Assessment of Microinsurance As Emerging Microfinance Service for the Poor by Asian Development Bank;

Author:Asian Development Bank;
Language: eng
Format: epub
Publisher: Asian Development Bank Institute
Published: 2017-08-15T00:00:00+00:00

Formalization of Informal Insurance Schemes

Llanto, Geron, and Almario (2009) estimated that about 1.2 million adults were covered by informal insurance schemes in 2009. It was also estimated that about half of the 22,000 operational cooperatives in 2007 were engaged in providing informal insurance services. Most of the informal insurance schemes, which are not licensed by the Insurance Commission, are provided by cooperatives or microfinance NGOs.53

In addition to insurance, a good number of cooperatives also operate informal health and pre-need memorial programs. Some of these health programs are well established and have been successful for many years, remaining informal even though there was the option of establishing a member-only HMO for a mere P100,000 prior to the transfer of HMO supervision to the Insurance Commission.

Since the schemes do not benefit from any actuarial study and have not undergone the review and approval process of the Insurance Commission, clients engaged in these are exposed to higher risks of insolvency. Because the Insurance Commission does not have jurisdiction over entities engaged in the informal activities, it coordinated with and solicited the support of other regulatory authorities that have jurisdiction over them.

As a result, the other regulatory authorities (BSP, SEC, and CDA) issued appropriate regulations requiring entities engaged in microinsurance to follow the key principles of insurance to ensure the safe and sound provision of microinsurance. Regulations issued by the BSP, SEC, and CDA make sure that those underwriting risks have the capacity and the capability to provide the guaranteed benefits when contingency occurs. Only licensed insurance providers are allowed to underwrite insurance risks and issue microinsurance policy contracts.

Recognizing the key role of rural banks in promoting microinsurance to their clients, the BSP issued Circular 683 in 2010 allowing rural banks to become microinsurance agents, provided they comply with the requirements of both the Insurance Commission and the BSP.

Similarly, the Insurance Commission, CDA, and SEC also issued a joint circular requiring all entities under their jurisdiction, which are engaged in unauthorized insurance activities, to terminate the operation of their informal insurance schemes within 1 year from 31 January 2010. This was later extended to 31 December 2011. The circular also identified several options for formalization.54

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