Lower taxes on life insurance to boost microinsurance in the Philippines

Clients interested to access microinsurance services may now celebrate another legal development that allows for more affordable life insurance products with the recent signing of Republic Act (RA) 10001, which reduces taxes on life insurance premiums.

Under this new law, the tax rate for total premiums collected has been scaled down to 2% from the previous rate of 5% stated in Section 123 of the National Internal Revenue Code of 1997. The new law also provides for a revised documentary stamp tax scheme.

“It is expected that life insurance companies will reflect such reductions in the premiums … after the law becomes applicable”, Philippine Life Insurance Association (PLIA) President Mabini L. Juan said. “RA 10001 becomes effective only after 15 days from publication and after the issuance by BIR of the Implementing Rules and Regulations (IRR)”, he added.

R.A. 10001 for rural banks

In a report by the Business World, former PLIA President George D. Mercado said that since prices of life insurance policies are expected to go down due to reduced taxes, more Filipinos can now afford to purchase life insurance. Thus, this regulatory development supports rural banks venturing into microinsurance in promoting increased access to affordable and demand-driven products.

“This is a welcome development as microinsurance products would be within reach by the more vulnerable segments belonging to the base of the economic pyramid, providing these segments the social protection that in case of a peril or tragedy the poor will not become poorer or those who have succeeded in improving their lives will not become impoverished once again”, said Omar Andaya, president of the Rural Bankers Association of the Philippines (RBAP).

Recent regulatory developments on Microinsurance

Since 2008, RBAP and its USAID-supported MABS Program have been working with the Insurance Commission and the Bangko Sentral ng Pilipinas (BSP) to create a regulatory environment that is conducive to microinsurance. BSP recently issued Circular 683, which sets the rules and guidelines for rural banks to market, sell and provide microinsurance services through partnerships with reliable insurance providers.

BSP Circular 683 also states that a rural bank will be required to fulfill licensing and accreditation procedures to become an institutional microinsurance agent. It echoes the Microinsurance National Regulatory Framework launched on January 29, which mandates microfinance institutions (MFIs) to transition to formal microinsurance services within a year.

As licensed microinsurance agents rural banks, in partnership with insurance companies, will be able to dramatically increase the distribution of microinsurance in the countryside. With over 2,500 rural bank branches and other banking offices (OBOs) and more than 6 million clients, the rural banks will serve as one of the country’s major microinsurance channels for low-income households.

RBAP-MABS assists interested and qualified member rural banks in partnering with insurance companies and meeting all the requirements for accreditation by both the Insurance Commission and BSP.