FROM THE MARGINS

Last August, the Insurance Commission (IC) reported that in the first quarter of this year,  51.70 million lives were insured by microinsurance. Microinsurance promotes financial inclusion since it allows the poor to hedge against risks such as death, injury and damage to livelihood or property.  

Mutual benefit associations (MBAs) are the leading providers of microinsurance in the Philippines.  There are currently 48 regulated entities engaged in the sale of micro-insurance products: 23 MBAs; 12 life insurance companies; and 13 non-life insurance companies. MBAs insured 28.82 million (55.74 percent) out of the total lives insured for the quarter. Microinsurance premiums collected by MBAs amounted to ₱1,781,364,236 – about 54.8 percent of the ₱3,249,101,544 premiums collected by all microinsurance providers.

MFIs and microinsurance

Microinsurance in the Philippines has proliferated largely due to microfinance institutions (MFIs) that offer insurance alongside their financial products and services.  
There are five strategies by which MFIs do this: first, through partnership with formal insurers in the form of a policy group; second, by securing licenses as intermediaries or agents; third, by registering as MBAs engaged in microinsurance for their members; fourth, by applying for license as microinsurance brokers with lower capital requirement; and fifth, by securing a license as a commercial insurer or an insurance cooperative. 

The last is the most difficult option due to the high capitalization requirement.  Under the Insurance Code, existing local insurance companies had to meet the ₱900 million capital requirement by Dec. 31, 2019, while new entrants to the market are required to have ₱1 billion in paid-up capital. Insurance cooperatives must have a paid-up capital of at least 50 percent or about ₱500 million.

Tailor-fitted for microfinance

From my experience, the best option for MFIs desirous of providing insurance services to their clients is to establish a microinsurance MBA.  Not only is this business model in line with MFIs’ mission of providing financial and developmental services to the poor and marginalized sectors; the MBA model is tailor-fitted to MFIs’ service delivery models and can be offered to clients alongside microfinance loans and other products. 

Aside from that, the IC has been very supportive of microinsurance and fostered an enabling regulatory environment since 2006.  Current regulations require low capital requirements for MBAs engaged in providing microinsurance to members, provided that the product design is safe and financially sustainable.  The management structure should also meet legal mandates: that it is not for profit and is managed by members for their mutual protection.  MBAs are like cooperatives whose affairs are managed by the members through their democratically-elected Board of Trustees and appointed professional management. The purpose of a microinsurance MBA, rather than to earn profits, is to protect members and their families by providing life, health and disability benefits out of member contributions.

Empowerment, therefore, is crucial to the MBA structure.   Unlike commercial insurance companies which are owned by only a few who have capital, microinsurance MBAs are 100 percent member-owned. Membership is also homogenous. Every member has one vote each, and their participation in the management of the MBA is built into the system: they elect their Board, they have a voice in policy-making and product design, and they all share in the benefits of the MBA.  Microinsurance products are offered to members at low premiums with maximum benefit for life insurance, loan insurance, retirement fund and other products.

Best practices

The Microinsurance MBA Association of the Philippines (MiMAP) is the biggest microinsurance network in the country, composed of 19 MBAs. They have a combined membership of 7.8 million and currently insure more than 27 million lives.

Let me share some of the best practices that I have observed MiMAP and other microinsurance MBAs adopt in their organizations:

First, it is important to strengthen the symbiotic relationship between the MFI and the MBA. They have a common client base. The MFIs provide better service to their clients via their MBA affiliates, which offer easy access to microinsurance products, affordable premium and claims settlement within days from the filing of claims.  Keeping overhead expenses is the key surplus formula for microinsurance MBAs, which distribute their products through the partner-agent MFIs, utilizing their social distribution network for member mobilization, collection and claims settlement.  

Second, working with government regulators is crucial. Microinsurance providers should register with the SEC and apply to IC for a license to operate as a microinsurance MBA. All the other regulatory requirements and standards must also be met.

Third, offering client-responsive microinsurance products and services.  Products should be affordable, designed to meet members’ needs. Organizations that conduct regular client satisfaction surveys usually have the best outcomes in the implementation of microinsurance products.

I will discuss other microinsurance best practices later. In the meantime, let me end with this inspiring quote from Virginia Baldo, an MBA member from the grassroots: “Being BOT President of CARD MBA has allowed me to see that poverty need not be a deterrent to afford insurance.”

(Dr. Jaime Aristotle B. Alip is a poverty eradication advocate. He is the founder of the Center for Agriculture and Rural Development Mutually-Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to eight million economically-disadvantaged Filipinos and insure more than 27 million nationwide.)