Micro-coverage: Reaching underserved populations presents opportunities for growth

While the insurance industry in the Philippines is competitive, it is only serving a small portion of the country. Total premiums are estimated to be 1.2% of GDP, the lowest among the ASEAN 5. Insurance remains primarily a luxury for the rich and the urban. This is set to change. The government has been promoting the delivery of insurance to the poor and rural. Financial services inclusiveness is not only seen as important to the individuals, as it will protect them from risks and allow them to access more competitive offerings, but it is also regarded as a way to improve economic efficiency and promote long-term sustainable growth.

BIG JOB FOR SMALL COVERAGE: Most poorer Filipinos, if they have any protection at all, are covered by mutual aid societies. In many cases, according to the International Labour Organisation, they also relied on family members working overseas for financial help when faced with unexpected costs. Efforts have been ongoing to normalise the situation and cover more Filipinos under institutional policies. In January 2010, the country’s Microinsurance Programme was initiated. That year, the central bank allowed rural, cooperative and thrift banks to market microinsurance by forming partnerships with licensed insurance firms. The government wants to insure every Filipino by 2020.

ROADMAP: In 2011 the German International Cooperation Microinsurance Innovations programme for Social Security and the Asian Development Bank’s Japan Fund for Poverty Reduction partnered with the government to create a Roadmap for Financial literacy and Microinsurance. The programme financed a series of four-day roadshows in 16 regions of the country, comprising three days spent training stakeholders in advocacy and one day engaging the public and undertaking advocacy work. The initiative ran through August 2012 and involved a total of more than 2000 people. In May 2013, the Philippines, Indonesia, Nepal, Thailand and Vietnam signed a non-binding declaration outlining the challenges of insuring people on low incomes. The Cebu Declaration on Inclusive Insurance called for the signatories to commit to the development of inclusiveness and to share regulatory knowledge needed for the growth of microinsurance.

Microinsurance is defined in the Philippines as a policy that costs no more than 5% of the non-agricultural minimum wage in metro Manila and pays out less than 500 times that minimum wage. The daily minimum wage is now P446 ($10.7), making the top microinsurance policy payment P22.3 ($0.53) a day and the top payout capped at P223,000 ($5370). Microinsurance has grown over the past three years, with coverage going from 7.25% of the population in 2010 to 13.22% by the end of 2012. In total, 80 microinsurance products have been approved by the Insurance Commission and are being offered by 19 insurance companies. Of these products, 54 are life and 26 non-life.

ADMINISTRATIVE COSTS: General insurers, however, have been slow to embrace the products. The low-premium, high-volume nature of microinsurance makes it particularly unattractive to the larger companies. Rizalina Mantaring, president and CEO of Sun Life Financial, told OBG, “For the distribution of insurance products for the underserved population, one big problem has been that low premiums mean low commissions and fewer agents want to carry them, especially as they have to pay for transportation and other costs.” The loss ratio also tends to be higher than in mainstream products. Only 15 of the 78 non-life companies at the end of 2012 were offering microinsurance products. Industry groups say that policies can be made viable by working with community organisations and local governments, which can aggregate the risks of their members or constituents and be sold a single policy.

The industry is also arguing for an incentive to get involved. In particular, firms would like to see taxes reduced to make services possible. The government, however, is not interested in offering tax breaks. Finance undersecretary, Gil Beltran, said in 2012 that while microinsurance should be developed, solutions should be market driven and not dependent on subsidies.