THE LIFE insurance industry is optimistic it could hit its medium-term goal of posting a 20-percent market penetration rate.

The industry?s optimism was boosted by the recent cut in taxes and a favorable business environment under the Aquino administration.

Jose Cuisia, retired president and chief executive officer of Philam Life, told reporters in an interview that the business prospects for life insurers had become encouraging following the passage of the law reducing the premium and documentary stamp taxes on life insurance.

?The insurance sector has become more competitive now that the taxes were reduced,? said Cuisia, who remained active in pushing for measures to develop the insurance industry. He said the life insurance sector was aiming to raise the penetration rate of its products in the country to 20 percent from the current level of only 4-5 percent.

Cuisia said that in neighboring countries, life insurance was considered a necessity, as manifested by the high insurance penetration rate in these countries: 40 percent in Taiwan, 90 percent in Japan, and over 100 percent in Singapore (which means some Singaporeans have more than one insurance policy).

The Philippine Life Insurance Association (PLIA) had blamed ?heavy taxation? for the small number of Filipinos that were covered by insurance. The group lobbied for years for the elimination of the premium tax and the reduction of the documentary stamp tax.

PLIA said the law was a welcome development although it did not fully take into account its proposal.

The law, Republic Act 10001 signed in March, reduced the premium tax from 5 to 2 percent. It also changed the computation of the documentary stamp tax from a fixed rate of 50 centavos per P200 worth of premium to a range of zero to P100 depending on the amount of coverage.

Cuisia said, however, that the tax reduction was not the sole factor that could raise the industry?s market penetration rate. He said incomes should also be increased to encourage most Filipinos to buy insurance products.

He said poverty incidence in the country had to be reduced, and that the proportion of middle-income earners had to be increased so that more people would be able to afford insurance.

PLIA believes that the huge poverty incidence in the country is one of the reasons for the low penetration rate of insurance in the local market.

About a third of the estimated 94 million Filipinos are believed to be living below the poverty line, about the same as that in 2006, when the latest official poverty figure in the country came out.

?The number of middle-income people has to increase. This will help boost sales of insurance,? Cusia said.

He said that the perceived optimism under the Aquino administration was hoped to translate into more investments into the country and, therefore, more employment and reduced poverty incidence.