Case Study

The Philippine experience on Microinsurance Market Development

For

Training Program of Insurance Supervisors in Asia

Organized by Access to Insurance Initiative, AITRI, GIZ-RFPI and Toronto Center

Manila, Philippines / September 16-20, 2013

Prepared by

Mr. Dante O. Portula

Senior Advisor, GIZ-RFPI Asia

Mr. Reynaldo Vergara

Division Chief, Philippine Insurance Commission

August 2013

Case Study: The Philippine experience on Microinsurance Market Development Page 1

 Table of contents

1 Country overview
1.1 Basic demographic and economic data 3
1.2 Financial sector landscape 3
2 The Insurance Industry 4
3 Evolution of Microinsurance development
3.1 Financial inclusion, an overarching goal 4
3.2 Microinsurance policy milestones and circular issuances 5
4 Building capacity and provision of incentives to the private sector 8
5 The approach: Public and Private sector collaboration 10
6 Market Response 10
7 Key Lessons and Challenges 12
8 The way forward 13
9 References 13

Tables

1 Philippine policy reforms on Microinsurance 6

2 Microinsurance circular issuances 7
3 Market response 11

Case Study: The Philippine experience on Microinsurance Market Development Page 2

1. Country overview

1.1 Basic demographic and economic data

The Philippines is an archipelago of 7,107 islands with a total land area, including inland bodies
of water, of approximately 300,000 square kilometers. It is a constitutional republic with a
presidential system. The Philippines is divided into three island groups: Luzon, Visayas, and
Mindanao. As of March 2010, these were divided into 17 regions, 80 provinces, 138 cities, 1,496
municipalities, and 42,025 barangays. Population is around 97.6 Million. Literacy rate is 92.6%.

It is considered a middle income country with a per capita income of $1,790. GDP growth rates
from 2010-2012 were robust at 7.6%, 3.9% and 6.6%, respectively. The economic growth in
2012 was mainly driven by increased investment from the private sector, robust overseas
Filipino remittances and higher government spending. Despite of this however, almost a third
of its population still lives below the poverty line. Latest available data on poverty shows that
on the average, 28 out of 100 Filipinos are living in poverty between the 1st semester of 2006
and 1st semester of 2012.

The 2012 cash operations of the government showed a fiscal deficit of 15.8%, up from 14.5%
revenue deficit in 2011 fiscal year. Borrowings in 2012 were 35.1% of total tax and non-tax
revenues, 87% of which were from domestic sources and 13% from external sources.

1.2 Financial sector landscape

The total resources of the Philippine financial system as of June 2012 reached Php10.45 trillion
(USD254.87 Billion), 8.3% higher than a year ago. The banking industry’s total assets accounted
for 80% of the total resources and 76.2% of the country’s Gross Domestic Product (GDP). Non-
bank financial institutions (which include private and public insurance companies, among
others) contributed for the remaining 20%.

The number of banking institutions (head offices) dropped further to 705 as of end-September
2012 from the year-ago level of 730, denoting the continued consolidation of banks as well as
the exit of weaker players in the banking system. By banking classification, banks (head offices)
consisted of 37 Universal/Commercial Banks, 69 Thrift Banks, and 599 rural banks. Meanwhile,
the operating network (including branches and other offices) of the banking system increased
to 9,301 in September 2012 from 8,965 during the same period the previous year, due mainly
to the increase in the branches/agencies of universal and commercial banks.

The banking system’s asset quality as measured by the Non-Performing Loan (NPL) ratio
sustained its downtrend, easing to 2.6 percent as of end-October 2012 from the 3.2 percent
registered a year ago. Banks’ initiatives to improve asset quality along with prudent lending
regulations helped bring the NPL ratio below pre-Asian crisis levels. Outstanding loans of

Case Study: The Philippine experience on Microinsurance Market Development Page 3

commercial banks, net of banks’ Reverse Repurchase (RRP) placements with the Bangko Sentral
ng Pilipinas (BSP), continued to expand, posting a 16.2 percent y-o-y growth as of end-
December 2012.

The Philippine banking system’s Capital Adequacy Ratio (CAR) on consolidated basis was at
17.6%, which surpassed the 10% domestic regulatory minimum and 8% international norm, was
comparatively higher than those of Indonesia (17.3%), Malaysia (17.3%), Thailand (14.8%) and
South Korea (14.0%).

The Philippines has been lauded globally for its microfinance and financial inclusion initiatives.
For four years in a row (2009-2012), the Economist Intelligence Unit’s global survey has ranked
the Philippines as number one in the world in terms of policy and regulatory framework for
microfinance.

2. The Insurance Industry

As of end of 2012, the Philippine insurance industry is composed of 115 private commercial
companies (including 2 cooperative insurance societies) and 28 Mutual Benefit Associations
(MBAs). The insurance industry is relatively small with assets of Php785.5 Billion (USD19.2
Billion), 79.02% of which was accounted for by the Life sector (33 companies), 16.16% by the
Non-life sector (82 companies) and 4.82% by the Mutual Benefit Association sector (28 MBAs).
Its total assets or resources accounted for only 7.49% of the total resources of the Philippine
financial system and 9.4% of the banking sector’s assets.

Despite a significant numbers of insurance providers, however, the country still has a low
insurance take-up. The insurance penetration or the contribution of the insurance industry to
the country’s national economy is only 1.42% of Gross Domestic Products (GDP). Insurance
density or the average spending of each individual on insurance is only Php1,541 (USD37), of
which Php1,265 (USD31) is spent for Life insurance and Php276 (USD6) is for Non-life insurance.

The market penetration rate or the ratio of individuals with life insurance coverage to
population is only 23%.

3. Evolution of Microinsurance development

3.1 Financial inclusion, an overarching goal

The Philippine Government joined other developing countries in striving towards making
financial services available and accessible to all regardless of income class. This means that the
government shall endeavor to come up with measures that will encourage and allow the
provision of all types of financial services, insurance included, to the whole populace including

Case Study: The Philippine experience on Microinsurance Market Development Page 4

those who belong to the low-income sector. Financial inclusion is clearly articulated in the
Philippine five-year development plan.

In 1997, the Department of Finance (DOF) through the National Credit Council (NCC) adopted,
issued and implemented the National Strategy for Microfinance. This led to the establishment
of a policy and regulatory environment that encouraged private financial institutions to provide
financial services to the poor, thus facilitating the poor’s access to savings and credit services.
From only a handful of financial institutions providing savings and credit services to the low
income sector in 1995, there are now more than 2000 microfinance institutions providing
savings and credit services to more than 7 million low-income clients.

The development of the Philippine Microfinance Industry proved that the provision of formal
financial services, particularly savings and credit, to the poor is a viable and sustainable activity.
A large number of private financial institutions, notably rural, cooperative and thrift banks,
cooperatives and non-government organizations, including commercial banks acting as
wholesaler of microfinance funds, are now actively engaged in providing the poor greater
access to microcredit to finance their livelihood and small business activities. This development
presented a vast opportunity for the poor to improve their lives, increase their income and
build on their assets. However, it has been realized that microcredit does not protect the low-
income from unforeseen and unfortunate events that may adversely affect their livelihood,
lives and families.

The DOF and the Philippine Insurance Commission (PIC) deliberately included in its
development objectives the provision of insurance products and services to the poor. Like those
in the high or middle income classes, the poor should also be protected from unexpected
events such as death, injury and illness, loss of property and other contingent events. This
segment of the population is in fact more vulnerable to risk events. One study conducted in
2008 showed that of the 23.1 million Filipinos living below the poverty line, only about 2.9
million have some kind of risk protection, about half of which are provided informally. Informal
insurance provisions are mostly done by entities and organization (some are MFIs) that provide
self-or in-house insurance. These entities do not have any license from the regulatory authority
and collect premiums and guarantee benefits without any actuarial study, hence posing greater
risk to the low-income client.

3.2 Microinsurance policy milestones and circular issuances

Microinsurance development in the Philippines follows the same path taken for Microfinance
development. The business is driven by the private sector, with government providing only the
enabling environment. The adoption of the various reform measures, policy actions and

Case Study: The Philippine experience on Microinsurance Market Development Page 5

regulatory guidelines identified in the following landmark documents resulted in the growth
and development of the country’s microinsurance industry in a span of 4 years (2009-2012).

Pillar 1: Regulatory Framework for Microinsurance,

Pillar 2: National Strategy for Microinsurance,

Pillar 3: Roadmap to Financial Literacy on Microinsurance, and

Pillar 4: Alternative Dispute Resolution for Microinsurance.

The regulatory framework provides for the regulation of Microinsurance that covers the risk
protection needs of the poor by the private sector. It does not cover social insurance schemes
and risk protection programs administered and implemented by government.

Table 1 summarizes the salient features of the pillars of reforms.

Table 1: Philippine Policy Reforms on Microinsurance

Policy Reforms
Regulatory Framework for
Microinsurance (issued in
January 2010)
Features
Outlines the government’s policy thrusts and direction for the establishment of
a policy and regulatory environment that will encourage, enhance and facilitate
the safe and sound provision of microinsurance products and services by the
private sector. It identifies and promotes a system that will protect the rights
and privileges of those who are insured.

National Strategy for
Microfinance (issued in January
2010)
Defines the objective, the roles of the various stakeholders and the key
strategies to be pursued in enhancing access to insurance of the poor. It
encourages complementation of the products of social health insurance by the
private sector. It provides directions towards mainstreaming informal
insurance and insurance-like activities and the promotion of public awareness
and financial literacy.

Roadmap to Financial Literacy Spells out the key strategies and measures to be adopted for institutionalizing
on Microinsurance (issued in financial literacy on Microinsurance. Key principles, guidelines, and specific
January 2011) directions on how to promote and change behavior favorably for the adoption
of Microinsurance among the low- income sector are provided for.

Alternative Dispute Resolution Requires all insurance entities, agents and brokers who are engaged in
Framework for Microinsurance Microinsurance business to follow mediation-conciliation processes of claims
(issued in October 2012) dispute based on parameters offset under the banner, Least cost, Accessible,
Practical, Effective and Timely or LAPET.

The adoption of the policy thrusts and directions embodied in these documents prompted
various financial regulators (e.g. insurance, banking, and non-banking activities) to issue joint
and independent circulars for concerned financial entities under their jurisdiction.

Case Study: The Philippine experience on Microinsurance Market Development Page 6

As a result, the microinsurance market today includes insurance providers (commercial entities,
cooperative insurance societies and MBAs) and financial intermediaries (banks, coops, NGOs,
other membership-based organizations and consumer outlets) engaged in the underwriting,
selling and/or distribution of Microinsurance products. This is deemed important for cost
efficiency in distributing insurance and increasing scale and outreach because it takes
advantage of the broad network and thousands members of the financial intermediaries.

The various issuances also provided clear guidelines to stakeholders in the areas of product
development and approval, product distribution and marketing, consumer protection,
reporting and industry performance monitoring. Table 2 summarizes the circulars issued so far.

Table 2: Microinsurance Circular issuances

Circulars/Memos
Insurance Memorandum Circular
(IMC) 9-2006 – Microinsurance
Regulation and Declaration of Policy
Objectives
IMC 01-2010 – Regulation for the
Provision of Microinsurance
Products and Services
Joint IC-CDA-SEC Memorandum
Circular (MC) 01-2010 – Defining
Government’s Policies on Informal
Insurance Activities.
Joint IC-CDA-SEC Memorandum
Circular (MC) 02-2010 – Guidelines
on Treatment of Funds Collected
from Informal Insurance Activities
BSP Circular 683 on Marketing, Sale Sets out clear guidelines for banks that want to sell Microinsurance as
and Servicing of Microinsurance
Products.
Circular Letter 29-2010 – Sale,
Issuance or Distribution of
Descriptions
· Defines Microinsurance products according to limits of premium and
benefits. This definition however was only focused on Mutual Benefit
Associations (MBAs) engaged in MI.
· Qualifications and capital requirements of MBAs that can engage in MI.
· Defines Microinsurance products according to:
o Limit of premium cost (5% of daily wage) and amount of
benefits (500 times of daily wage).
o Features of insurance policies – affordable, simple and easy to
understand.
· Sets the qualification of entities that can underwrite and sell
Microinsurance.
· Requires microinsurance policies to clearly identify the face amount,
benefits, and terms of the insurance coverage and ensure that contract
provisions can be easily understood by the insured; documentation
requirements are simple; and the manner and frequency of premium
collections coincides with the cash-flow and not onerous for the
insured
· Defines rules on product bundling.
· Evaluation of performance of providers through a set of Performance
Standards
· Use of Microinsurance logo in the policy contracts.
· Defines activities on insurance that need (and need not) be formalized.
· Requires all entities practicing informal insurance activities to formalize
their schemes by seeking authority from the PIC.
· Provides various options to formalize informal schemes.
· Requires that funds accumulated from contributions from informal
insurance activities be used exclusively for the benefits of the
contributors.
· Emphasized that excess moneys, after the formalization of the informal
insurance schemes, shall be returned to or be used for the benefits of
the contributors.
Agents. Clearly differentiates banking functions from insurance activities.
Emphasized that it is the responsibility of insurance companies and
cooperative insurance societies to ensure that only authorized or licensed

Case Study: The Philippine experience on Microinsurance Market Development Page 7

Insurance Products
Circular Letter 5-2011 –
Performance Standards for
Microinsurance
Circular Letter 6-2011 –Guidelines
for the Approval of Training
Programs and Licensing of
Microinsurance Agents
Circular Letter 39-2011 – Re-
approval of Microinsurance
products
Circular Letter 16 to 18-2013 –
Guidelines for the Implementation
of Alternative Dispute Resolution
for Microinsurance (ADReM) by
Commercial Companies,
Cooperatives and MBAs
Circular Letter 15-2013 –
Procedures for Accreditation of
Mediators-Conciliators in
Alternative Dispute Resolution for
Microinsurance (ADReM)
intermediaries, i.e., agents and brokers, are engaged to sell insurance/
microinsurance policies. In the case of mutual benefit associations, MBA
insurance products must be issued only to members.
Sets guidelines for reporting Microinsurance activities and prescribes the
calculations of prudential and performance ratios according to set of
Performance Standards called SEGURO (Solvency, Efficiency, Governance,
Understanding of Microinsurance, Risk Management and Outreach of
clients).
Outlines the procedures of training and licensing MI agents. Requires the
minimum disclosures such “A Licensed Microinsurance Agent” signage
visible in the premises of the institution.
Requires all MI products approved under the IMC No. 9-2006 (the very first
MI circular issued by PIC) to be submitted for re-approval to conform to the
definition of Microinsurance under IMC 1-2010.
Describes the principles and procedures of claims-related dispute resolution
mechanisms at least cost, accessible, practical, effective and timely. It
emphasizes consumer protection and also protection of the insurance
industry against illegitimate claims.
Sets out the qualifications of mediators-conciliators, training,
responsibilities and code of conduct.

Embedded in the circulars are provisions on transparency and disclosures to ensure consumer
protection. The circulars require all microinsurance policies to clearly identify the face amount,
benefits, and terms of the insurance coverage and ensure that contract provisions can be easily
understood by the insured; documentation requirements are simple; and the manner and
frequency of premium collections coincides with the cash-flow and not onerous for the insured.

4. Building capacity and provision of incentives to the private sector

To achieve the goal of inclusive insurance, the DOF-NCC and PIC deliberately engaged the
private sector. The private sector has an important and significant role in providing viable and
sustainable insurance products and services to the poor because they have the distinctive
competence and comparative advantage when it comes to the provision of needed financial
services. The PIC believes that its role is mainly to provide the appropriate policy and
regulatory environment for encouraging the private sector to participate in the provision of
insurance products and services to the low-income sector. Furthermore, the regulator believes
that its role is to ensure the financial stability of insurance providers and make sure that
consumers are appropriately protected. Thus, licensed private insurance providers were
encouraged to consider the low-income market and cater to their specific insurance needs.

Case Study: The Philippine experience on Microinsurance Market Development Page 8

To further encourage the private sector to participate in microinsurance, PIC has allowed lower
capitalization requirements for providers that are wholly engaged in microinsurance.
Additional admitted assets were also identified for providers engaged in microinsurance. PIC
also created a new category of Microinsurance agents and brokers with relaxed licensing
requirements.

The incentives for private sector participation went beyond the issuance of relevant circulars.
The DOF-NCC, PIC, the insurance associations and with the support of GIZ-MIPSS1 and ADB-
JFPR2 conducted the following capacity building and support activities:

· Conducted market surveys to have a clear understanding of the needs of the low-income
sector. These provided a strong basis in designing the needed policy reforms, product
development and distribution.

· Developed a prototype/standard Microinsurance non-life product tailor-fitted to the needs

of low-income sector using a one-page simplified policy contract. It is a basic cash assistance
policy that provides benefits to the insured and his/her livelihood against perils of personal
accident, fire, flood and earthquake. Insurers offer this voluntary product and compete
among themselves on pricing, benefits, distribution channels and pre/post sale services.

· Simplified the wordings of life policy contracts for easier understanding by the low-income
sector. The contracts include variants of term-life, life policy with cash value and group life.
Similar to the non-life prototype, the simplified life policy contracts enabled the insurers to
efficiently do product development and facilitated the PIC’s approval of MI products within
5 days.

· Conducted Training of Microinsurance Advocates. Training modules tailor-fitted to 9

stakeholders were developed: Macro (policy makers, national government agencies,
regulators, Local Government Units), Meso (insurers, intermediaries, support institutions,
donors), Micro (clients/consumers). Around 660 staff from the macro and meso
stakeholders had been trained as Microinsurance advocates.

· Rolled out a nation-wide Microinsurance awareness campaign. The campaign runs for a
year. It conducted training on MI advocacy, public seminars, MI information exhibits and

1
Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH – Microinsurance Innovations Project for
Social Security (MIPSS) supported the Microinsurance initiatives of government in 2009-2012.
2
Asian Development Bank (ADB)-Japan Fund for Poverty Reduction (JFPR) supported the Microinsurance initiatives
of government in 2008-2012.

Case Study: The Philippine experience on Microinsurance Market Development Page 9

 media briefings. One learning center in Microinsurance was also established in the
Southern part of the Philippines.

· Trained the industry on the understanding, adoption and implementation of set of

indicators for Performance Standards for microinsurance (SEGURO).

5. The approach: Public and Private sector collaboration

Public and private sector collaboration through the Technical Working Groups (TWGs) and
broad based consultations among national and regional stakeholders led to solid ownership of
initiatives and results. The TWGs provided venues for public-private sector participation in the
discussion of policy and regulatory issues and in the formulation of various policy and
regulatory measures addressing the issues. Strong and sustained leadership of the DOF-NCC
and PIC also made the processes effective and efficient. Technical and financial support from
German International Cooperation-Microinsurance Innovations Program for Social Security
(GIZ-MIPSS) and the Asian Development Bank-Japan Fund for Poverty Reduction (ADB JFPR)
Developing Microinsurance Project (MIP) provided inputs from experts. And the excellent
donors’ coordination is the success drivers of Microinsurance market development in the
Philippines.

Public sector includes financial regulators (DOF-NCC, PIC, Bangko Sentral ng Pilipinas,
Cooperative Development Authority, Securities and Exchange Commission) and other national
agencies such as National Anti-Poverty Commission and Philippine Information Agency.

The private sector, on the other hand, includes all associations of insurance providers
(commercial life and non-life companies, cooperative insurance societies and mutual benefit
associations), financial and other institutions engaged in the provision of financial services to
the low-income sector, and associations of agents, brokers, rural banks and MFIs.

Since the private sector was involved in the formulation of policy and regulatory reforms,
adoption and implementation of reform measures were facilitated. In almost all cases,
members of the various working groups serve as advocate for reforms in their own
organization.

The Philippine Government also sought the assistance of development organizations in

promoting and developing the microinsurance industry. Technical assistance from the GIZ and
ADB-JFPR specifically focused on the following areas: developing the appropriate policy and
regulatory environment for increased private sector participation in providing microinsurance
services; building the capacity of regulators in supervising microinsurance providers; developing
prototype product; and increasing awareness on microinsurance among key stakeholders.

Case Study: The Philippine experience on Microinsurance Market Development Page 10

6. Market Response

The implementation of policy reforms on Microinsurance have effectively contributed to the

development of an inclusive insurance market. Before 2009, only MBAs were providing
insurance to the low-income sector. As of end-2012, 35 commercial insurance companies are
voluntarily selling MI products, 17 are life and 18 are non-life. The PIC has already approved 80
MI products, 54 are life and 26 are non-life MI products. Also, there are now 17 licensed MI-
MBAs.

Before 2009, Microinsurance products catering to the clients of MFIs are mostly credit life
protecting the Microfinance provider more than the clients. Today, products that provide
benefits against flood, crop loss, fire, hospitalization and earthquake are already available.

Prior to 2009, there was no MI agent category. At that time, there were only about 3.1 million
individuals covered by MI-MBAs. As of end-2012, PIC has already licensed 124 MI agents, 34 of
whom are rural banks. About 7.8 million have been insured.

As a result of the various initiatives on microinsurance, there is now greater awareness and
interest in microinsurance from both the government and the private sector. There is also an
increased interest among technology providers to provide the necessary backroom support to
insurance providers engaged in MI.

The measures undertaken also resulted in increased risk protection to the low-income sector.
Simplified policy contracts for microinsurance were issued allowing the poor to have a greater
understanding of what insurance is, its benefits and their rights and obligations as insured.

Table 3 shows a comparative performance of the industry.

Table 3: Market Response

Status, before 2009 Status, End-of-2012
MI products mostly credit life except for MBA MI 80 MI products approved (54 life and 26 non-life)
products
6 licensed MI-MBA 17 licensed MI-MBAs
Very few commercial insurance companies with MI 35 insurance companies (17 life and 18 non-life)
voluntarily selling MI products
No MI agent category 124 licensed as MI agents (34 Rural Banks and 90
individuals)
3.1 million individuals covered under MI About 7.8 million insured including dependents are
covered under MI
Insurance penetration was only 1.02 % of GDP Insurance penetration was 1.42% of GDP
Insurance density Php 878 ($19) •
Life insurance Php 654 Insurance density Php 1541 ($37). Life insurance Php
($14)•
Non-life insurance Php 224 ($5) 1265 ($31), Non-life insurance Php276 ($6)
Estimated life insurance coverage was 13.90% of 91 M Estimated life insurance coverage was 23% of 97.6 M
population population

Case Study: The Philippine experience on Microinsurance Market Development Page 11

7. Key Lessons and Challenges

Lessons:

7.1 Government should own and champion the reform measures. It is important to ensure that
concerned government agencies are convinced of and own the policy and regulatory reform
agenda. It is important to have key officials within the concerned government agencies who
support and champion the reform agenda. Having an advocate in government signals
sustainability of reforms, which is important when encouraging private sector participation.

7.2 The private sector should be engaged in formulating policy and regulatory reforms. As key
market participants, they should be consulted on what will work best for them without
sacrificing financial stability and consumer protection.

7.3 Donor assistance should be coordinated and synchronized to maximize returns and avoid
waste of resources.

7.4 Government alone cannot meet the goals of inclusive insurance. A strong partnership
between the government and the private sector is needed to move the agenda forward.
The private sector has a significant and important role in delivering the right products using
appropriate and tailor-fitted processes and distribution mechanisms. The government on
the other hand, should facilitate market innovation and ensure that market conduct
protects both the insurer and the insured.

7.5 Small gains lead to bigger milestones. A common trap to the process of making policy
change is when the discussion is dragged on by the ticklish issue of changing or creating
new laws which could only happen through then intervention of congress. If this happens,
the industry loses sight of (e.g. the adoption and issuance of the Regulatory Framework and
the National Strategy for Microinsurance).

Challenges:

7.6 Low insurance take up in the country primarily stems from a lack of a strong insurance
culture among the populace. A large majority of the population do not appreciate the
benefits and importance of insurance. Very few are willing to part with their hard earned
money in anticipation of getting some guaranteed benefits when a contingent event
happens. The Filipino culture of living everything to fate makes insurance a hard sell
product in the country. To increase insurance penetration in the country, the low-income
market segment should be tapped. Aside from providing the needed huge numbers,
catering to the risk protection needs of this market segment will also help in meeting the

Case Study: The Philippine experience on Microinsurance Market Development Page 12

 development objectives and in supporting the poverty alleviation thrusts of the
government.

7.7 Reaching bigger scale requires innovations in product development, distribution and claims
administration. Available success stories (such as in pawnshops) need to be documented to
inspire other players on the profitability of Microinsurance.

8. The way forward:

8.1 Strengthening consumer protection through the adoption, issuance and implementation of
appropriate market conduct guidelines. Support the PIC and the industry in the
implementation of ADReM.

8.2 Adoption of thematic regulations such as on index-based/parametric insurance and

technology-based insurance.

8.3 Conduct studies on impact of regulations and case studies of business successes so far.

9. References

Information used in this case study took reference and recognition from the following sources:

a. Bangko Sentral ng Pilipinas, Annual Report, 2012

b. Dante Portula, power point material “Philippines Model of Microinsurance Inclusion: Process
and Success Factors of Public-Private Collaboration”, 5th Asia Microinsurance Conference,
July 2011.
c. MIPSS website www.microinsurancephil.com
d. National Statistics and Coordination Board website www.nscb.gov.ph
e. Philippine Insurance Commission, Microinsurance circulars,
www.insurancecommission.gov.ph
f. Philippine Insurance Commission, power point presentation “Developing an Inclusive
Insurance Market: The Path Taken by the Philippine Government”, July 2013, prepared for
RFPI Asia.
g. Philippine Insurance Commission, power point presentation “Engaging the Private Sector for
Inclusive Insurance: The Path Taken by the Philippine Government”, July 2013, prepared for
RFPI Asia.
h. Technical Working Group, Regulatory Framework for Microinsurance, Philippines, January
2010
i. Technical Working Group, National Strategy for Microfinance, Philippines, January 2010

Case Study: The Philippine experience on Microinsurance Market Development Page 13

j. Technical Working Group, Roadmap to Financial Literacy on Microinsurance, Philippines,
January 2011
k. Technical Working Group, Alternative Dispute Resolution Framework for Microinsurance,
Philippines, October 2012

Other useful resource:

www.microinsurancephil.blogspot.com (contents compiled by Director Joselito Almario, DOF-

NCC)

Case Study: The Philippine experience on Microinsurance Market Development Page 14

 Microinsurance Training Program
for Insurance Supervisors in Asia

Philippine Approach to Developing Inclusive

Insurance Market (Part 1)
Reynaldo Vergara, Philippine Insurance Commission (PIC)
Dante Portula, German International Cooperation (GIZ)

16-20 September 2013

Taal Vista Hotel / Tagaytay, Philippines
 Outline
1. Philippine financial system landscape
2. Microinsurance key indicators
3. Regulatory Framework on Microinsurance
4. National Strategy on Microinsurance
5. Lessons and Challenges
Philippine Financial Landscape
Total Resources, 2012
(USD254.9 Billions)

19.2 (7.5%)
31.8 (12.5%)

203.9 (80.0%)

Banks NBFIs Insurance, private

 Philippine Financial Landscape
Insurance Sector:
• 115 private commercial Total Resources, 2012
companies (USD254.9 Billions)
• 33 Life (79%)
• 82 Non-life (16.2%)
19.2 (7.5%)
• 28 MBAs (4.8%) 31.8 (12.5%)

Banking Sector: 203.9 (80.0%)

• 705 head offices
• 37 Universal/Commercial Banks
• 69 Thrift Banks
• 599 Rural and Coop Banks Banks NBFIs Insurance, private
• 9,301 operating network (branches)
Philippine Financial Landscape
Insurance Market
(As of end-2012)
Insurance penetration was 1.42%
of GDP

Insurance density Php1541 ($37):Life

Php1265 ($31), Non-life Php276 ($6)

Estimated life insurance coverage was

23% of 97.6 M population
Microinsurance key indicators

As of end-2012
80 MI products approved
(54 life and 26 non-life)
17 licensed MI-MBAs
35 insurance companies
(17 life and 18 non-life)
124 licensed as MI agents
(34 Rural Banks and 90 individuals)
MI Regulatory Framework
Definition of Microinsurance
Insurance Memorandum Circular (IMC) 1-2010

A financial product or service that meets the risk

protection needs of the poor

Daily Contribution/premium not more than 5

percent of the current daily minimum wage rate
(P23.30 or USD 0.53)

Guaranteed benefits not more than 500 times the

daily minimum wage rate.
(P233,000.00 or USD 5,295)
 MI Regulatory Framework
Key distinctions : Traditional and MI
Common Provisions for Traditional Microinsurance
Individual/Group Insurance Products Products
Insurance Plans (IMC 1-2010)
Ø Maximum Depending on the 5% of the current daily
Premium company minimum wage rate in
Metro Manila
Ø Maximum Depending on the 500 times the daily
Benefit company minimum wage rate in
Metro Manila
Ø Policy Contract Full of complex Simple and easy to
conditions understand
Ø Frequency of Premium Monthly, Quarterly, Daily, Weekly, Monthly,
Collection Semi-Annual, Annual Quarterly, Semi-
Annual, Annual
 MI Regulatory Framework
Key distinctions : Traditional and MI
Common Provisions Traditional Microinsurance
for Individual/Group Insurance Products Products
Insurance Plans
Ø Grace Period 31 days from 45 days from
premium due date premium due date
Ø Contestability Maximum of Maximum of
Period 2 years from date 1 year from date of
of issue or last issue or last
reinstatement of reinstatement of the
the policy policy
 MI Regulatory Framework
Key distinctions : Traditional and MI
Common Provisions for Traditional Microinsurance Products
Individual/Group Insurance Products
Insurance Plans
Ø Suicide Clause Maximum of Maximum of 1 year from
2 years from date of date of issue or last
issue or last reinstatement of the
reinstatement of the policy
policy
Ø Claims Within 60 days after Within 10 days after
Settlement submission of submission of complete
complete documents documents
 MI Regulatory Framework
Increasing SUPPLY
DELIVERY REGULATORY
PROVIDERS
MECHANISMS SPACE
Non-traditional
mechanisms (e.g. Lower capitalization
Commercial Insurers pawnshops, e- requirements
commerce)
Partnerships and Tie-
Coop Insurance Additional admitted
ups with community-
Societies based organizations assets

Entities as Relaxed licensing

Mutual Benefit
Microinsurance requirements for MI
Associations
agents/brokers agents
 MI Regulatory Framework
Increasing DEMAND
FINANCIAL
INNOVATIVE CLIENT
LITERACY
PRODUCTS PROTECTION
CAMPAIGNS
Comprehensive Formalization of
Affordable
encompassing all 9 informal insurance
stakeholders providers
Simple contracts
Cover all 16 regional Redress and grievance
areas mechanisms
Tailor-fitted to needs

Use of Alternative
Relaxed Terms and Learning centers
Dispute Resolution
Conditions
 MI National Strategy
Role of the Government

Policy and Other National Local

Regulatory Agencies and Government
Instrumentalities Units (LGUs)
Agencies
• Enabling policy • Networks and • Collaboration with
and regulatory linkages with private sector
environment Microinsurance providers
• Measures providers • Institutionalization
supportive of • Inclusion of of Redress
financial inclusion Microinsurance in Mechanisms
• Guidelines for programs • Public awareness
mainstreaming • Basic support and education
informal insurance services
 MI National Strategy
Role of the Private Sector
PRODUCT MARKET FINANCIAL
INNOVATION DEEPENING LITERACY

• Design and • Expand • Educate the

provide simple, channels for masses on the
affordable and the safe, importance of
accessible efficient and risk protection
innovative effective and build trust
Microinsurance delivery with among the
products fast claims general public
payments
 Developing MI Regulatory
Framework and Strategy
The Value to MI Results so
Process Inclusion far…
Clear definition of MI, Issued JOINT circulars
Mapping of gaps and
target sectors, roles of on formalization and
inefficiencies
various players delivery channels

Strategies for Set up MI committee in

Drafting of policy papers
mainstreaming informal respective association of
– TWG series
insurance, Finlit insurers

Opened up the MI 80 new MI products from

Industry and public
supply market beyond 35 companies approved
consultations
MBAs by IC since 2010

Opened up delivery
About 7.8 million insured
Launching and adoption channels beyond
under MI
traditional agents
 Lessons and Challenges

1. Government should own and champion

the reform measures.
2. The private sector should be engaged in
formulating policy and regulatory
reforms.
3. Small gains lead to bigger milestones.
Maraming Salamat!!
(Thank You)
-- Acknowledgement --
many of the slides used in this presentation
were adapted from files of power point
presentations prepared by the Philippine
Department of Finance – National Credit
Council and the Insurance Commission
 Microinsurance Training Program
for Insurance Supervisors in Asia

Philippine Approach to Developing Inclusive

Insurance Market (Part 2)
Reynaldo Vergara, Philippine Insurance Commission (PIC)
Dante Portula, German International Cooperation (GIZ)

16-20 September 2013

Taal Vista Hotel / Tagaytay, Philippines
 Outline
1. Developing Microinsurance prototype product
2. Roadmap to Financial Literacy on MI
3. Tools for consumer protection
• Formalizing the informal
• SEGURO Performance Standards
• Alternative Dispute Resolution (ADR) scheme
4. Market Response
5. Lessons and Challenges
 MI Product Prototype
Buhay Bahay Kabuhayan (BBK)
§Microinsurance Policy that pays the
insured or his beneficiary the sum
assured in case a covered peril results in
loss or damage to life and property
 MI Product Prototype
BBK Overview
§Non life Property Insurance with Personal Accident
§One-year term coverage
§One claim on any one peril terminates the policy
§Claim Settlement within ten (10) days upon
submission of complete claim requirements
§Php10,000 per unit. Maximum of 3 units per family
 MI Product Prototype
BBK named perils
§Fire,
§Lightning,
§Typhoon,
§Floods,
§Earthquake,
§or Accidental death (PA), Total &
Permanent Disability (TPD)
 MI Product Prototype

Acceptable Proof of Loss & Proof of Claims

Minimum requirements:
§Barangay/Village or Local Government
Certification
§Death Certificate (for Personal Accident)
 MI Product Prototype
Value to MI Results
The Process
Inclusion so far…
Demand study /
Reviewed traditional
insurance contracts Prototypes are public 3-in-1 non-life product
good / Available to all approved by IC and
Drafted product providers adopted by providers
prototypes – TWG series

Consultation with Compliant to MI

Contracts on Term life
industry / Affirmation of guidelines: and Endowment
product prototypes Affordable, Simple Simplified
contract, Fast claim
Approval of product
prototypes by IC
Launched a study to
Product adaptation and Innovations in develop innovative
pricing by providers / product delivery distribution channels
Licensing / Selling
Financial
Literacy (FinLit)
on
Microinsurance
 Finlit – Vision

Adequate risk protection for the

low-income sector through a strong
insurance culture among the
Filipinos
 Finlit – Objectives
• protect their financial
To help the assets
low-income • manage their resources for
risk and social protection
sector

To build • become proactive in the

capacities of provision and promotion
of Microinsurance
stakeholders
 Financial Literacy on MI
MI Advocacy – Strategies
Target stakeholders
Training of MI Speakers’
1. Legislators Bureau
2. Regulators
3. National Government Training of MI Advocates
Agencies (TOMA)
4. LGUs
MI Seminars for public
5. Insurance Providers and private entities
6. Intermediaries
7. Support Institutions MI seminars for clients by
8. Donors respective stakeholders
9. Clients
Financial Literacy on MI
MI Advocacy – Tools
Training modules

Audio Visual Presentations (AVPs)

Jingles

Flip chart

Poster

Brochures

Frequently Asked Questions (FAQs)

 FINLIT ROADSHOWS
Cagayan Valley – Tuguegarao
Ilocos - San Fernando (May 21-26, 2012)
(April 16-20, 2012)
CAR - Baguio City (July 16-21, 2012)
Central Luzon – San Fernando,
Pampanga (June 18-23, 2012) Southern Luzon – Calamba, Laguna
(June 4-9, 2012)

Bicol – Legazpi City

NCR (January 23-25
& 31, 2012) (February 6-11, 2012)
Eastern Visayas – Tacloban City
Western Visayas – Iloilo City (Sept 19-21, 2011)
(February 20-25, 2012)
Central Visayas – Cebu City
(March 5-10, 2012)
Northern Mindanao – Cagayan de Oro CARAGA – Butuan City
(April 23-28, 2012) (Oct 10-14, 2011)
Davao – Davao City
(March 19-24, 2012)
Zamboanga Peninsula –
Zamboanga City (May 7-12, 2012) SOCCSKARGEN –
Koronadal City (July 2-7, 2012)
ARMM – Cotabato City (August 2012)
 Roadmap to FinLit on MI
Value to MI Results
The Process
Mapping Finlit initiatives
Inclusion so far…
and good practices
Finlit covered all Finlit roadmap
Drafting of Finlit developed and launched
Roadmap – TWG series audience - from
lawmakers to low to the public
Industry and public income people
consultations Training modules and
(9 stakeholder groups advocacy materials
- macro, meso, micro) tested
Launching and adoption
of Finlit roadmap
Around 660 people
Developing Training trained as MI advocates
Modules and campaign MI messages are
materials – TWG series conveyed thru a mix
Training of speakers of methodologies Finlit roadshows
Bureau/ Nationwide Finlit conducted across the
Awareness campaign country
Consumer Protection (CP) Tools
Government’s Policy
• All entities that will engage or are
engaged in insurance activities are
required to get a Certificate of
Authority from the Philippine
Insurance Commission (PIC).
• All insurance products shall be
approved by PIC.
 Consumer Protection (CP) Tools
Joint Memo Circular 01-2010 - Who should be regulated

WITH REGULATION NO REGULATION

• Contributions/premiums • Individuals voluntarily

are regularly collected pledge and contribute a
prior to the occurrence certain amount of
of a contingent event; money to a fund.
and • Benefits are not pre-
• Guaranteed benefits are determined but are
provided upon the contingent to the
occurrence of a amounts collected.
contingent event. (e.g. Damayan/
Abuluyan Scheme)
 Consumer Protection (CP) Tools
Joint Memo Circular 01-2010 – Options for Formalization
WITHIN 1 YEAR WITHIN 2 YEARS

• Partner with commercial • Organize into an insurance

insurance companies that will
provide approved insurance
products, either:
• Group policies
• Individual policies
• Have members/clients join:
• A Mutual Benefit Association
• A cooperative insurance
provider
• Enter into formal arrangements
with authorized insurance
providers/Microinsurance
agent/broker
provider and seek appropriate
authority from the Insurance
Commission
• Life or non-life insurance
company
• Mutual Benefit Association
• Cooperative Insurance
Provider
Consumer Protection (CP) Tools
SEGURO – Performance Standards for MI
(Insurance Circular 5-2011)

Stability
Efficiency
Governance
Understanding of the
Product by the Client
Risk-Based Capital
Outreach
Consumer Protection (CP) Tools
SEGURO – Purpose of the Performance Standards

Assessment and evaluation of the

performance of Microinsurance providers;

Transparency in the operations of all

Microinsurance providers; and

Protection of clients from unsafe and

unsound provision of Microinsurance
products and services.
Consumer Protection (CP) Tools
SEGURO – Users of the Performance Standards

Insurance Commission

Management of Microinsurance providers

Agents and brokers (particularly the MFIs)

Donor agencies

Domestic and international private investors

General public (existing and potential clients of Microinsurance)

Consumer Protection (CP) Tools
SEGURO – Obligation of Insurance Companies

Submit to the Insurance

Commission on or before April
30 the resulting SEGURO
indicators covering previous
year’s operations
Consumer Protection (CP) Tools
SEGURO – PIC utilization of PS results
Publish aggregate status report on
the Microinsurance industry
Create early warning system
Recommend appropriate remedial
measures, when warranted
Review SEGURO at least once in
every three (3) years
 Consumer Protection (CP) Tools
Redress Mechanism – ADR for Microinsurance (ADReM)
(Insurance Circulars 15 to 18, series 2013)

• Alternative Dispute Resolution (ADR)

reduces
• cost
• time and
• complexity of any subsequent
litigation.
• ADR provides options to stakeholders
• for resolving disputes outside the
courtroom.
Consumer Protection (CP) Tools
Redress Mechanism – ADR for Microinsurance (ADReM)
(Insurance Circulars 15 to 18, series 2013)

ADR Objective
To provide avenues to settle
Microinsurance disputes
through the swiftest and most
accessible means.
Consumer Protection (CP) Tools
Redress Mechanism – ADR for Microinsurance (ADReM)
(Insurance Circulars 15 to 18, series 2013)

Least Cost

Structural Accessible
elements of Practical
ADR
Mechanisms Effective
Timely
Consumer Protection (CP) Tools
Redress Mechanism – ADR for Microinsurance (ADReM)
(Insurance Circulars 15 to 18, series 2013)

Reporting Information Campaign

Information on the Microinsurance
outcome of cases providers and delivery
referred to ADR channels shall promote
processes shall be the use of mediation and
incorporated in the conciliation as a recourse
Annual Reports mechanism available to
submitted by insurance all policyholders to
providers to the PIC. address any dispute.
 Market Response

Before 2009 End-2012

MI products mostly credit life 80 MI products approved
except for MBA MI products (54 life and 26 non-life)

6 licensed MI-MBA 17 licensed MI-MBAs

Very few commercial insurance 35 insurance companies

companies with MI (17 life and 18 non-life)
124 licensed as MI agents
No MI agent category (34 Rural Banks and 90
individuals)
 Market Response
Before 2009
3.1 million individuals
covered under MI
Insurance penetration was only
1.02 % of GDP
Insurance density Php878 ($19):
Life Php654 ($14), Non-life
Php224 ($5)
Estimated life insurance coverage
was 13.90% of 91 M population
End-2012
About 12 million insured
including dependents are
covered under MI
Insurance penetration was
1.42% of GDP
Insurance density Php1541
($37):Life Php1265 ($31), Non-
life Php276 ($6)
Estimated life insurance coverage
was 23% of 97.6 M population
 Lessons and Challenges

1. Government alone cannot meet

the goals of inclusive insurance.
2. Donor assistance should be
coordinated and synchronized.
Maraming Salamat!!
(Thank You)
-- Acknowledgement --
many of the slides and contents used in this
presentation were adapted from files of power
point presentations prepared by the Philippine
Department of Finance – National Credit
Council and the Insurance Commission