Developing microinsurance: The path taken

Business Mirror
Opinion
12 Aug 2014
The Technical Services Group of the Insurance Commission

THE Insurance Commission (IC) has taken great strides toward the promotion of microinsurance in the country, considering the initiatives and strategies undertaken over the years.

The most important of these initiatives is the crafting and issuance of the Regulatory Framework for Microinsurance, as embodied in Insurance Memorandum Circular (IMC) 1-2010. In this document, the IC defined the parameters for a microinsurance product in terms of the amount of daily premiums and face amount. But with the enactment of the New Insurance Code, the maximum amount of daily premiums and the maximum sum of guaranteed benefits of a microinsurance product have been pegged at 7.5 percent of and 1,000 times the current daily minimum-wage rate for non-agricultural workers in Metro Manila, respectively.

Another significant stride toward the promotion of microinsurance was making it more accessible to the public. Again, this was done through IMC 1-2010, in which accredited life and nonlife insurers, cooperative insurance societies, and mutual-benefit associations were allowed to issue IC-approved microinsurance products.

Moreover, to encourage their increased participation in providing microinsurance products, the IC approved new distribution channels—categorized as microinsurance agents and microinsurance brokers—which can be availed of by interested individuals and groups, including rural banks, microfinance institutions, non-governmental organizations and cooperatives, and prescribed lower capitalization requirements or a guaranty fund for microinsurance providers.

Likewise, it expanded the set of admitted assets to include premiums collected from the sale of microinsurance products, and even relaxed licensing requirements for agents solely engaged in the solicitation of microinsurance business.

In terms of customer protection, regulations were issued to ensure these microinsurance providers’ financial solvency at all times, so that they shall have the liquidity to fulfill their obligations to their insureds or members as they fall due.

Thus, the IC, together with the Securities and Exchange Commission and the Cooperative Development Authority, issued a joint memorandum circular requiring all entities engaged in informal insurance activities to formalize their operations, either by obtaining a license from the IC or by partnering with a licensed microinsurance provider. This way, the premiums and contributions of the insureds or members are safeguarded through the regulatory policies, in particular, through the circular on performance standards.

This circular prescribes a set of benchmarks or indicators that shall be used in evaluating the microinsurance operations of licensed providers, so as to ensure their stability and capability to continue offering microinsurance products and services. The performance indicators cover such areas as solvency and stability, efficiency, governance, understanding of the product, risk-based capital and outreach. Serving as an early warning system, the IC, through these indicators, can identify entities with specific concerns on the financial condition of their microinsurance operations as early as possible.

Also of great importance is the circular issued for the protection of microinsurance policyholders, the one on the Alternative Dispute Resolution Mechanism. Through the guidelines set out in this circular, claims disputes or complaints related to microinsurance contracts may be settled expeditiously and at less cost to policyholders.

The last of these activities—and this could be the most extensive that was undertaken to promote microinsurance—was the institutionalization of financial literacy. Following the creation of a document called the Road Map to Financial Literacy on Microinsurance, which detailed the campaign strategies directed toward microinsurance stakeholders,
a series of advocacy seminars and trainings, as well as news conferences, were conducted in 17 key regional centers of the country.

Support from collaborators

THE IC recognizes the fact that, by itself, it could not have achieved the feats stated above.

The Department of Finance-the National Credit Council, other government agencies, our private partners, industry associations and academe all selflessly shared their time, expertise and resources to help develop and promote our microinsurance advocacy.

Lending even more extensive support are two multilateral agencies that literally acted as the wind beneath IC’s wings, promoting our microinsurance program as a model for financial-inclusivity efforts not only in Asia, but also in many parts of the world.

The IC is most grateful to these two organizations, the Asian Development Bank (ADB) and the German Technical Cooperation (GTZ), for their wholehearted support for our microinsurance program, making it possible for millions of Filipinos to understand the value of, and have access to, insurance cover against life’s harsh blows.

That we now have about 20 million Filipinos from the low-income sector enjoying the benefits of microinsurance is a testament to the greatness that can be achieved when worthy projects are pushed by people and entities sharing a common vision and goal.

Presently, both the ADB and GTZ have ongoing projects with the IC for the continuous development of microinsurance and related endeavors.

With these collaborations, the goodness continues.

IC to issue new circular revising the SCA for MBAs

Opinion, Business Mirror
05 Aug 2014
Written by Bernandino B. Camba

NOT too many people know that the mutual-benefit association (MBA) industry has always been under the regulatory supervision of the Insurance Commission (IC). What the savings-and-loans company is to the Bangko Sentral ng Pilipinas, the MBA is to the IC.

As a key stakeholder in the country’s national strategy for the development of microinsurance, MBAs are key in providing every Filipino with equal access to insurance. In contrast to regular insurance companies, MBAs are nonstock and nonprofit organizations that offer social, economic and/or educational programs for their members (and their families) to ensure the protection and development of the same. Accordingly, the IC recognizes the role that MBAs have in the government’s program for inclusive growth and development and, thus, provides the necessary regulation to help them grow and stay stable.

In 2006 the IC issued IC Circular Letter 33-2006, which revised the old Standard Chart of Accounts (SCA) for life-insurance companies, and introduced a Uniform Chart of Accounts for both life-insurance companies and MBAs. This circular lists the uniform account titles to be used by an MBA in recording similar transactions. Each account’s nature described adopted the latest International Financial Reporting Standards (IFRS)/Philippine Financial Reporting Standards (PFRS) rulings and issuances.

The issuance of the circular formalized the accounting review processes for MBAs. This reduced queries and complaints from MBAs during the audit period and standardized account-reporting.

However, with the updates and changes in the IFRS and PFRS in the last eight years, it is again necessary to review and revise the SCA, align it with the latest IFRS rules, and differentiate the account titles for for-profit and not-for-profit organizations. The proposed issuance of the IC circular for the new SCA is one way to ensure that the differences between regular insurance companies and nonprofit organizations are recognized.

There are three major changes:

1) Accounting for fund balances is now unique for an insurance company and an MBA. For example, before, “retained earnings” were used to describe accumulated earnings for MBAs. Now the term “fund balance” is used.

2) “Legal policy reserves” required for insurance companies are now classified into two accounts for MBAs: “Liability on individual equity value,” which represents the total amount of obligations set up by the MBA on membership certificates pertaining to the 50-percent equity value; and “Basic contingent benefit reserves,” which represents the total actuarial reserves set up by the MBA pertaining to the basic life benefit that is in force at the end of the accounting period.

3) In the Assets Section for MBAs, several accounts were also added. These include the Unremitted Member’s Contributions, Dues and Fees account for the unremitted collections on membership fees at the end of the period, and the Unremitted Premiums account for the unremitted collections on all optional policies at the end of the period.

The IC, with the help of the Department of Finance, the MBAs and funding from the Asian Development Bank, has already finished its consultations with various industry stakeholders and, as of last week, conducted its seminar for IC examiners and other employees. The next step is to organize seminars in Luzon, the Visayas and Mindanao for the MBAs to be familiar with the proposed new SCA for MBAs in time for the IC circular’s official publication.

With the completion of the nationwide seminars for MBAs, the IC expects that it will improve financial-data collection, reporting, accuracy and comparability across the industry, and will also provide full disclosure of its financial standing and position to its members and other regulators.

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Bernardino B. Camba is a member of the Financial Examination Group of the Insurance Commission.