New microinsurance rules issued

Business World
Front Page
February 1, 2010

Regulators want informal schemes closed within a year

NEW RULES governing microinsurance were issued on Friday, re-laying the groundwork for the potentially multibillion-peso industry.

The Insurance Commission (IC), which came out with a new circular, also issued a separate set of rules together with two other regulators that close down informal insurance schemes. Both directives were signed on Friday during the launch of a national microinsurance strategy and regulatory framework.

The government is pushing microinsurance for the poor, noting that they risk getting poorer as a result of calamities. Given its insufficient funds, the state is pushing for the development of a private sector-driven microinsurance market.

Studies have shown that while there are formal and informal microinsurance schemes, their penetration rate among the poor is very low.

Microinsurance is distinguished for being low-cost and easy to dispense. The government conservatively estimates sales to hit P2.5 billion annually based on premiums of as low as P1 a day and a client base of seven million.

The first circular which is still unnumbered, said Joselito S. Almario, deputy executive director of the National Credit Council, "implements" the national strategy and regulatory framework and as such serves as the IC’s primary document for regulating the industry.

It amends Insurance Memorandum Circular (IMC) 9-2006 that promoted and defined microinsurance, and spelled out the responsibilities of providers.

IMC 9-2006, Mr. Almario said, was overly focused on mutual benefit associations (MBAs) -- non-profit organizations set up by teachers or government workers, for instance -- to the exclusion of other microinsurance providers.

"The government pushed for MBAs [in providing microinsurance]. But there are cooperatives that do that also," he said.

The new circular states that all insurance firms, cooperatives, and MBAs licensed by the IC may sell microinsurance products, which may consist of one type, or several products -- life, non-life and health -- bundled together.

It also requires microinsurance agents to be licensed by the IC. These agents, however, need not take the regular licensure exam but must undergo a special training program and pass a qualifying exam.

The circular also redefines microinsurance as that where the amount of premiums, contributions, fees or charges, computed on a daily basis, does not exceed 5% of the current daily minimum wage rate for non-agricultural workers in Metro Manila.

Premiums, under IMC 9-2006, were computed at 10% of the daily minimum wage rate.

The new circular retains the old one’s provision that "the maximum sum of guaranteed benefits is not more than 500 times the daily minimum wage rate for non-agricultural workers in Metro Manila."

Meanwhile, Joint IC-CDA-SEC Memorandum Circular 01-2010 terminates "informal insurance" or "insurance-like schemes" and orders organizations that extend these to either partner with commercial insurers or incorporate themselves into an insurance firm, a cooperative, or MBA.

The joint circular was signed by Insurance Commissioner Eduardo T. Malinis, Securities and Exchange Commission (SEC) Chairman Fe B. Barin, and Cooperative Development Authority (CDA) Chairman Lecira V. Juarez.

"Many organizations are operating without a license," Mr. Almario said, "when the law clearly states they get a certificate of authority, essentially a license, from the Insurance Commission."

The circular cites the Insurance Code, which insists that organizations undertaking insurance activities first secure a certificate of authority from the IC, and the Cooperative Code which requires cooperatives undertaking such activities to also get an IC certificate.

There are also entities, including non-profit organizations, registered with the SEC that don’t have the authorization but are extending insurance.

Informal insurance schemes are to close in a year, and their providers may either partner with commercial insurers or encourage members to become members of MBAs or cooperatives.

They may also, within two years, organize themselves into a life or non-life insurer, cooperative, or MBA licensed by the IC.

Deputy Insurance Commissioner Vida T. Chiong said other circulars covering reportorial requirements and the required capitalization would be issued.


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