Microinsurers cope with losses amid challenged market conditions

REGARDLESS of the nature of the disaster, the poor are usually the ones most affected as any negative impact on their assets and consumption levels threaten their subsistence.

Enter microinsurance.

Like the name suggests, microinsurance offers insurance products specifically targeted towards low-income households or individuals who will otherwise not have access to financial services.

The government’s push for microinsurance began with the Insurance Commission’s (IC) initiative in 2006 through the issuance of Memorandum Circular 9-2006, laying down the guidelines on microinsurance, as well as lower the initial guaranteed fund requirements of a mutual benefit association (MBA) that wholly engaged in microfinance.

This was followed by the release of the National Strategy and the Regulatory Framework for Microinsurance in 2010, which envisions a “viable and sustainable private insurance market” for the poor.

The IC then came out with Insurance Memorandum Circular 1-2010 that defined microinsurance. Together with the Securities and Exchange Commission and the Cooperative Development Authority, it issued another circular closing down informal insurance or insurance-like activities. The Bangko Sentral ng Pilipinas (BSP) also came out with a circular allowing rural, cooperative and thrift banks to market and sell microinsurance products within their premises.

Based on current regulations, the premium on these products should not exceed 7.5% of the current daily minimum wage rate in Metro Manila and can be collected on a daily, weekly, monthly, quarterly, semi-annual or annual basis. Moreover, claims of beneficiaries should be processed within ten working days after the complete submission of requirements to ensure members’ immediate protection for their unforeseen needs.

Since then, the number of individuals covered by microinsurance has increased. From around 3.1 million policyholders registered in 2009, it grew to 45.13 million in 2019.

Citing the unaudited first quarter 2020 reports submitted by insurance firms, IC Commissioner Dennis B. Funa said there are around 48.22 million Filipinos covered by microinsurance in the country, around 29% from the 37.41 million recorded a year ago.

The government targets to bring this number to 42 million by this year, Mr. Funa said, adding that they intend to retain this target as well its target to bring the number of insured lives to 50 million Filipinos by 2022.

For the BSP, microinsurance has evolved in rural banks as they expanded their range of products beyond the traditional credit life insurance to include hospitalization benefits, endowment or saving-based insurance, and protection from natural catastrophes. The central bank said there are currently 50 rural banks acting as agents of these microinsurance products.

“[T]he country’s microinsurance system was put into test with Typhoon Haiyan (locally named Yolanda) in November 2013 whereby rural banks were able to facilitate claims payment for their clients,” the BSP said.

Citing data from the Microinsurance Network, the BSP noted the damage brought by Typhoon Yolanda resulted in 111,000 microinsurance claims with claims paid amounting to P532 million, or an average payout of P4,777 which were used for housing repairs and on restarting livelihoods.

The country’s experience in 2013 with Typhoon Haiyan-affected households became a model in increasing awareness of how microinsurance offers help during difficult times.

CURRENT CHALLENGES
Just like other industries, however, the microinsurance sector was not spared from the coronavirus disease 2019 (COVID-19) pandemic, which has constricted economic activity as governments were forced to impose lockdowns in order to contain the spread of the virus.

“We are still in the process of gathering pertinent data to have an overview on microinsurance this year in consideration of the events that transpired… However, we are expecting a significant increase in the number of claims for this year, not only for microinsurance policies, but also for entire insurance industry as a whole considering that 2020 is marred with a series of catastrophes such as the Taal volcano eruption, the COVID-19 outbreak, typhoon Rolly and recently, typhoon Ulysses,” IC’s Mr. Funa said.

Jun Jay E. Perez, executive director at Microinsurance MBA Association of the Philippines, Inc. (MiMAP) or also known as RIMANSI Organization for Asia and the Pacific, noted the decline in the revenues of their members, even as they continue to pay claims and fixed costs associated with their operations.

“As of September 2020, revenues of 18 microinsurance mutual benefit associations (Mi-MBAs) under the MiMAP network is down by a combined amount of P834 million compared with the same period last year, resulting from a loss of business and/or income by the members, as well as the suspension of collection of contributions aligned with Bayanihan I and II-provided grace period to members for at least 90 days combined,” Mr. Perez said in an e-mail to BusinessWorld.

Mr. Perez also noted some of their member firms have tapped their accumulated surplus or extended equity loan to their members in order to extend the members’ insurance coverage.

“Recruitment of new members is also a challenge given the difficult financial situation of the poor and low-income households, not to mention the restrictions in mobility of field staff, suspension of mass gatherings and the lack/limited access to the internet of the target market,” he added.

This has also been the challenge in processing claims, according to Mr. Perez, noting that their field staff were included as a frontliner by the IC for activities related to processing claims payment.

“The situation forced the Mi-MBAs to use alternative medium for gathering claims requirements such as e-copies, validation pictures, and payment of claims through e-wallets and remittance centers, to still pay the claims benefits within one to five days from the date of notice,” he said.

Pagasa ng Pinoy Mutual Benefit Association, Inc. President Genaro L. Kong shared the same challenges. As of 2019, the Association was third in the industry in terms of highest contributions and second in terms of persons insured.

“Our partner MFIs (microfinance institutions) are struggling to recruit members. In fact, some of the MFI members resigned from the MFI program and did not take loan and eventually dropped from our microinsurance program. People are still afraid to go out and venture into small businesses due to COVID-19 and the uncertainties ahead,” he said.

“To be able to survive, we have reduced some cost and benefits of employees to counter the reduced premium,” he added.

As of Sept. 30, total covered members for this year fell by 33% to 201,634 compared with 301,929 last year, in which Mr. Kong attributed it to the halting of the Association’s business operations during the pandemic from March 17 to June 15.

The number of claims for the nine-month period also declined by five percent and nine percent compared with the same period last year in terms of volume and value, Mr. Kong said.

Mr. Kong expects business operations to normalize by next year as vaccines become available, but also noted that it would be difficult for the industry should the situation deteriorate and stricter lockdowns would be imposed.

“We [would] need soft loans from the government, and tax breaks and exemptions,” Mr. Kong added.

For MiMAP’s Mr. Perez, it would help for the government to introduce capacity building support to help members build back their microenterprises, as well as provide low-interest wholesale funds for microfinance retail.

“COVID-19 presented opportunities in terms of forcing the Mi-MBAs to upgrade their operating systems and key processes towards digital platforms. Also, the pandemic has emphasized the competitive advantage of Mi-MBAs in terms of continuing and fast claims settlement, so we expect more poor and low-income households to join the Mi-MBAs when their income will start to stabilize again,” he said.

IC’s Mr. Funa assured that the whole industry, not just those in microinsurance, are being considered in inspecting the magnitude of the effect of the pandemic on industries they regulate such as insurance, pre-need, and health maintenance organizations.

“We have been keenly observing the situation and issued various circulars or regulations that include, among others, strengthening of COVID-19 claims management policies, extensions on the number of days for the payment of premium, extension of coverage or hold cover policies, guidelines in governing the initiatives of the selling of various life and non-life insurance policies including microinsurance policies, extensions in submissions of various documents, regulatory relief in the admittance of premium receivables from 90 to 180 days, etc,” Mr. Funa said.

“These various regulations are still in place and considering that the pandemic is not yet over, we are still observing the effects and trying to balance between those who are providing various insurance policies and the capacity of the insuring public to buy or continue to procure these kinds of products,” he added.

The BSP further sees it as an opportunity to widen both the reach of insurance coverage and other financial services among untapped Filipinos amid the push to go digital. It also noted that digital banks will also be allowed to present, market, sell and service microinsurance products.

“The use of digital or mobile platforms improves the delivery and outreach of insurance products to previously underserved and unserved market segments. Such digital microinsurance not only protects consumers from devastating risks, but at the same time serves as a key enabler of financial inclusion and market development,” the BSP said.