Life-savings product planned

BusinessWorld
Finance
Posted on January 30, 2011 08:24:24 PM

BY DIANE CLAIRE J. JIAO

THE GOVERNMENT is developing a prototype product combining life protection and savings, in a bid to boost the nascent microinsurance market.
The Department of Finance and the National Credit Council, along with the German Agency for International Cooperation (GIZ, formerly German Technical Cooperation or GTZ) and the Asian Development Bank, have been developing prototype products for the microinsurance industry in the Philippines.

A non-life product dubbed “Buhay, Bahay at Kabuhayan” is up for approval by the Insurance Commission (IC).

“Based on our studies, low-income families want a life insurance product they can benefit from even while they are alive,” GIZ Senior Finance Adviser Dante Portula told BusinessWorld last Friday.

Life insurance products typically pay money to beneficiaries of the policyholder only upon the event of his or her critical illness or death.

“The product we are developing will act like a savings account for the poor,” Mr. Portula said. “They will open an account and deposit money.

The monthly premiums for life insurance will be deducted from this savings account.”

He added it will also allow the poor to withdraw their money at any time, especially in cases of emergency.

GIZ, which conducts the technical studies for the government’s microinsurance initiatives, designed the life-savings plan to suit the poor and their erratic wage patterns.

“One season, farmers earn a lot from a good harvest. The next season, a typhoon can hit their province,” Mr. Portula explained. “They may not always be able to pay their monthly premiums.”

The savings account will act as a stable pool of money to collect premiums from, he said.

Collecting premiums will also be made easier as insurers no longer have to nag customers to pay.

However, GIZ has yet to resolve which institutions will be responsible for managing the savings accounts.

“Will it be the Bangko Sentral ng Pilipinas? Will it be insurance companies who provide the life insurance? Or will it be microfinance institutions (MFIs), where the poor are enrolled in?” Mr. Portula asked.

If insurance companies managed these accounts, he said, the savings will have to be booked as liabilities or financial obligations in their accounting books, just like the collected premiums.

On the other hand, MFIs, which presently extend savings and microinsurance services, are worried their members will no longer tap their services since they can get both life insurance and savings accounts from insurers anyway, Mr. Portula said.

“We will fix these issues first, but we expect the life insurance prototype product to be ready by the second quarter of this year,” he said.

Prototype products serve as the guide for insurance firms, cooperatives and mutual benefit associations that want to venture into microinsurance.

The basic features and the terms of the microinsurance product are outlined, but insurers are free to tweak these in case they want to provide additional services. The pricing is not dictated, though, to give insurers room to compete with each other.

However, the prices set by insurers have to comply with the terms set by the IC for all microinsurance products.

According to the IC’s Insurance Memorandum Circular 1-2010, the amount of premiums computed on a daily basis should not exceed 5% of the current daily minimum wage rate of non-agricultural workers in Metro Manila.

The “Buhay, Bahay, Kabuhayan” product is designed to give P10,000 coverage against death from accident or damage to property/business from natural calamities. One may buy three units for a total coverage of P30,000. A contract is good for a year.