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Microinsurance Comes Of Age

With microfinance making a head way in the countryside’s, the next logical advance among rural banks is providing the country’s poor with micro insurance. An oft quoted line in the rural banking industry is that microcredit provides the poor with their current financial needs while micro insurance provides for their future financial requirements.

The country currently has a low insurance coverage level, which based on Insurance Commission data is only 13.9 percent of the population, more so with the poor with only 2.9 million of the 27.6 million Filipinos below poverty line having some form of cover for their future.

Most of the poor in the rural areas are farm workers and are considered the most susceptible to weather changes, hence, they being the most in need of ample insurance cover.

The United States Agency for International Development (USAID)-backed Microenterprise Access to Banking Services (MABS) program of the Rural Bankers Association of the Philippines (RBAP) has been holding a series of forums, the latest of which was on Sept. 17, to propagate the microinsurance business in the countryside primarily through the training of its bank members.

RBAP-MABS seminars and workshops provide RBAP member rural banks with information on initiating the process to become licensed microinsurance agents.

Last February, the Bangko Sentral ng Pilipinas (BSP), through its policy-making Monetary Board, had allowed rural, cooperative and thrift banks to sell or distribute microinsurance policies.

The Monetary Board said its decision to vest rural banks with the authority to sell the key financial service was reached because these banks are ideal insurance distribution channels and trusted financial institutions in the countryside with a deep knowledge and understanding of the low-income market.

Subsequently, the BSP issued Circular 683 providing the rules and guidelines for rural banks to market, sell and provide microinsurance services through partnerships with reliable insurance providers.

Before the Monetary Board ruling, rural banks’ main insurance service is credit life bundled into loans, while big financial institutions offer bancassurance or the sale of insurance policies within their premises.
Rural banks cannot afford the five percent stake requirement on insurance firms to be able to offer their own bancassurance service.

Now rural banks can partner with established insurers, with the banks’ participation involving the dissemination of information and acting as collection agents of insurers. The BSP ruling opened up life, crop, and property insurance policies to more of the countryside population.

Microinsurance is an integral service that protects not only the insured rural folks but also the availability of lending since banks will have less to worry about with the radical shifts in weather affecting farm businesses and consequently their loan exposures.

Crop insurance, for instance, provide farmers affected by natural calamities the seed money to restart their lost business.

The RBAP currently have partner-insurers for its member banks established insurers AA International, Country Bankers Life Insurance, Philippine Prudential Life, PhilAm Life, Pioneer Insurance, Malayan-Grepalife and MicroEnsure Philippines.

RBAP’s earnest efforts to propagate microinsurance also received a big boost from a $100,000 grant from the International Labor Organization (ILO) under the Microinsurance Innovation Facility, which was launched in 2008 with the support of a grant from the Bill and Melinda Gates Foundation that was made available to RBAP’s research and training arm Rural Bankers Research and Development Foundation Inc. (RBRDFI).

The grant will primarily fund training and technical assistance for rural banks to partner with insurance companies in providing microinsurance to about six million rural bank clients.

As a result of the grant, the RBAP-MABS Microinsurance Initiative was formed in which a turn-key, batching system for licensing and accreditation of rural banks as microinsurance agents will be instituted as well as installing an SMS-based client feedback mechanism to aid in micro-insuranc product enhancement. An online resource hub for easy access to market information relevant to rural banks, commercial insurers and regulators will also be set up.

According to an ILO study on the local microinsurance industry, three risks emerge as the greatest concerns for rural businesses which are illness or accident of the entrepreneur or a family member; natural calamities such as typhoons; and basic business risks such as high competition and low demand.

Microinsurance was seen in the study as having the potential to reduce vulnerability of rural residents from these risks.