MICROINSURANCE must be a cornerstone of the Philippines’ climate change adaptation strategy, officials said on Friday at the launch of a manifesto enjoining both public and private sectors to work toward wider microinsurance penetration.
The call went out at even as the Philippines leads the region in terms of microinsurance penetration — with pawnshops in particular driving growth, according to regulators.
In an event called “Challenging the Climate, Responding to Change” at the Philippine International Convention Center Friday, Department of Finance (DoF) Undersecretary Gil S. Beltran highlighted the need to be “creative and innovative” in the face of climate change-related risks.
Mr. Beltran pointed to microinsurance’s contribution to the rebuilding of communities following super-typhoon Yolanda’s (International Name: Haiyan) devastation of parts of central Philippines in November 2013, with more than P700 million in payoffs logged by microinsurance providers as a result of the disaster.
But even with the end-2013 figure of 27.9 million Filipinos covered by a microinsurance policy — at almost 28% penetration of the population, the highest in Asia and Oceania, Mr. Beltran noted — the “majority [of Filipinos] still have not bought or even have not heard such a thing.”
This is a cause for concern since “76.6% of our land area is considered hazard prone, and 83.5% of our population is exposed to life-threatening risks brought by climate change,” Mr. Beltran said.
Joselito S. Almario, deputy executive director at DoF arm National Credit Council, read out the microinsurance manifesto to the audience before its signing. Among the signatories of the manifesto present at the event were Mr. Beltran, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla, Jr., and Securities and Exchange Commission (SEC) Chairperson Teresita J. Herbosa, as well as other state officials, insurance industry representatives, and delegations from the German and Japanese embassies.
“We believe in the important role of microinsurance for climate change adaptation,” Mr. Almario said, reading the manifesto. “Microinsurance will not stop typhoons, will not stop flooding, it will not even stop death or injuries… It is not a tool for mitigation. It is a tool for adaptation.”
Among the manifesto’s main points are: for the government to provide an enabling and conducive policy and regulatory environment for microinsurance; for microinsurance players to develop, design and create simple, affordable and innovative microinsurance products and services; and for donors, multilateral institutions and the international community to provide technical and other forms of assistance to those concerned.
At the press conference following the launch of the manifesto, the BSP’s Mr. Espenilla noted that the banking sector is also being primed for the growth of microinsurance.
“We have actually already adopted very liberalized rules for our banks to distribute microinsurance products,” Mr. Espenilla noted. The central bank has for more than a decade now been taking steps to liberalize rules on the banking system’s engagement with the insurance industry.
In August, the BSP issued Circular 844, which relaxed rules on the cross-selling of simple — i.e., non-investment-linked — insurance products. Under the relaxed rules, simple insurance products are now allowed to be “cross-sold” inside bank premises regardless of whether the insurance provider is part of the same financial conglomerate as the bank or not.
“Based on the most recent data, more than 40 banks have been allowed to distribute microinsurance. More than that, we have more than 80 banks in the pipeline waiting to be accredited to distribute microinsurance… The target here really are the smaller banks,” Mr. Espenilla said at the press conference. These banks are “mostly located in the provinces.”
But the major growth driver of microinsurance has proven to be non-bank distribution channels, like pawnshops.
“Pawnshops are under the regulation of the BSP, and the BSP has also enabled pawnshops to distribute insurance products in accordance with the rules of the Insurance Commission,” Mr. Espenilla said. “The reason we take that very liberalized view [of pawnshop distribution] is precisely because we are very aware that many municipalities that may be unbanked is actually well served by our pawnshops.”
“The penetration rate of pawnshops is much deeper than our banks,” Mr. Espenilla said. “Today, for example, there are more than 17,000 pawnshops all over the country.”
However, local insurers are now starting to look even beyond the ubiquitous pawnshop.
Philippine Insurers and Reinsurers Association Chairman Michael F. Rellosa shared: “One of our members companies is now dealing with the distributors of fertilizer. We discovered that that’s another possible channel of distribution of microinsurance.”