In line with the Bangko Sentral’s objective of increasing access to much-needed financial services, the Monetary Board approved yesterday the marketing, sale and servicing of microinsurance products by rural, cooperative and thrift banks. This approval presents an enormous potential of allowing the network of nearly 3,500 rural, cooperative and thrift banking offices, subject to certain prudential rules and regulations, to serve as distribution points for authorized microinsurance products offered by licensed insurance providers. Since many of these banks already have existing relationships with microfinance clients, they can more readily deliver a full range of financial services needed by their clients. Banks are ideal insurance distribution channels as they are the trusted financial institutions in the countryside and have a deeper knowledge and understanding of the low income market. This can only translate into better delivered products as well as lower transaction costs, ultimately benefiting the poor clients. The BSP also envisions that this issuance will provide the impetus to eliminate informal insurance schemes as well as put an end to the unauthorized provision of insurance products.
Microinsurance is defined by the Insurance Commission (IC) as 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. The features of the microinsurance product, which are appropriately designed for the needs and capacity of the low-income sector, include a limitation on the amount of premiums, contributions, fees and charges not to exceed five percent of the current daily minimum wage and a ceiling on the guaranteed benefits not to exceed 500 times the current daily minimum wage.
In recognizing that microinsurance products are a complementary component of the primary business of rural, cooperative and thrift banks considering their relationship with their microfinance clients, these banks are allowed to present, market, sell and service the said microinsurance products. As part of the approval, the necessary rules and regulations have been put in place to ensure the safe and sound delivery of these services. The Bank must ensure compliance with pertinent laws and rules on the sale of microinsurance products as set by the IC; must ascertain that all the necessary approvals and licenses from the IC are in place as well as verify that the authorized insurance provider has adequate consumer protection mechanisms. These rules and regulations are consistent with the recently approved National Strategy and Regulatory Framework for Microinsurance which was inked by the Insurance Commission, Department of Finance, Securities and Exchange Commission, BSP and other relevant offices last 29 January.
Recent events like the super typhoons have brought to fore the importance of adequate protection against death, injury, loss of property and other contingent events. This move by the BSP is an important response to this urgent need for microinsurance especially for the poor who are more vulnerable to various risks.
Microfinance and microinsurance are highly complementary financial products that address the needs of the low-income sector. Microfinance addresses current financial needs. Microinsurance takes care of future needs.