OBG talks to Emmanuel Dooc, Commissioner, Insurance Commission

Interview: Emmanuel Dooc

What potential is there for regulatory changes that could grow the insurance industry?

EMMANUEL DOOC: The insurance code of the Philippines was created in 1978 and has not been updated to keep pace with the changes in the insurance market. Thus the Insurance Commission, the industry, players and lawmakers are currently looking at how best to amend the code to facilitate the growth of the industry and to make it more competitive with regional counterparts.

The expected changes to the code should include provisions easing certain operational requirements and opening up additional opportunities to players in the industry. The Insurance Commission intends to fast-track the approval of new and innovative products, including investment-linked offerings and variable life, to provide for new lines of business for the industry.

One major thrust of the proposals is to allow for life insurance companies to engage in limited trust functions, which will necessitate changing certain tax rules to allow life insurance players to better compete with banks in the sector. Along the same lines, the Insurance Commission is working towards the clarification of regulations governing the investment activities of insurance players in unit-investment trust funds, mutual funds, and special deposit accounts. Indeed, if the Philippines wants a regionally competitive and successful insurance industry in the country, it must provide an environment conducive to this success.

What role do you see for microinsurance in extending coverage to less affluent areas of the country?

DOOC: The policy initiative to increase the penetration rate of microinsurance is in line with the government’s overall target of financial inclusion and development. This focus on extending microinsurance includes both increasing the total of number people covered, but also looks to formalise the numerous informal players within the industry. While there are currently a fair few players in the microinsurance market, there is certainly a place for larger institutions to get more involved in the sector, both for their own benefit and for that of the country’s people. While there are some larger institutions already actively participating in the sector, either directly or through partnerships, we do foresee more major firms entering into the market.

Microinsurance offers these firms the opportunity to build relationships with clients from the beginning, continuing to work with them as they build economic capacity and graduate to the next level of financial sophistication. To facilitate this increased penetration of microinsurance, the Insurance Commission has been working to enhance the distribution network for insurance firms to provide coverage. Major success has already been seen by allowing the sale of microinsurance policies by regional and rural banks. The commission is now examining even more innovative methods, such as allowing the sale and distribution of policies through pawn shops and SMS messages.

With the current combined penetration rate of life and non-life insurance amounting to only 1.04%, which is one of the lowest levels in the ASEAN region, we see microinsurance as one of the primary vehicles by which the Insurance Commission can grow insurance penetration to its target of at least 2% by 2016. While this is an ambitious goal, many players in the industry have reported double-digit growth in policies over 2011, so it is without doubt achievable.

What is your view on mergers and acquisitions and potential consolidation within the industry?

DOOC: One purpose for the planned increase in capitalisation requirements is to compel consolidation in the market and to encourage the mergers of smaller firms. This is intended to improve the solvency and stability of the various market players.

As well as higher capital reserves, the Insurance Commission is taking steps to bring the regulatory and competitive environment in line with global standards. By doing so, the domestic insurance industry will be better positioned to contend with regional competitors.