THE POOR may now buy micro-insurance from rural, cooperative and thrift banks after these institutions were green-lighted by the central bank to serve as distributors.
In a statement issued last Friday, the Bangko Sentral ng Pilipinas (BSP) said the Monetary Board the day before had "approved ... the marketing, sale and servicing of microinsurance products by rural, cooperative and thrift banks."
These banks, the BSP added, "are ideal insurance distribution channels as they are the trusted financial institutions in the countryside and have a deeper knowledge and understanding of the low-income market."
Rural banks had clamored to be allowed to sell microinsurance -- aside from the credit life insurance they normally bundle into loans -- noting the additional revenues that big banks were reaping from bancassurance, or the sale of insurance policies within their premises.
Bancassurance rules, however, stipulate that banks should own at least 5% of insurance firms -- a requirement rural banks said they could not fulfill since they were too small to invest in insurance companies.
Rural banks proposed a "partnership model" where they would partner with commercial insurers. They would act as information disseminators and collection agents of the insurers, earning a fee in the process.
The banks also said they wanted to sell microinsurance products other than credit life insurance -- which primarily protects banks from default by clients who are often poor and without collateral -- such as life, crop, and property insurance but needed the central bank’s go-ahead before they could do so.
Officials of the thrift and rural bank associations welcomed the BSP move.
Pascual M. Garcia III, president of the Chamber of Thrift banks, said in a telephone interview yesterday: "Banks will be able to provide products to more customers. These banks are heavily exposed to the micro-sector... [This] will improve penetration of the sector and improve the existing relationship."
Mr. Garcia also said the order would make microinsurance cheaper as insurance firms would not need to open branches and hire people.
Joseph Omar O. Andaya, president of the Rural Bankers Association of the Philippines (RBAP), said the BSP move would further boost lending to the agricultural sector.
"Banks will be more encouraged to lend because when you are in agribusiness, you are subject to the vagaries of nature. Microinsurance mitigates that because banks can recover what they lend, since farmers affected by natural calamities get back seed money to restart their enterprise with insurance," he said.
While the BSP has not released the rules and regulations covering the sale of micro-insurance by rural, cooperative and thrift banks, its statement said banks needed to comply with Insurance Commission rules on microinsurance and verify that insurers have "adequate consumer protection mechanisms."
Both Messrs. Garcia and Andaya could not immediately say how much the sale of microinsurance would add to their bottom line, but said the BSP’s move was significant more for its social implications.
"[Microinsurance] will serve as parachutes for those who were poor but have made good in their lives so they won’t go back to poverty," Mr. Andaya said.
"It’s not going to be a big revenue source," Mr. Garcia said. "Our organizations can provide input on the type of products... Customers will understand about risk that can damage their business and families and pick up appropriate insurance for that. This will give them better chances for recovery and help them manage risk when things happen..."
Mr. Andaya said the RBAP was already in talks with insurance firms for products that could be introduced, but said the government should consider inviting more players from abroad so the cost of microinsurance could go down. -- Don Gil K. Carreon
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