Microinsurance Momentum in the Philippines

Microinsurance Momentum in the Philippines
by Kate McKee: Friday, October 8, 2010
CGAP

When hundreds of practitioners from around the world descend on Manila next month for the annual microinsurance conference, they’ll have a chance to observe firsthand a sector on the move. Sure, right now only 13.92 % of Filipinos have life insurance and penetration (premiums to GDP) is only 1.05%. But access is growing. And recent field research shows that once it is explained to them, low-income people say they want insurance and are willing to pay 20-30 pesos (US$.45-.$60) a week for it. As insurance providers begin to target the low-income market, they are offering a range of products: whole life; accident, burial and medical benefits plans; asset protection for microentrepreneurs hit by fire, lightning, flood, typhoon or earthquakes; and weather index crop insurance.

Over a hundred practitioners gathered in Manila on Friday, October 1 for a consultation on the new “Roadmap for Financial Literacy on Microinsurance,” an action plan prepared by a Technical Working Group comprised of all the key stakeholders from government, the microfinance and cooperative sectors and the insurance industry. This work has been supported by ambitious sector-building programs of the Asian Development Bank and GTZ that aim to institutionalize industry standards, develop products and carry out a nationwide microinsurance literacy and advocacy campaign.

The Roadmap is accompanied by a new “National Strategy and Regulatory Framework for Microinsurance” that aims to promote orderly growth in the sector while protecting consumers by requiring retail sellers of insurance policies to either register a Mutual Benefit Association (MBA) or team up with a regulated insurer. The focus is strictly on sustainable insurance provided by private providers, distributed by financial institutions who are close to the poor, and paid for by low-income people who see insurance as a good value proposition (referred to as “the paying poor”). The day before, the Financial Monetary Board had authorized mini-branches to widen financial access points, with microinsurance mentioned specifically as a permissible product.

The new rules are being rolled out through these road shows along with a broad financial literacy campaign. Itoy Almario (National Credit Council – Department of Finance), who has spearheaded the Roadmap process, pointed out that it is not just clients but also regulators and those in the industry who need a different mind-set – “Insurance is not just for the rich.”

One aspect of the whole process that stands out is the integration of client protection right from the beginning. Almario was quick to remind the audience that the current problem is not just misunderstanding of insurance by poorer Filipinos, but outright mistrust. Simple, plain-language contracts and claims settlement within 10 days would be a good starting point to building more trust. Consumer protection and client rights and benefits are central messages in the campaign.

This focus mirrors similar work in other countries and at the global level. For example, CGAP is commissioning a chapter for the forthcoming new version of the Micro-insurance Compendium (the first was co-published by the International Labor Organization and the Munich Re Foundation on nascent approaches to consumer protection regulation. While we tend to fear that regulation will increase costs and price poor people out of the market, this may be a case where basic rules of the game actually build trust and hence help build the market, rather than stifling innovation. The Smart Campaign is working on guidelines that apply the core client protection principles to micro-insurance, and the MicroInsurance Network is launching a task force on how to promote transparency and fair treatment as the sector expands.

In the Philippines, it looks like the three essential ingredients of responsible finance – industry standards, access-friendly regulation, and financial capability initiatives – are coming together in the microinsurance sector.

–Kate McKee