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Institutional Options for Achieving Scale and Sustainability: Lessons
from the Philippines
(Microinsurance MBA Model)
By: Jaime Aristotle B. Alip, Ph D. RIMANSI Organization for Asia and the Pacific, Inc.
November 9, 2010
Poverty and Vulnerability
4.7 M families live under poverty threshold and 1 out of 3 Filipinos is considered poor (NSCB, 2006)
44% of the population live on less than US$2 a day and 14% on US$1 a day or less (WB, 2007)
The poor is vulnerable to risks, i.e, life cycle needs and unpredictable risks such as illness, death, theft, natural & man-made disasters
(Llanto et al., ‘Microinsurance in the Phils: Policy and Regulatory Issues and Challenges,’ 2007)
The Poor has Limited Access to Insurance
Insurance Density (Per capita expenditure): PhP 845.4 or US$ 18.8
Life - PhP 620.8 or US$ 13.8 Non-Life - PhP 224.6 or US$ 5.0
Insurance Penetration (Premiums as % of
GDP): 1.02% Estimated Life Insurance Coverage: 13.90%
(Insurance Commission, 2009)
Traditional Means of Risk Protection do not Adequately Protect the Poor
Prevention & Avoidance
Preparation
Coping
• Careful sanitation • Identifying business opportunities
• Saving • Accumulating assets (i.e., livestock) • Buying insurance • Educating children
• Taking emergency loans • Depleting savings • Selling productive assets • Defaulting on loans • Reducing spending
Microinsurance: A Pro-Poor Development Initiative
RIMANSI and microinsurance mutual benefit associations
(MI MBAs)
What is Microinsurance?
“An activity providing specific insurance, insurance-like and other similar products and services that meet the needs of the low-income sector for risk protection and relief against distress, misfortune and other contingent events.” (Regulatory Framework for Microinsurance, IMC No. 1-2010)
Basic Features: Simple product design Low amount of premiums/contributions Policy contract easily understood by clients Straightforward and uncomplicated documentation Frequent collection of premium/contribution that coincides
w/ the cash-flow of the insured Fast and timely payment of insurance claims
RIMANSI: Advocating Microinsurance thru MBAs
RIMANSI is a regional resource center that aims to help poor households improve their access to affordable yet adequate microinsurance, through microinsurance business support services
What is RIMANSI?
RIMANSI Founding Members
“We are a network of professionally –managed Mutual Benefit Associations owned by the members that provide affordable, comprehensive, quality microinsurance products and services to poor people in Asia and the Pacific.”
Business Objectives
Assist the partner-MFIs establish their own MBAs
Design appropriate micro insurance products for the poor.
Formulate and promote Performance Standards(SEGURADO) aligned with international best practices.
Promote mutual assistance and sharing of resources among stakeholders.
Build the financial infrastructure for micro-insurance through research, education and policy advocacy.
Become sustainable service provider
What are Microinsurance MBAs?
Primary providers of microinsurance products to low-income households
Non-stock, non-profit organizations registered w/ SEC and the Insurance Commission
Owned, operated and managed by its members
(Insurance Code of the Phils.)
What are Microinsurance MBAs?
No min. capital requirement
Must have Guarantee Fund of PhP 5M or US$111,111 (PhP 12.5M or US$277,778 for regular MBAs)
Yearly 5% increase in gross premium collections until GF reaches required capital for life insurance companies
Subject to regulatory requirements for product approval, solvency, networth, investments, reserves and reporting
(Insurance Code of the Phils., IMC 9-2006, IMC 1-2010)
MI MBA Membership Profile
Generally clients of MFIs Aged 18 up to 65 years old Mostly women micro-entrepreneurs Involved in trading, services, agriculture
and employed labor
MI MBA vs. Commercial Insurance PARTICULARS MUTUAL BENEFIT ASSOCIATION (MBA) COMMERCIAL INSURANCE
COMPANY
Policy Making Body Board of Trustees composed of members of the MBA who know the needs of their co-members
Board of Directors composed of private individuals who have invested in the company
Orientation Service to the members For profit, stock company Contributions/ Premiums
Paid contributions stay with the association Level contributions, level benefits
Higher premiums generate more benefits
Catastrophic Claim Has to shell out a lot of funds but bankruptcy can be avoided through reinsurance facilities
Payment of Claims Can be done as early as 2 to 3 days from the time of notification but no longer than 1 week if claim documents are complete
Simplified documentation
Claims settlement process and requirements vary from one insurance company to another
Coverage All legal dependents of the members are covered
Only the policy holder with option to cover family members but with additional premium
*MBAs can work well with the commercial insurance companies through reinsurance treaties.
Why support microinsurance
MBAs?
Legitimacy: Licensed and regulated by Government
Purpose: Anchored on social objectives (non-stock, non-profit)
Structure: Member-owned, member-governed
Operations: Community-based recruit- ment and financial distribution network
insurance package design and negotiation
MFI1
MBA1
. . . MFI MFI MFI
MBAi
. . . MFI2
MBA2
MFIn
MBAn
premium, commission,
claims
“franchise” & service fees
MI services: • documenting and promoting best practices • negotiation with service providers, TPAs, insurers • specialized actuarial services and tools • product development • microinsurance operations admin software and tools • demand research • operations and risk management training • auditing • networking services such as a credit bureau Sector development: • data warehousing • industry studies using consolidated experience • Develop Standards & Indicators, MI rating • advocacy
Microinsurers offering MIRC “branded” products and services customized to local needs, adhering to prudential standards and to regulatory requirements. “Social franchising”
The RIMANSI Model
Regulators Service Providers Reinsurers
rates and services negotiation
advocacy
Microinsurance Resource Center (RIMANSI)
data
information, technology, & services
enrolment info, claims data
service fees
reporting, monitoring
TPA authorization, accreditation
The RIMANSI Network of MI MBAs
12 licensed MBAs Partners in the Phils.:
CARD RBT ASKI Kasagana-Ka Ad Jesum FICCO SRCDC CARE SEDP KCCDFI PBC Quidan
The RIMANSI Network of MI MBAs in Asia
Cambodia - MEADA Insurance - Vision Insurance - SEILANITHIH, Ltd/
Indonesia - KBPR Arta Kencana - BMT Inti
Vietnam - TYM Women’s Union - M7
Philippine Outreach
MI-MBAs Number of Members
1. Ad Jesum MBA 9,360 2. ASKI MBA 33,063 3. CARD MBA 1,054,829 4. CARE MBA 8,202 5. FICCO MBA 81,669 6. KCCDFI MBA+ - 7. KSK MBA 16,451 8. PBC MBA+ - 9. QPI MBA 17,597 10. RBT MBA 23,261 11. SEDP MBA+ - 12. SRCDC MBA 6,235
Total 1,250,667 +New MI MBAs with potential combined membership of at least 60,000
*At least 4 per family is covered
RIMANSI Partners in Other South East Asian Countries
Pilot MI Programs No. of members
Cambodia Cambodia Health Committee, Ltd. (MEADA Insurance)
2,276
Vision Fund Cambodia (Vision Insurance)
98,766
SEILANITHIH, Ltd. ---
Indonesia KBPR Arta Kencana ---
BMT Inti ---
Vietnam TYM Women’s Union Fund 36,213
M7 (Coalition of 7 MFIs) 12,000
TOTAL 149,255
Product, Price, Benefit MBA Product Rider
1. Ad Jesum MBA LIFE HOSP 2. ASKI MBA LIFE --- 3. CARD MBA LIFE, CLIP RSF, MVAH 4. CARE MBA LIFE, CLIP --- 5. FICCO MBA LIFE --- 6. KCCDFI MBA LIFE RSF, MVAH 7. KSK MBA LIFE RSF, MVAH 8. PBC MBA LIFE BUR, MEDRE 9. QPI MBA LIFE RSF, MVAH 10. RBT MBA LIFE, CLIP MEDRE 11. SEDP MBA LIFE --- 12. SRCDC MBA LIFE ---
Note: All have living benefit (equity value) equivalent to 50% of total paid contributions
LIFE – basic life insurance plan CLIP – credit life insurance plan
HOSP – hospitalization RSF – retirement savings fund
MVAH – motor vehicle accident hospitalization BUR – burial MEDRE – medical reimbursement
*for basic life insurance plan; 1USD = PHP 45
Maximum Benefit*
PHP 45,000 – 120,000 (USD 1,000 – 2,667)
Contribution/week* PHP 12 – 30 (USD 0.27 – 0.67)
Contributions & Claims Basic Life Insurance Plan
USD 35.36 M
USD 6.08 M Total Contributions
Total Claims Paid
2007 to June 2010
50% Equity Value
17% claims ratio
PHP 1.77 billion
PHP 304 million
Key Performance Indicators* December 2009
Indicator Standard Range Average Solvency Ratio > 120% 130-185% 160% Return on Equity > 0 3-53% 28% Return on Net Premium > 0 14-52% 30% Retention Rate > 70% 80-95% 88% Participation Rate > 90% 49-100% 75% Payout Ratio < 25% 2-22% 15% Actual Growth Rate increasing Steadily increasing
*Based on RIMANSI SEGURADO MI-MBA Performance Standards
What have we done so far?
Made insurance accessible to the poor (>1M members & >4M individuals collectively insured)
Capacitated community-based organizations to provide insurance services to their clients (12 MI MBAs licensed)
Empowered poor MFI client to manage their own microinsurance MBAs
Establishment of performance standards for microinsurance
Development of MIS appropriate to microinsurance
Key Lessons
Importance of regular policy dialogue w/ all stakeholders, esp. regulators
Evidence-based advocacy (conduct policy studies, market researches, case studies)
Discuss issues of governance and performance openly and regularly
Support avenues to document best practices and share experiences
Maintain performance standards (for current practitioners) and selection criteria (for potential partners)
Advantages of MBA Approach to Microinsurance
Efficiency – less money spent on administration, marketing & distribution (bec. of synergy w/ microfinance operations, other programs of affiliate MFI/coop)
Relevance – products customized accdg to members’ needs
Empowerment – members own & manage the MBA
Better service quality – claims paid in 1 or 2 days time
Lower claims – reduced adverse selection &moral hazard bec. the poor own the MBA, they know their members & participate in the process
Profits remain w/ members
Requirements for MBA Success
Simple product design – easy to understand, easy to market
High participation rate – compulsory works best
Low administration cost – harnessing community-based channels (MFI, coop, NGO)
Sound technical/actuarial basis
Ready access to technical services (actuarial expertise, investment management, MIS, etc)
Member ownership and governance
Professional management accdg to standards
Adequate reinsurance – depends on size of MBA, products
Enabling policy environment
