Microinsurance boosts struggling nonlife sector

The growing market for microinsurance is breathing new life into nonlife firms, many of which are facing difficulty complying with their higher capitalization requirement, according to the Philippine Insurers and Reinsurers Association (Pira).

“Microinsurance is probably the biggest thing that happened in the insurance industry in the past 20 years because [it] is forcing the insurance industry to change. If the industry is to survive all the challenges it faces—and that includes natural catastrophes—it must change the way it does things,” Pira chair Michael F. Rellosa said in a speech at a recent regional conference on microinsurance and natural catastrophes.

According to Rellosa, microinsurance was forcing the sector to design more simple, accessible and affordable products, while also finding distribution channels and processes that would entail lower cost to bring down prices.

Also, microinsurance was changing the way firms apply insurance principles when dealing with their customers, Rellosa added. “One basic principle of insurance that microinsurance is sidestepping is the principle of indemnity. Microinsurance deals with fixed amounts and not the previous state in which the client was before the loss happened. Therefore, the settlement of claims is faster [and] questions are less because the amount of claims to be settled is already known,” he explained.

According to the Insurance Commission, about 28 million Filipinos or more than a fourth of the population are covered by microinsurance as of the end of 2014. Microinsurance products have a high take-up because of low premiums usually paid on a daily basis by those who cannot afford expensive premiums.

Rellosa said the fast-paced growth of microinsurance was helping struggling nonlife firms.

“We are presently on survival mode. From a high of 105, Pira’s members are now down to 65. This is mainly due to the high capitalization required of us by the new Insurance Code. We expect the number of our members to go down further in the coming years. That is, if we don’t grow the market, or if we don’t enlarge the pie,” Rellosa said.

Under Republic Act 10607 or the Amended Insurance Code, all life and nonlife insurance companies must have had a net worth of at least P250 million as of end-2013, after which the minimum net worth of players must more than double to P550 million by end-2016.

The minimum net worth of insurance firms should further increase to P900 million by the end of 2019, then jump to P1.3 billion by end-2022.

“The penetration rate of insurance in the Philippines is very low. With the high capitalization required of us, every company is basically enlarging its individual plate and getting a bigger set of spoon and fork, yet it will still be fighting for a tiny slice of a very small pie. With microinsurance, the pie now has a good chance of expanding,” Rellosa said.

“Those formerly deemed to be too risky to insure can now be covered [by microinsurance]. Even those formerly considered too poor to afford insurance will now be able to buy insurance products at a price they can afford through a distribution channel that they know and trust,” he added.