1. Microinsurance The Next Revolution in Financial Services for the Poor Dr. Jaime Aristotle B. Alip AIRDC/AISADC Forum September 7, 2012

2. Poverty and Vulnerability 4.7 M families live under poverty threshold and 1 out of 3 Filipinos is considered poor (NSCB, 2006) 44% of the population live on less than US$2 a day and 14% on US$1 a day or less (WB, 2007) The poor is vulnerable to risks, i.e, life cycle needs and unpredictable risks such as illness, death, theft, natural & man-made disasters (Llanto et al., ‘Microinsurance in the Phils: Policy and Regulatory Issues and Challenges,’ 2007)

3. The Poor has Limited Access to Insurance Insurance Density (Per capita expenditure): PhP 1,000.2or US$ 23.8 Life-PhP 752.4 or US$ 17.91 Non-Life-PhP 247.8 or US$ 5.9 Insurance Penetration (Premiums as % of GDP): 1.04% Estimated Life Insurance Coverage: 16.09% (Insurance Commission, 2010)

4. What is Microinsurance? “An activity providing specific insurance, insurance- like and other similar products and services that meet the needs of the low-income sector for risk protection and relief against distress, misfortune and other contingent events.” (Regulatory Framework for Microinsurance, IMC No. 1-2010) Basic Features: Simple product design Low amount of premiums/contributions Policy contract easily understood by clients Straightforward and uncomplicated documentation Frequent collection of premium/contribution that coincides w/ the cash-flow of the insured Fast and timely payment of insurance claims

5. “ MICROINSURANCE PRODUCT ” is a financial product or service that meets the risk protection needs of the poor where : a.the amount of premium computed on a daily basis does not exceed five percent (5%) of the current daily minimum wage rate for non-agricultural workers in Metro Manila. Php 446.00 x 5% = Php 22.30 per day ($0.53) Php 22.30 x 7 = Php 156.10 per week ($3.72) b.the maximum amount of life insurance coverage is not more than five hundred (500) times the daily minimum wage rate for non-agricultural workers in Metro Manila. Php 446.00 x 500 = Php 223,000.00 ($5,309.52) (The minimum wage for non-agri cultural workers in Metro Manila is Php 446.00 as of June 3, 2012)

6. Most common types of microinsurance products Credit life Term life/Personal accident Savings life Property insurance Endowment life Health insurance Agriculture Degree of Difficulty Degree of Success

7. To what risks and economic stresses are low-income persons vulnerable?

9. RIMANSI: Advocating Microinsurance thru MBAs RIMANSI is a regional resource center that aims to help poor households improve their access to affordable yet adequate microinsurance, through microinsurance business support services

10. RIMANSI RIMANSI Founding Members A regional resource centre (non-profit) based in the Philippines to help rural and urban poor households in Asia and the Pacific improve their access to affordable yet adequate micro-insurance services, through micro-insurance business support services. 20052005

11. RIMANSI Business Development Support Services Facilitate organization and setting-up of Micro- insurance Mutual Benefit Associations (MI-MBAs)/ Micro-insurance Programs (MIPs) Provide support for MI-MBA/MIP performance management and compliance to regulatory requirements Establish mechanisms for risk pooling and cost sharing Forum for performance-based monitoring and evaluation Advocate for policy and regulatory reform

12. A network of professionally –managed Mutual Benefit Associations owned by the members that provide affordable, comprehensive, quality micro-insurance products and services to poor people in Asia and the Pacific

13. Microinsurance vs Traditional Insurance TRAITTRADITIONAL INSURANCE MICROINSURANCEMICROINSURANCE MBA PRACTICES TARGET MARKETMIDDLE-TO-HIGH- INCOME SECTOR LOW-INCOME AND INFORMAL SECTOR GENERALLLY CLIENTS OF MFIS DELIVERY CHANNELS SOLD THROUGH INDIVIDUAL LICENSED AGENTS OR BROKERS SOLD THROUGH LICENSED NON- TRADITIONAL AGENTS SUCH AS COOPERATIVES, NGOS, AND RURAL BANKS MFIS AND OTHER ORGANIZED GROUPS UNDERWRITING REQUIREMENTS COMPLEX (MAY INCLUDE MEDICAL EXAMS, ETC.) SIMPLE, EASY TO UNDERSTAND AND MINIMAL COMPULSORY MEMBERSHIP PREMIUMNO LIMITATIONS ON PREMIUM PAYMENT LESS THAN P1 PER DAY BUT NOT MORE THAN 5% OF THE DAILY MINIMUM WAGE RATE IN METRO MANILA PHP 12 TO 30 CONTRIBUTION PER WEEK Source: Mostly taken from PH Training Manual on Micro-insurance Advocacy (2011)

14. Microinsurance vs Traditional Insurance TRAITTRADITIONAL INSURANCE MICROINSURANCEMICROINSURANCE MBA PRACTICES MODE OF PREMIUM PAYMENT FIXED AND REGULARLY COLLECTED PREMIUM PAYMENTS (ANNUAL, SEMI-ANNUAL, QUARTERLY, MONTHLY) FLEXIBLE, CASH-FLOW- BASED PREMIUM PAYMENTS GENERALLY WEEKLY PAYMENT POLICIESMANY PROVISOS AND CONDITIONS FEW PROVISOS AND CONDITIONS 2-PAGE CERTIFICATE OF MEMBERSHIP CLAIMSCLAIMS MAY EXCEED 10 WORKING DAYS TO SETTLE CLAIMS MUST BE SETTLED WITHIN 10 WORKING DAYS WITHIN 5 DAYS FROM DATE OF NOTICE Source: Mostly taken from PH Training Manual on Micro-insurance Advocacy (2011)

15. MI-MBA Model: how does it work? member mobilization premium collection claims validation & settlement Microinsurance MBA Credit, savings MFI JOINT MBA-MFI micro-insurance program implementation (partner-agent relationship) Governance Management FRONTLINEBACK ROOM Value Resources Operations S-formula Member-Owners trust easy access lower premium claims@1-3-5 Fin. Mgt., MIS

16. Product, Price, Benefit MBAProductRider 1. Ad Jesum MBALIFE, CLIPHOSP 2. ASKI MBALIFE --- 3. CARD MBALIFE, CLIPRSF, MVAH 4. CARE MBALIFE, CLIP --- 5. FICCO MBALIFE --- 6. KCCDFI MBALIFERSF, MVAH 7. KSK MBALIFERSF, MVAH 8. PBC MBALIFEBUR, MEDRE 9. QPI MBALIFERSF, MVAH 10. RBT MBALIFE, CLIPMEDRE 11. SEDP MBALIFE --- 12. SRCDC MBALIFE --- 13. KGI MBA (new)LIFEHOSP 14. PMPC MBA (new)LIFERSF Note: All have living benefit (equity value) equivalent to 50% of total paid contributions LIFE – basic life insurance plan CLIP – credit life insurance plan HOSP – hospitalization RSF – retirement savings fund MVAH – motor vehicle accident hospitalization BUR – burial MEDRE – medical reimbursement *for basic life insurance plan; 1USD = PHP 45 Maximum Benefit* PHP 45,000 – 120,000 (USD 1,000 – 2,667) Contribution/week * PHP 12 – 30 (USD 0.27 – 0.67)

17. Outreach (2011) basic life credit life health MICROINSURANCE PRODUCTS Membership: 1.85 M covering 7.24* M lives Contributions: USD 32.4 M (50% is refundable Equity Value) Claims paid: USD 8.23 M PHILIPPINES MIP members: 240,707 Premium: USD 104,647 Claims paid: USD 44,260 REST of ASIA and the PACIFIC *at least four (4) in a family is covered by the microinsurance certificate

18. PH Contributions, Claims (2007-2011) (in USD) Contributions = 117.64 M 81.97M23.83M11.84M Basic life insurance contributions 40.98 M (50%) is refundable Equity Value Retirement Savings Fund 100% refundable + interest Credit life insurance contributions 18.88 M amount of claims paid

19. Summary of Expenses for CDRAP Due to Typhoon Gener, Habagat & Typhoon Helen

20. CDRAP UPDATE As of August 31, 2012

21. AVERAGE DEATH Per Mo = 357 Per Day = 12 AVERAGE DEATH Per Mo. = 630 Per Day = 21 AVERAGE DEATH Per Mo. = 260 Per Day = 9 AVERAGE DEATH Per Mo. =44 Per Day = 1 MEMBER 2,499 SPOUSE 4,411 CHILDREN 1,871 PARENTS 308 TOTAL DEATH CLAIMS = 9,035 Average death = 1,291/Mo or 43/day As of July 2012 DEATH STATISTICS FOR JAN-JULY 2012 As of June 2012 TOTAL DEATH CLAIMS = 7,424 Average death = 1,237/Mo or 41/day

22. Recommendations basis International market practices Constraints / Challenges RecommendationsInsurerCustomerMarketReference a) Large number of informal quasi-insurance schemes run by cooperatives, churches; b) Policyholder protection Provision to recognize the informal schemes triggering consolidation activity or partnering informal operators with formal underwriters Philippines - MBAs are allowed to offer insurance products under a reduced regulatory burden and with lower capital requirements South Africa - The institutional space for microinsurance is opened up to friendly societies and coop a) High capital requirement of over discourage established insurers from offering services to low income House Holds Lower prudential requirement or evaluate the minimum capital requirements for the locally organized small Micro-insurance institutions Philippines - Guaranty fund for new / existing MBAs has been reduced from Php 125M to Php 5M insurers)

23. Constraints / Challenges RecommendationsInsurerCustomerMarketReference a) Limited perceived value b) Consumer Education / Financial Literacy is more treated as a “ public ” good Regulator needs to play a pivotal role to create public awareness and consumer education on various financial products and its usage. This in turn will reduce any form of information asymmetries and promote market transparency, competitiveness and efficiency Philippines - Insurance Commission promoted Micro-Insurance by declaring month of January every year as “MI month”. Concerned regulatory authorities in coordination with the Department of Finance conduct financial literacy trainings, seminars and workshops on Micro- insurance Peru - Consumer protection and financial education programs is present in the supervisor's institutional agenda South Africa - Consumer awareness and education campaign to be implemented by the Financial Services Board with focus on creating awareness of insurance and its value proposition Recommendations basis International market practices

24. Constraints / Challenges RecommendationsInsurerCustomerMarketReference Low –income clients also show a disproportionately high distrust of insurers and insurance, requiring particular attention to product design, the sales process and claims payment Claim settlement should be given a higher priority with a well defined regulations Mexico - Claims should be paid within 5 working days; paid through a variety of channels, e.g. microfinance networks, through utility companies, or distribution networks Philippines - All entities providing MI products shall process and settle claims within 10 working days. Submission of the required documents through electronic means shall be accepted Peru - Claims should be paid within 10 days Recommendations basis International market practices

25. Constraints / Challenges RecommendationsInsurerCustomerMarketReference Low renewal rate (high lapsation / low persistency) as the policyholders mostly have irregular income In addition to consumer education and awareness on insurance the regulator should also encourage features such as extended grace period Philippines - The manner and frequency of premium collections shall, if possible, coincide with the cash flow of the insured and may be collected (e.g. weekly; monthly) whichever is applicable South Africa - As a minimum, cover will continue for 1 month after the due date of the premium. For policies that have been in force for one year or more, the grace period will be extended by one month for each completed twelve month period that the policy has been in force with no reduction in cover. However, the maximum grace period for a policy will be 6 months. Recommendations basis International market practices