset quality along with prudent lending regulations helped bring the NPL ratio below pre-asian crisis levels. Outstanding loans of Case Study: The Philippine experience on Microinsurance Market Development Page 3

4 commercial banks, net of banks Reverse Repurchase (RRP) placements with the Bangko Sentral ng Pilipinas (BSP), continued to expand, posting a 16.2 percent y-o-y growth as of end- December The Philippine banking system s Capital Adequacy Ratio (CAR) on consolidated basis was at 17.6%, which surpassed the 10% domestic regulatory minimum and 8% international norm, was comparatively higher than those of Indonesia (17.3%), Malaysia (17.3%), Thailand (14.8%) and South Korea (14.0%). The Philippines has been lauded globally for its microfinance and financial inclusion initiatives. For four years in a row ( ), the Economist Intelligence Unit s global survey has ranked the Philippines as number one in the world in terms of policy and regulatory framework for microfinance. 2. The Insurance Industry As of end of 2012, the Philippine insurance industry is composed of 115 private commercial companies (including 2 cooperative insurance societies) and 28 Mutual Benefit Associations (MBAs). The insurance industry is relatively small with assets of Php785.5 Billion (USD19.2 Billion), 79.02% of which was accounted for by the Life sector (33 companies), 16.16% by the Non-life sector (82 companies) and 4.82% by the Mutual Benefit Association sector (28 MBAs). Its total assets or resources accounted for only 7.49% of the total resources of the Philippine financial system and 9.4% of the banking sector s assets. Despite a significant numbers of insurance providers, however, the country still has a low insurance take-up. The insurance penetration or the contribution of the insurance industry to the country s national economy is only 1.42% of Gross Domestic Products (GDP). Insurance density or the average spending of each individual on insurance is only Php1,541 (USD37), of which Php1,265 (USD31) is spent for Life insurance and Php276 (USD6) is for Non-life insurance. The market penetration rate or the ratio of individuals with life insurance coverage to population is only 23%. 3. Evolution of Microinsurance development 3.1 Financial inclusion, an overarching goal The Philippine Government joined other developing countries in striving towards making financial services available and accessible to all regardless of income class. This means that the government shall endeavor to come up with measures that will encourage and allow the provision of all types of financial services, insurance included, to the whole populace including Case Study: The Philippine experience on Microinsurance Market Development Page 4

5 those who belong to the low-income sector. Financial inclusion is clearly articulated in the Philippine five-year development plan. In 1997, the Department of Finance (DOF) through the National Credit Council (NCC) adopted, issued and implemented the National Strategy for Microfinance. This led to the establishment of a policy and regulatory environment that encouraged private financial institutions to provide financial services to the poor, thus facilitating the poor s access to savings and credit services. From only a handful of financial institutions providing savings and credit services to the low income sector in 1995, there are now more than 2000 microfinance institutions providing savings and credit services to more than 7 million low-income clients. The development of the Philippine Microfinance Industry proved that the provision of formal financial services, particularly savings and credit, to the poor is a viable and sustainable activity. A large number of private financial institutions, notably rural, cooperative and thrift banks, cooperatives and non-government organizations, including commercial banks acting as wholesaler of microfinance funds, are now actively engaged in providing the poor greater access to microcredit to finance their livelihood and small business activities. This development presented a vast opportunity for the poor to improve their lives, increase their income and build on their assets. However, it has been realized that microcredit does not protect the lowincome from unforeseen and unfortunate events that may adversely affect their livelihood, lives and families. The DOF and the Philippine Insurance Commission (PIC) deliberately included in its development objectives the provision of insurance products and services to the poor. Like those in the high or middle income classes, the poor should also be protected from unexpected events such as death, injury and illness, loss of property and other contingent events. This segment of the population is in fact more vulnerable to risk events. One study conducted in 2008 showed that of the 23.1 million Filipinos living below the poverty line, only about 2.9 million have some kind of risk protection, about half of which are provided informally. Informal insurance provisions are mostly done by entities and organization (some are MFIs) that provide self-or in-house insurance. These entities do not have any license from the regulatory authority and collect premiums and guarantee benefits without any actuarial study, hence posing greater risk to the low-income client. 3.2 Microinsurance policy milestones and circular issuances Microinsurance development in the Philippines follows the same path taken for Microfinance development. The business is driven by the private sector, with government providing only the enabling environment. The adoption of the various reform measures, policy actions and Case Study: The Philippine experience on Microinsurance Market Development Page 5

6 regulatory guidelines identified in the following landmark documents resulted in the growth and development of the country s microinsurance industry in a span of 4 years ( ). Pillar 1: Regulatory Framework for Microinsurance, Pillar 2: National Strategy for Microinsurance, Pillar 3: Roadmap to Financial Literacy on Microinsurance, and Pillar 4: Alternative Dispute Resolution for Microinsurance. The regulatory framework provides for the regulation of Microinsurance that covers the risk protection needs of the poor by the private sector. It does not cover social insurance schemes and risk protection programs administered and implemented by government. Table 1 summarizes the salient features of the pillars of reforms. Policy Reforms Regulatory Framework for Microinsurance (issued in January 2010) Table 1: Philippine Policy Reforms on Microinsurance Features Outlines the government s policy thrusts and direction for the establishment of a policy and regulatory environment that will encourage, enhance and facilitate the safe and sound provision of microinsurance products and services by the private sector. It identifies and promotes a system that will protect the rights and privileges of those who are insured. National Strategy for Microfinance (issued in January 2010) Roadmap to Financial Literacy on Microinsurance (issued in January 2011) Alternative Dispute Resolution Framework for Microinsurance (issued in October 2012) Defines the objective, the roles of the various stakeholders and the key strategies to be pursued in enhancing access to insurance of the poor. It encourages complementation of the products of social health insurance by the private sector. It provides directions towards mainstreaming informal insurance and insurance-like activities and the promotion of public awareness and financial literacy. Spells out the key strategies and measures to be adopted for institutionalizing financial literacy on Microinsurance. Key principles, guidelines, and specific directions on how to promote and change behavior favorably for the adoption of Microinsurance among the low- income sector are provided for. Requires all insurance entities, agents and brokers who are engaged in Microinsurance business to follow mediation-conciliation processes of claims dispute based on parameters offset under the banner, Least cost, Accessible, Practical, Effective and Timely or LAPET. The adoption of the policy thrusts and directions embodied in these documents prompted various financial regulators (e.g. insurance, banking, and non-banking activities) to issue joint and independent circulars for concerned financial entities under their jurisdiction. Case Study: The Philippine experience on Microinsurance Market Development Page 6

7 As a result, the microinsurance market today includes insurance providers (commercial entities, cooperative insurance societies and MBAs) and financial intermediaries (banks, coops, NGOs, other membership-based organizations and consumer outlets) engaged in the underwriting, selling and/or distribution of Microinsurance products. This is deemed important for cost efficiency in distributing insurance and increasing scale and outreach because it takes advantage of the broad network and thousands members of the financial intermediaries. The various issuances also provided clear guidelines to stakeholders in the areas of product development and approval, product distribution and marketing, consumer protection, reporting and industry performance monitoring. Table 2 summarizes the circulars issued so far. Table 2: Microinsurance Circular issuances Circulars/Memos Descriptions Insurance Memorandum Circular (IMC) Microinsurance Regulation and Declaration of Policy Defines Microinsurance products according to limits of premium and benefits. This definition however was only focused on Mutual Benefit Associations (MBAs) engaged in MI. Objectives Qualifications and capital requirements of MBAs that can engage in MI. IMC Regulation for the Provision of Microinsurance Products and Services Defines Microinsurance products according to: o Limit of premium cost (5% of daily wage) and amount of benefits (500 times of daily wage). o Features of insurance policies affordable, simple and easy to understand. Sets the qualification of entities that can underwrite and sell Microinsurance. Requires microinsurance policies to clearly identify the face amount, benefits, and terms of the insurance coverage and ensure that contract provisions can be easily understood by the insured; documentation requirements are simple; and the manner and frequency of premium collections coincides with the cash-flow and not onerous for the insured Defines rules on product bundling. Evaluation of performance of providers through a set of Performance Standards Use of Microinsurance logo in the policy contracts. Joint IC-CDA-SEC Memorandum Circular (MC) Defining Government s Policies on Informal Insurance Activities. Joint IC-CDA-SEC Memorandum Circular (MC) Guidelines on Treatment of Funds Collected from Informal Insurance Activities BSP Circular 683 on Marketing, Sale and Servicing of Microinsurance Products. Circular Letter Sale, Issuance or Distribution of Defines activities on insurance that need (and need not) be formalized. Requires all entities practicing informal insurance activities to formalize their schemes by seeking authority from the PIC. Provides various options to formalize informal schemes. Requires that funds accumulated from contributions from informal insurance activities be used exclusively for the benefits of the contributors. Emphasized that excess moneys, after the formalization of the informal insurance schemes, shall be returned to or be used for the benefits of the contributors. Sets out clear guidelines for banks that want to sell Microinsurance as Agents. Clearly differentiates banking functions from insurance activities. Emphasized that it is the responsibility of insurance companies and cooperative insurance societies to ensure that only authorized or licensed Case Study: The Philippine experience on Microinsurance Market Development Page 7

8 Insurance Products Circular Letter Performance Standards for Microinsurance Circular Letter Guidelines for the Approval of Training Programs and Licensing of Microinsurance Agents Circular Letter Reapproval of Microinsurance products Circular Letter 16 to Guidelines for the Implementation of Alternative Dispute Resolution for Microinsurance (ADReM) by Commercial Companies, Cooperatives and MBAs Circular Letter Procedures for Accreditation of Mediators-Conciliators in Alternative Dispute Resolution for Microinsurance (ADReM) intermediaries, i.e., agents and brokers, are engaged to sell insurance/ microinsurance policies. In the case of mutual benefit associations, MBA insurance products must be issued only to members. Sets guidelines for reporting Microinsurance activities and prescribes the calculations of prudential and performance ratios according to set of Performance Standards called SEGURO (Solvency, Efficiency, Governance, Understanding of Microinsurance, Risk Management and Outreach of clients). Outlines the procedures of training and licensing MI agents. Requires the minimum disclosures such A Licensed Microinsurance Agent signage visible in the premises of the institution. Requires all MI products approved under the IMC No (the very first MI circular issued by PIC) to be submitted for re-approval to conform to the definition of Microinsurance under IMC Describes the principles and procedures of claims-related dispute resolution mechanisms at least cost, accessible, practical, effective and timely. It emphasizes consumer protection and also protection of the insurance industry against illegitimate claims. Sets out the qualifications of mediators-conciliators, training, responsibilities and code of conduct. Embedded in the circulars are provisions on transparency and disclosures to ensure consumer protection. The circulars require all microinsurance policies to clearly identify the face amount, benefits, and terms of the insurance coverage and ensure that contract provisions can be easily understood by the insured; documentation requirements are simple; and the manner and frequency of premium collections coincides with the cash-flow and not onerous for the insured. 4. Building capacity and provision of incentives to the private sector To achieve the goal of inclusive insurance, the DOF-NCC and PIC deliberately engaged the private sector. The private sector has an important and significant role in providing viable and sustainable insurance products and services to the poor because they have the distinctive competence and comparative advantage when it comes to the provision of needed financial services. The PIC believes that its role is mainly to provide the appropriate policy and regulatory environment for encouraging the private sector to participate in the provision of insurance products and services to the low-income sector. Furthermore, the regulator believes that its role is to ensure the financial stability of insurance providers and make sure that consumers are appropriately protected. Thus, licensed private insurance providers were encouraged to consider the low-income market and cater to their specific insurance needs. Case Study: The Philippine experience on Microinsurance Market Development Page 8

9 To further encourage the private sector to participate in microinsurance, PIC has allowed lower capitalization requirements for providers that are wholly engaged in microinsurance. Additional admitted assets were also identified for providers engaged in microinsurance. PIC also created a new category of Microinsurance agents and brokers with relaxed licensing requirements. The incentives for private sector participation went beyond the issuance of relevant circulars. The DOF-NCC, PIC, the insurance associations and with the support of GIZ-MIPSS 1 and ADB- JFPR 2 conducted the following capacity building and support activities: Conducted market surveys to have a clear understanding of the needs of the low-income sector. These provided a strong basis in designing the needed policy reforms, product development and distribution. Developed a prototype/standard Microinsurance non-life product tailor-fitted to the needs of low-income sector using a one-page simplified policy contract. It is a basic cash assistance policy that provides benefits to the insured and his/her livelihood against perils of personal accident, fire, flood and earthquake. Insurers offer this voluntary product and compete among themselves on pricing, benefits, distribution channels and pre/post sale services. Simplified the wordings of life policy contracts for easier understanding by the low-income sector. The contracts include variants of term-life, life policy with cash value and group life. Similar to the non-life prototype, the simplified life policy contracts enabled the insurers to efficiently do product development and facilitated the PIC s approval of MI products within 5 days. Conducted Training of Microinsurance Advocates. Training modules tailor-fitted to 9 stakeholders were developed: Macro (policy makers, national government agencies, regulators, Local Government Units), Meso (insurers, intermediaries, support institutions, donors), Micro (clients/consumers). Around 660 staff from the macro and meso stakeholders had been trained as Microinsurance advocates. Rolled out a nation-wide Microinsurance awareness campaign. The campaign runs for a year. It conducted training on MI advocacy, public seminars, MI information exhibits and 1 Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH Microinsurance Innovations Project for Social Security (MIPSS) supported the Microinsurance initiatives of government in Asian Development Bank (ADB)-Japan Fund for Poverty Reduction (JFPR) supported the Microinsurance initiatives of government in Case Study: The Philippine experience on Microinsurance Market Development Page 9

10 media briefings. One learning center in Microinsurance was also established in the Southern part of the Philippines. Trained the industry on the understanding, adoption and implementation of set of indicators for Performance Standards for microinsurance (SEGURO). 5. The approach: Public and Private sector collaboration Public and private sector collaboration through the Technical Working Groups (TWGs) and broad based consultations among national and regional stakeholders led to solid ownership of initiatives and results. The TWGs provided venues for public-private sector participation in the discussion of policy and regulatory issues and in the formulation of various policy and regulatory measures addressing the issues. Strong and sustained leadership of the DOF-NCC and PIC also made the processes effective and efficient. Technical and financial support from German International Cooperation-Microinsurance Innovations Program for Social Security (GIZ-MIPSS) and the Asian Development Bank-Japan Fund for Poverty Reduction (ADB JFPR) Developing Microinsurance Project (MIP) provided inputs from experts. And the excellent donors coordination is the success drivers of Microinsurance market development in the Philippines. Public sector includes financial regulators (DOF-NCC, PIC, Bangko Sentral ng Pilipinas, Cooperative Development Authority, Securities and Exchange Commission) and other national agencies such as National Anti-Poverty Commission and Philippine Information Agency. The private sector, on the other hand, includes all associations of insurance providers (commercial life and non-life companies, cooperative insurance societies and mutual benefit associations), financial and other institutions engaged in the provision of financial services to the low-income sector, and associations of agents, brokers, rural banks and MFIs. Since the private sector was involved in the formulation of policy and regulatory reforms, adoption and implementation of reform measures were facilitated. In almost all cases, members of the various working groups serve as advocate for reforms in their own organization. The Philippine Government also sought the assistance of development organizations in promoting and developing the microinsurance industry. Technical assistance from the GIZ and ADB-JFPR specifically focused on the following areas: developing the appropriate policy and regulatory environment for increased private sector participation in providing microinsurance services; building the capacity of regulators in supervising microinsurance providers; developing prototype product; and increasing awareness on microinsurance among key stakeholders. Case Study: The Philippine experience on Microinsurance Market Development Page 10

11 6. Market Response The implementation of policy reforms on Microinsurance have effectively contributed to the development of an inclusive insurance market. Before 2009, only MBAs were providing insurance to the low-income sector. As of end-2012, 35 commercial insurance companies are voluntarily selling MI products, 17 are life and 18 are non-life. The PIC has already approved 80 MI products, 54 are life and 26 are non-life MI products. Also, there are now 17 licensed MI- MBAs. Before 2009, Microinsurance products catering to the clients of MFIs are mostly credit life protecting the Microfinance provider more than the clients. Today, products that provide benefits against flood, crop loss, fire, hospitalization and earthquake are already available. Prior to 2009, there was no MI agent category. At that time, there were only about 3.1 million individuals covered by MI-MBAs. As of end-2012, PIC has already licensed 124 MI agents, 34 of whom are rural banks. About 7.8 million have been insured. As a result of the various initiatives on microinsurance, there is now greater awareness and interest in microinsurance from both the government and the private sector. There is also an increased interest among technology providers to provide the necessary backroom support to insurance providers engaged in MI. The measures undertaken also resulted in increased risk protection to the low-income sector. Simplified policy contracts for microinsurance were issued allowing the poor to have a greater understanding of what insurance is, its benefits and their rights and obligations as insured. Table 3 shows a comparative performance of the industry. Table 3: Market Response Status, before 2009 Status, End-of-2012 MI products mostly credit life except for MBA MI 80 MI products approved (54 life and 26 non-life) products 6 licensed MI-MBA 17 licensed MI-MBAs Very few commercial insurance companies with MI 35 insurance companies (17 life and 18 non-life) voluntarily selling MI products No MI agent category 124 licensed as MI agents (34 Rural Banks and 90 individuals) 3.1 million individuals covered under MI About 7.8 million insured including dependents are covered under MI Insurance penetration was only 1.02 % of GDP Insurance penetration was 1.42% of GDP Insurance density Php 878 ($19) Life insurance Php 654 Insurance density Php 1541 ($37). Life insurance Php ($14)Non-life insurance Php 224 ($5) 1265 ($31), Non-life insurance Php276 ($6) Estimated life insurance coverage was 13.90% of 91 M Estimated life insurance coverage was 23% of 97.6 M population population Case Study: The Philippine experience on Microinsurance Market Development Page 11

12 7. Key Lessons and Challenges Lessons: 7.1 Government should own and champion the reform measures. It is important to ensure that concerned government agencies are convinced of and own the policy and regulatory reform agenda. It is important to have key officials within the concerned government agencies who support and champion the reform agenda. Having an advocate in government signals sustainability of reforms, which is important when encouraging private sector participation. 7.2 The private sector should be engaged in formulating policy and regulatory reforms. As key market participants, they should be consulted on what will work best for them without sacrificing financial stability and consumer protection. 7.3 Donor assistance should be coordinated and synchronized to maximize returns and avoid waste of resources. 7.4 Government alone cannot meet the goals of inclusive insurance. A strong partnership between the government and the private sector is needed to move the agenda forward. The private sector has a significant and important role in delivering the right products using appropriate and tailor-fitted processes and distribution mechanisms. The government on the other hand, should facilitate market innovation and ensure that market conduct protects both the insurer and the insured. 7.5 Small gains lead to bigger milestones. A common trap to the process of making policy change is when the discussion is dragged on by the ticklish issue of changing or creating new laws which could only happen through then intervention of congress. If this happens, the industry loses sight of (e.g. the adoption and issuance of the Regulatory Framework and the National Strategy for Microinsurance). Challenges: 7.6 Low insurance take up in the country primarily stems from a lack of a strong insurance culture among the populace. A large majority of the population do not appreciate the benefits and importance of insurance. Very few are willing to part with their hard earned money in anticipation of getting some guaranteed benefits when a contingent event happens. The Filipino culture of living everything to fate makes insurance a hard sell product in the country. To increase insurance penetration in the country, the low-income market segment should be tapped. Aside from providing the needed huge numbers, catering to the risk protection needs of this market segment will also help in meeting the Case Study: The Philippine experience on Microinsurance Market Development Page 12

13 development objectives and in supporting the poverty alleviation thrusts of the government. 7.7 Reaching bigger scale requires innovations in product development, distribution and claims administration. Available success stories (such as in pawnshops) need to be documented to inspire other players on the profitability of Microinsurance. 8. The way forward: 8.1 Strengthening consumer protection through the adoption, issuance and implementation of appropriate market conduct guidelines. Support the PIC and the industry in the implementation of ADReM. 8.2 Adoption of thematic regulations such as on index-based/parametric insurance and technology-based insurance. 8.3 Conduct studies on impact of regulations and case studies of business successes so far. 9. References Information used in this case study took reference and recognition from the following sources: a. Bangko Sentral ng Pilipinas, Annual Report, 2012 b. Dante Portula, power point material Philippines Model of Microinsurance Inclusion: Process and Success Factors of Public-Private Collaboration, 5th Asia Microinsurance Conference, July c. MIPSS website d. National Statistics and Coordination Board website e. Philippine Insurance Commission, Microinsurance circulars, f. Philippine Insurance Commission, power point presentation Developing an Inclusive Insurance Market: The Path Taken by the Philippine Government, July 2013, prepared for RFPI Asia. g. Philippine Insurance Commission, power point presentation Engaging the Private Sector for Inclusive Insurance: The Path Taken by the Philippine Government, July 2013, prepared for RFPI Asia. h. Technical Working Group, Regulatory Framework for Microinsurance, Philippines, January 2010 i. Technical Working Group, National Strategy for Microfinance, Philippines, January 2010 Case Study: The Philippine experience on Microinsurance Market Development Page 13

14 j. Technical Working Group, Roadmap to Financial Literacy on Microinsurance, Philippines, January 2011 k. Technical Working Group, Alternative Dispute Resolution Framework for Microinsurance, Philippines, October 2012 Other useful resource: (contents compiled by Director Joselito Almario, DOF- NCC) Case Study: The Philippine experience on Microinsurance Market Development Page 14

15 Microinsurance Training Program for Insurance Supervisors in Asia Philippine Approach to Developing Inclusive Insurance Market (Part 1) Reynaldo Vergara, Philippine Insurance Commission (PIC) Dante Portula, German International Cooperation (GIZ) September 2013 Taal Vista Hotel / Tagaytay, Philippines

16 Outline 1. Philippine financial system landscape 2. Microinsurance key indicators 3. Regulatory Framework on Microinsurance 4. National Strategy on Microinsurance 5. Lessons and Challenges

17 Philippine Financial Landscape 31.8 (12.5%) Total Resources, 2012 (USD254.9 Billions) 19.2 (7.5%) (80.0%) Banks NBFIs Insurance, private

18 Philippine Financial Landscape Insurance Sector: 115 private commercial companies 33 Life (79%) 82 Non-life (16.2%) 28 MBAs (4.8%) Banking Sector: 705 head offices 37 Universal/Commercial Banks 69 Thrift Banks 599 Rural and Coop Banks 9,301 operating network (branches) Total Resources, 2012 (USD254.9 Billions) 31.8 (12.5%) 19.2 (7.5%) (80.0%) Banks NBFIs Insurance, private

19 Philippine Financial Landscape Insurance Market (As of end-2012) Insurance penetration was 1.42% of GDP Insurance density Php1541 ($37):Life Php1265 ($31), Non-life Php276 ($6) Estimated life insurance coverage was 23% of 97.6 M population

20 Microinsurance key indicators As of end MI products approved (54 life and 26 non-life) 17 licensed MI-MBAs 35 insurance companies (17 life and 18 non-life) 124 licensed as MI agents (34 Rural Banks and 90 individuals)

21 MI Regulatory Framework Definition of Microinsurance Insurance Memorandum Circular (IMC) A financial product or service that meets the risk protection needs of the poor Daily Contribution/premium not more than 5 percent of the current daily minimum wage rate (P23.30 or USD 0.53) Guaranteed benefits not more than 500 times the daily minimum wage rate. (P233, or USD 5,295)

22 MI Regulatory Framework Key distinctions : Traditional and MI Common Provisions for Individual/Group Insurance Plans Maximum Premium Maximum Benefit Policy Contract Frequency of Premium Collection Traditional Insurance Products Depending on the company Depending on the company Full of complex conditions Monthly, Quarterly, Semi-Annual, Annual Microinsurance Products (IMC ) 5% of the current daily minimum wage rate in Metro Manila 500 times the daily minimum wage rate in Metro Manila Simple and easy to understand Daily, Weekly, Monthly, Quarterly, Semi- Annual, Annual

23 MI Regulatory Framework Key distinctions : Traditional and MI Common Provisions for Individual/Group Insurance Plans Grace Period Contestability Period Traditional Insurance Products 31 days from premium due date Maximum of 2 years from date of issue or last reinstatement of the policy Microinsurance Products 45 days from premium due date Maximum of 1 year from date of issue or last reinstatement of the policy

24 MI Regulatory Framework Key distinctions : Traditional and MI Common Provisions for Individual/Group Insurance Plans Suicide Clause Claims Settlement Traditional Insurance Products Maximum of 2 years from date of issue or last reinstatement of the policy Within 60 days after submission of complete documents Microinsurance Products Maximum of 1 year from date of issue or last reinstatement of the policy Within 10 days after submission of complete documents

25 MI Regulatory Framework Increasing SUPPLY PROVIDERS Commercial Insurers Coop Insurance Societies Mutual Benefit Associations DELIVERY MECHANISMS Non-traditional mechanisms (e.g. pawnshops, e- commerce) Partnerships and Tieups with communitybased organizations Entities as Microinsurance agents/brokers REGULATORY SPACE Lower capitalization requirements Additional admitted assets Relaxed licensing requirements for MI agents

26 MI Regulatory Framework Increasing DEMAND INNOVATIVE PRODUCTS Affordable Simple contracts Tailor-fitted to needs Relaxed Terms and Conditions FINANCIAL LITERACY CAMPAIGNS Comprehensive encompassing all 9 stakeholders Cover all 16 regional areas Learning centers CLIENT PROTECTION Formalization of informal insurance providers Redress and grievance mechanisms Use of Alternative Dispute Resolution

27 MI National Strategy Role of the Government Policy and Regulatory Agencies Enabling policy and regulatory environment Measures supportive of financial inclusion Guidelines for mainstreaming informal insurance Other National Agencies and Instrumentalities Networks and linkages with Microinsurance providers Inclusion of Microinsurance in programs Basic support services Local Government Units (LGUs) Collaboration with private sector providers Institutionalization of Redress Mechanisms Public awareness and education

28 MI National Strategy Role of the Private Sector PRODUCT INNOVATION Design and provide simple, affordable and accessible innovative Microinsurance products MARKET DEEPENING Expand channels for the safe, efficient and effective delivery with fast claims payments FINANCIAL LITERACY Educate the masses on the importance of risk protection and build trust among the general public

29 Developing MI Regulatory Framework and Strategy The Process Value to MI Inclusion Results so far Mapping of gaps and inefficiencies Drafting of policy papers TWG series Industry and public consultations Launching and adoption Clear definition of MI, target sectors, roles of various players Strategies for mainstreaming informal insurance, Finlit Opened up the MI supply market beyond MBAs Opened up delivery channels beyond traditional agents Issued JOINT circulars on formalization and delivery channels Set up MI committee in respective association of insurers 80 new MI products from 35 companies approved by IC since 2010 About 7.8 million insured under MI

30 Lessons and Challenges 1. Government should own and champion the reform measures. 2. The private sector should be engaged in formulating policy and regulatory reforms. 3. Small gains lead to bigger milestones.

31 Maraming Salamat!! (Thank You) -- Acknowledgement -- many of the slides used in this presentation were adapted from files of power point presentations prepared by the Philippine Department of Finance National Credit Council and the Insurance Commission

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33 Microinsurance Training Program for Insurance Supervisors in Asia Philippine Approach to Developing Inclusive Insurance Market (Part 2) Reynaldo Vergara, Philippine Insurance Commission (PIC) Dante Portula, German International Cooperation (GIZ) September 2013 Taal Vista Hotel / Tagaytay, Philippines

34 Outline 1. Developing Microinsurance prototype product 2. Roadmap to Financial Literacy on MI 3. Tools for consumer protection Formalizing the informal SEGURO Performance Standards Alternative Dispute Resolution (ADR) scheme 4. Market Response 5. Lessons and Challenges

35 MI Product Prototype Buhay Bahay Kabuhayan (BBK) Microinsurance Policy that pays the insured or his beneficiary the sum assured in case a covered peril results in loss or damage to life and property

36 MI Product Prototype BBK Overview Non life Property Insurance with Personal Accident One-year term coverage One claim on any one peril terminates the policy Claim Settlement within ten (10) days upon submission of complete claim requirements Php10,000 per unit. Maximum of 3 units per family

37 MI Product Prototype BBK named perils Fire, Lightning, Typhoon, Floods, Earthquake, or Accidental death (PA), Total & Permanent Disability (TPD)

38 MI Product Prototype Acceptable Proof of Loss & Proof of Claims Minimum requirements: Barangay/Village or Local Government Certification Death Certificate (for Personal Accident)

39 MI Product Prototype The Process Demand study / Reviewed traditional insurance contracts Drafted product prototypes TWG series Consultation with industry / Affirmation of product prototypes Approval of product prototypes by IC Product adaptation and pricing by providers / Licensing / Selling Value to MI Inclusion Prototypes are public good / Available to all providers Compliant to MI guidelines: Affordable, Simple contract, Fast claim Innovations in product delivery Results so far 3-in-1 non-life product approved by IC and adopted by providers Contracts on Term life and Endowment Simplified Launched a study to develop innovative distribution channels

40 Financial Literacy (FinLit) on Microinsurance

41 Finlit Vision Adequate risk protection for the low-income sector through a strong insurance culture among the Filipinos

42 Finlit Objectives To help the low-income sector protect their financial assets manage their resources for risk and social protection To build capacities of stakeholders become proactive in the provision and promotion of Microinsurance

43 Financial Literacy on MI MI Advocacy Strategies Target stakeholders 1. Legislators 2. Regulators 3. National Government Agencies 4. LGUs 5. Insurance Providers 6. Intermediaries 7. Support Institutions 8. Donors 9. Clients Training of MI Speakers Bureau Training of MI Advocates (TOMA) MI Seminars for public and private entities MI seminars for clients by respective stakeholders

44 Financial Literacy on MI MI Advocacy Tools Training modules Audio Visual Presentations (AVPs) Jingles Flip chart Poster Brochures Frequently Asked Questions (FAQs)

45 FINLIT ROADSHOWS Ilocos - San Fernando (April 16-20, 2012) Central Luzon San Fernando, Pampanga (June 18-23, 2012) Cagayan Valley Tuguegarao (May 21-26, 2012) CAR - Baguio City (July 16-21, 2012) Southern Luzon Calamba, Laguna (June 4-9, 2012) NCR (January & 31, 2012) Western Visayas Iloilo City (February 20-25, 2012) Northern Mindanao Cagayan de Oro (April 23-28, 2012) Zamboanga Peninsula Zamboanga City (May 7-12, 2012) ARMM Cotabato City (August 2012) Bicol Legazpi City (February 6-11, 2012) Eastern Visayas Tacloban City (Sept 19-21, 2011) Central Visayas Cebu City (March 5-10, 2012) CARAGA Butuan City (Oct 10-14, 2011) Davao Davao City (March 19-24, 2012) SOCCSKARGEN Koronadal City (July 2-7, 2012)

46 Roadmap to FinLit on MI The Process Mapping Finlit initiatives and good practices Drafting of Finlit Roadmap TWG series Industry and public consultations Launching and adoption of Finlit roadmap Developing Training Modules and campaign materials TWG series Training of speakers Bureau/ Nationwide Finlit Awareness campaign Value to MI Inclusion Finlit covered all audience - from lawmakers to low income people (9 stakeholder groups - macro, meso, micro) MI messages are conveyed thru a mix of methodologies Results so far Finlit roadmap developed and launched to the public Training modules and advocacy materials tested Around 660 people trained as MI advocates Finlit roadshows conducted across the country

47 Consumer Protection (CP) Tools Government s Policy All entities that will engage or are engaged in insurance activities are required to get a Certificate of Authority from the Philippine Insurance Commission (PIC). All insurance products shall be approved by PIC.

48 Consumer Protection (CP) Tools Joint Memo Circular Who should be regulated WITH REGULATION Contributions/premiums are regularly collected prior to the occurrence of a contingent event; and Guaranteed benefits are provided upon the occurrence of a contingent event. NO REGULATION Individuals voluntarily pledge and contribute a certain amount of money to a fund. Benefits are not predetermined but are contingent to the amounts collected. (e.g. Damayan/ Abuluyan Scheme)

49 Consumer Protection (CP) Tools Joint Memo Circular Options for Formalization WITHIN 1 YEAR Partner with commercial insurance companies that will provide approved insurance products, either: Group policies Individual policies Have members/clients join: A Mutual Benefit Association A cooperative insurance provider Enter into formal arrangements with authorized insurance providers/microinsurance agent/broker WITHIN 2 YEARS Organize into an insurance provider and seek appropriate authority from the Insurance Commission Life or non-life insurance company Mutual Benefit Association Cooperative Insurance Provider

50 Consumer Protection (CP) Tools SEGURO Performance Standards for MI (Insurance Circular ) Stability Efficiency Governance Understanding of the Product by the Client Risk-Based Capital Outreach

51 Consumer Protection (CP) Tools SEGURO Purpose of the Performance Standards Assessment and evaluation of the performance of Microinsurance providers; Transparency in the operations of all Microinsurance providers; and Protection of clients from unsafe and unsound provision of Microinsurance products and services.

52 Consumer Protection (CP) Tools SEGURO Users of the Performance Standards Insurance Commission Management of Microinsurance providers Agents and brokers (particularly the MFIs) Donor agencies Domestic and international private investors General public (existing and potential clients of Microinsurance)

53 Consumer Protection (CP) Tools SEGURO Obligation of Insurance Companies Submit to the Insurance Commission on or before April 30 the resulting SEGURO indicators covering previous year s operations

54 Consumer Protection (CP) Tools SEGURO PIC utilization of PS results Publish aggregate status report on the Microinsurance industry Create early warning system Recommend appropriate remedial measures, when warranted Review SEGURO at least once in every three (3) years

55 Consumer Protection (CP) Tools Redress Mechanism ADR for Microinsurance (ADReM) (Insurance Circulars 15 to 18, series 2013) Alternative Dispute Resolution (ADR) reduces cost time and complexity of any subsequent litigation. ADR provides options to stakeholders for resolving disputes outside the courtroom.

56 Consumer Protection (CP) Tools Redress Mechanism ADR for Microinsurance (ADReM) (Insurance Circulars 15 to 18, series 2013) ADR Objective To provide avenues to settle Microinsurance disputes through the swiftest and most accessible means.

57 Consumer Protection (CP) Tools Redress Mechanism ADR for Microinsurance (ADReM) (Insurance Circulars 15 to 18, series 2013) Least Cost Structural elements of ADR Mechanisms Accessible Practical Effective Timely

58 Consumer Protection (CP) Tools Redress Mechanism ADR for Microinsurance (ADReM) (Insurance Circulars 15 to 18, series 2013) Reporting Information on the outcome of cases referred to ADR processes shall be incorporated in the Annual Reports submitted by insurance providers to the PIC. Information Campaign Microinsurance providers and delivery channels shall promote the use of mediation and conciliation as a recourse mechanism available to all policyholders to address any dispute.

59 Market Response Before 2009 End-2012 MI products mostly credit life except for MBA MI products 6 licensed MI-MBA Very few commercial insurance companies with MI No MI agent category 80 MI products approved (54 life and 26 non-life) 17 licensed MI-MBAs 35 insurance companies (17 life and 18 non-life) 124 licensed as MI agents (34 Rural Banks and 90 individuals)

60 Market Response Before 2009 End million individuals covered under MI Insurance penetration was only 1.02 % of GDP Insurance density Php878 ($19): Life Php654 ($14), Non-life Php224 ($5) Estimated life insurance coverage was 13.90% of 91 M population About 12 million insured including dependents are covered under MI Insurance penetration was 1.42% of GDP Insurance density Php1541 ($37):Life Php1265 ($31), Nonlife Php276 ($6) Estimated life insurance coverage was 23% of 97.6 M population

61 Lessons and Challenges 1. Government alone cannot meet the goals of inclusive insurance. 2. Donor assistance should be coordinated and synchronized.

62 Maraming Salamat!! (Thank You) -- Acknowledgement -- many of the slides and contents used in this presentation were adapted from files of power point presentations prepared by the Philippine Department of Finance National Credit Council and the Insurance Commission