Options for Microinsurance Sales and Servicing

MABS Microinsurance Coordinator, Ruth Aseron shares lessons learned during the RBAP-MABS Regional Roundtable Conference 2010.

The RBAP-MABS Regional Roundtable Conferences in Manila and Davao each featured a session on Microinsurance that sought to provide participants insights on the various distribution models which rural banks are allowed to adopt.  Presented were perspectives on how rural banks should formalize its microinsurance distribution operations in compliance with the provisions of the National Regulatory Framework and with regulations issued by the Insurance Commission (IC) and the Bangko Sentral ng Pilipinas (BSP). The session focused especially on Section 6 of the Microinsurance National Regulatory Framework, which provides entities engaged in informal insurance or insurance-like activities three (3) options to formalize their microinsurance operations:

Become an agent or broker of a licensed microinsurance company
Partnering with a third-party broker or agent to offer microinsurance
Join an existing MBA or Cooperative Insurance Society (CIS)
  1. Become an agent or broker of a licensed microinsurance company
  2. Partnering with a third-party broker or agent to offer microinsurance
  3. Join an existing MBA or Cooperative Insurance Society (CIS)

Panelists included representatives from the BSP, the commercial insurance industry and Mutual Benefit Associations (MBA).

Key Microinsurance Regulations

Representing the BSP for the Manila leg of the Regional Conference was Mr. Rino Zerna, member of the MSME Finance Specialist Group.  Aiding the session’s Q&A in Davao was BSP Inclusive Finance Advocacy representative Ms. Rochelle Tomas.

The BSP discussion focused on regulations pertinent to the proper provision of insurance products by rural, cooperative and thrift banks under its jurisdiction. The participants were provided with the updates on the new microinsurance regulation, clarifications on the accreditation process as well as reminding banks about restrictions on self-managed insurance programs of the past.

While the General Banking Law (Section 54 of RA 8791) restricts banks from directly engaging in insurance as an insurer, the new regulations open an opportunity for rural banks to partner with insurance companies as either an agent or a broker.  The participants were also reminded that rural bankers and their officers are not allowed to solicit or negotiate a contract on someone’s behalf or receive compensation or commission without a license or authorization from the Insurance Commission.

To address these restrictions, the new regulations and policies issued by the BSP and Insurance Commission in 2010 provided clear guidance and parameters for rural banks to meet the needs of their clients by providing effective and compliant microinsurance services.  BSP Memo Circular 683 provides the option for banks to formalize their microinsurance operations by partnering with microinsurance providers, licensed by the Insurance Commission.  Under the Circular, rural, cooperative and thrift banks may present, market, sell and service microinsurance products, approved by the Insurance Commission.  In order to comply with the new circular and be licensed by the Insurance Commission, rural banks must provide:

  1. A copy of the BOD approval to offer microinsurance
  2. A copy of written agreement between the bank and the MI provider
  3. A copy of IC approval for each microinsurance product
  4. A copy of the insurance provider’s Certificate of Authority issued by the IC
  5. The Bank’s license as MI agent or broker
  6. Certification from bank president ensuring continued compliance to:
    • MI product is authorized for cross selling under BSP regulations
    • MI provider and product are approved by IC
    • Conducted due diligence
    • Promotional materials comply with BSP regulations
    • Bank personnel are trained by an accredited institution and have passed a qualifying exam

Mr. Rino Zerna also explained that banks with microinsurance agent or broker licenses will be allowed not only to offer insurance service through their branches but also through all declared Microfinance OBOs (MOBO).  Also, he clarified that microinsurance can be provided to both micro-borrowers and micro-depositors of the bank.

Option 1:  Partnering with a licensed Microinsurance Company

BSP Memo Circular 683 allows rural, coop and thrift banks to partner with authorized microinsurance providers.  The banks must procure a license and authorization from the Insurance Commission as a microinsurance agent or broker prior to being authorized by the BSP.

The benefits of the partner-agent model were presented each by Pioneer Insurance’s Microinsurance Champion Geric Laude in Manila and Country Bankers Insurance’s General Manager Geraldine Desiderio-Garcia in Davao.

Mr. Geric Laude of Pioneer shared the unique approach the company follows when partnering with a bank as an agent since the bank is intimately involved in the entire customized microinsurance product and processes to meet the needs of the bank and their clients.  He further explained that the partner-agent model allows for better cost-effectiveness for the insurer, the bank-agent and the client. The model builds on the core competencies and capabilities of the bank-agent and the partner-insurer.   While the partner-insurer assumes the financial risk, monitors claims and ensures regulatory compliance, the bank-agent provides information on the market and ensures reasonable sharing of risks and knowledge with its partner.  However, under the model offered by Pioneer, both the bank-agent and partner-insurer are directly involved in the product design of the insurance product offered.

Ms. Geraldine Desiderio-Garcia, General Manager of Country Bankers Insurance, highlighted the company’s uniqueness of being founded by rural bankers and of being the first insurer to have a licensed microinsurance product.  Ms. Garcia clearly outlined why the partner-agent approach works for rural banks as opposed to some of the practices in the past by pointing out that the:

  • Level of financial risk is significantly reduced for the bank-agent
  • Services are improved and standardized and provided to clients without additional administration costs
  • Bank can focus on its core competencies (providing greater access to financial services) rather than worrying about managing risks associated with insurance
  • Economies of scale offered by partnering with insurance companies will allow lower premium rates to be offered to clients
  • Growth opportunities are shared by both partners resulting in greater efficiency and cost savings

Option 2:  Partnering with a Third-Party Broker or Agent

The second option to formalize microinsurance services of banks is also known as the intermediary model.   Session panelist Mr. William Martirez of MicroEnsure Philippines explained how a rural bank can partner with a third-party specialized agent or broker.

He shared how an effective specialized agent/broker as an intermediary will likely negotiate with insurers on behalf of the rural bank clients to maintain affordability of microinsurance premiums.  Operational costs are reduced since the intermediary’s back-office capabilities for premium payment tracking, claims servicing, client data capture and market research are all managed by the third-party rather than the rural bank.  Also a specialized agent/broker provides the rural bank with specially designed microinsurance educational tools.  These tools are designed to not only train staff but also to educate clients with the importance of insurance.

The Microinsurance Regulatory Framework, Section 8.3, permits regular agents and brokers to sell microinsurance products to institutional clients such as rural banks.  However, under BSP 683, intermediaries may be able to partner with rural banks only upon procuring an authorization from the Insurance Commission and acquiring an approval for its microinsurance product.

Option 3:  Join an existing Mutual Benefit Association (MBA)

The recent issuances of microinsurance regulations and the more stringent approach of the BSP on informal and self-managed microinsurance programs have prompted some rural banks to consider formalizing their microinsurance services by setting up a separate Mutual Benefit Association (MBA).  It was pointed out however, that banks cannot benefit from operating a Mutual Benefit Association (MBA) and there are also start-up requirements and operational challenges that can distract rural banks from their operations. Limited economies of scale from setting up MBAs also allow only a limited range of microinsurance products and costs for providing these services are usually higher than those that can be obtained in partnership with an insurance company or  a third-party agent/broker.

MBA representatives Susan Trinidad, General Manager of TSPI MBA, Inc. and Ernie Galenzoga, CEO of RBT MBA, Inc. both recommended that rather than trying to set up an MBA, most rural banks should instead consider partnering with an established and licensed MBA much the same way they would partner with a private insurance company or third-party agent/broker to manage the risk and challenges of offering microinsurance. Mr. Galenzoga was explicit about how the lack of insurance expertise, high capitalization requirements and low client volume posed significant problems for Rural Bank of Talisayan MBA during its first years.  For him, it was a difficult process during which he learned that it would have be better to establish a consortium of rural banks in order to support sufficient economies of scale to absorb the costs and financial risks of starting up a MBA.  Similarly, TSPI quickly realized the benefits of establishing a partnership with COCOLIFE for its underwriting requirements.  After 10 years implementing its Damayan program, TSPI MBA opted to partner with COCOLIFE in 2001 to be able to enhance its insurance coverage for its clients.  Ms. Trinidad recommends that rather than attempt to set-up an MBA, banks should opt to partner with an MBA and enroll their microfinance clients to an established MBA, which is already an IC licensed microinsurance provider.  This provides a good opportunity for the bank to conform to microinsurance regulations and ally with a partner that understands and is capable of responding to the insurance needs of their target market.

In summary, all rural banks that want to offer microinsurance to their clients must partner with a licensed microinsurance provider.  This can either be directly with an insurance company, through a third-party broker/agent, or with an MBA.  In order to assist banks with this process, RBAP, through the RBAP-MABS program and RBRDFI, will be hosting links on its website that allow banks to compare various options and potential partners.  In addition, for member rural banks interested in becoming microinsurance brokers or agents, RBRDFI through the support of the RBAP-MABS program will be providing banks with training and technical assistance as well as a turnkey set of templates and guidelines for banks to quickly and efficiently process their microinsurance agent or broker licenses.