BSP allows small banks to sell microinsurance

MANILA, Philippines – More than 3,500 rural, thrift, and cooperative banks were given the green light by the Bangko Sentral ng Pilipinas (BSP) to sell microinsurance products as part of efforts to eliminate informal insurance schemes and at the same time put an end to the unauthorized provision of insurance products.

With the approval, the BSP said the network of rural, thrift, and cooperative banks would serve as distribution points for authorized microinsurance products offered by licensed insurance providers.

The central bank pointed out that banks are ideal insurance distribution channels since these companies are the trusted financial institutions in the countryside with deeper knowledge and understanding of the low-income market.

“Since many of these banks already have existing relationships with microinsurance clients, they can more readily deliver a full range of financial services needed by their clients. This can only translate into better delivered products as well as lower transaction costs, ultimately benefitting the poor clients,” it added.

The Insurance Commission (IC) defines microinsurance as an act providing specific insurance, insurance-like and other similar products and services that meet the needs of low-income sector for risk protection and relief against distress, misfortune, and other contingent events.

Microinsurance products that cater to the needs and capacity of low-income sector features limited amount of premiums, contributions, fees, and charges that do not exceed five percent of the current daily minimum wage and a ceiling on guaranteed benefits not to exceed 500 times the current daily minimum wage.

Rural, thrift, and cooperative banks all over the country are now allowed to present, market, sell, and service microinsurance products as a complementary component of their primary business.

However, the BSP said banks must ensure compliance with pertinent laws and rules on the sale of microinsurance products as set by the IC and at the same time must ascertain that all the necessary approvals and licenses from the government are in place.

Furthermore, it added that banks must verify that the unauthorized insurance provider has adequate consumer protection mechanisms.

“As part of the approval, the necessary rules and regulations have been put in place to ensure the safe and sound delivery of these services,” the BSP said.

Last Jan. 29, the BSP together with the Department of Finance (DOF), the IC, the Securities and Exchange Commission (SEC) as well as other releval offices approved the National Strategy and Regulatory Framework for Microinsurance as part of an objective of increasing access to much-needed financial services.

This after recent events including tropical storm Ondoy and typhoon Pepeng showed the importance of microinsurance to have adequate protection against death, injury, loss of property, and other contingent events.

Last year, the World Bank’s International Finance Corp. (IFC) and the German government’s German Technical Cooperation (GTZ) agreed to extend technical assistance to the BSP to increase its supervisory and regulatory capacity for small and medium enterprise (SME) lending.

The technical assistance would help the BSP evaluate and modify its policies, supervision, and examination procedures with regard to SMEs. –Lawrence Agcaoili (The Philippine Star)