2019 Regulatory Review – Insurance
Based on initial survey results of industry stakeholders, these are the regulatory impact and challenges in Micro Insurance Development:
Diversity of business models of the country shows a wide range of distribution channels and intermediaries – distribution not only dependent on traditional channels but also innovative channels such as pawnshops, mobile and web platforms. Currently, a Technical Working Group (TWG) was organized, whose task, among others, is to develop a framework on Distribution Channels – this will stem exploration of possibilities that will enable microinsurance products to be virtually and practically close to those who need them.
Magnitude of Formalization. Since the beginning of Microinsurance and with the advent of Joint Memorandum on Formalization in 2010, the following were noted as improvements: 22 MI-MBAs are licensed by the IC (some of them used to offer informal insurance scheme) and from zero formal rural bank agents to 48 licensed as agents (with 26 active in MI selling).
Existence of Supporting Services and Platforms. Another excellent indicator of institutional development is the existence of supporting services and platforms: One service provider (RIMANSI) helped to organize 17 MI-MBAs, different TWGs for different purposes are in existence.
Insurance Commission’s Capacity Development. The IC’s capacity development on Microinsurance has been continuing through a variety of means and approaches: seminars/trainings, MI Technical Committee, on-the- job training, MI exposure in TWGs and participation in advocacy work. Additionally, a dedicated Microinsurance Division was established in June 2015 to be the focal group in-charge of any Microinsurance-related concerns. The division is directly under the Commissioner of the IC.
The involvement of different agencies is a critical component for an effective framework implementation. Beside the participation of DOH and the Department of Agriculture (DA) in the implementation of newly issued frameworks, there are agencies that have been in participation from the beginning, examples are Central Bank of the Philippines/BSP, CDA and DOF-NCC. They collaborated with the IC on the monitoring of regulated entities such as rural banks, cooperatives and pawnshops.
Client value, which is measured through the loss ratios, show that claims paid over premium collected was rated ‘good progress’ by RIA report. Year 2014 is considered bad year after typhoon Haiyan happened and claims have shoot up.
Source: https://microinsurancenetwork.org/groups/philippine-approach-inclusive-insurance-market-development. Portula, Dante, et.al., “Case Study: The Philippine Approach to Inclusive Insurance Market Development,” jointly developed by the Insurance Commission and the GIZ RFPU Asia Program, March 2016.
Based on the Insurance Industry Dialogues held last September 23, 2019, these are the regulatory impact and challenges identified by the stakeholders:
- Enforcing contracts
- Contract approval or disapproval
– New Policy takes time to be issued.
– (Non-Life Insurance (NLI) Agents) One policy clause or wording may mean different versions. The problem is they assume that it is a size fits all kind of thing, for example you own a condo on the 10th floor and they will give you flood insurance.
– Life Insurance (LI) Agents are not allowed to represent multiple insurance companies unlike for NLI Agents they can offer products from different insurance companies. If the LI agent makes a deviation from the policy the agent will be terminated.
- Understanding of products by courts and regulators
– Courts are not familiar with the products of insurance.
– There was a court ruling that once the insured die the company should cover it and that disregards the 2 year contestability period, this only demonstrates that some courts are not familiar with the industry products.
– AMLA regulations, the way they word the specifics, it is more like for the banks, insurance are different from the banks.
– Familiarizing to the insurance industry specifics should be the responsibilities of the regulators and courts with help of IC.
– There is a tendency that rules and regulations are being patterned from the banking industry without really looking at it if it will applicable to the insurance industry or not. IC to BSP
– (LI) Agents can’t be employee of the insurance company.
– New employees of IC are not from the industry, most of the old timers retired.
– FS of Insurance are different from the banks.
– The industry regulators don’t have the same appreciation of rules and regulations, they don’t share notes with each other. Silo mentality when regulating.
– That is the problem with the insurance industry, we have to go to the court just to prove a point. (PLIA vs. CIC)
– CIC invited us for a seminar for the insurance to present their framework and presented the forms that we need to fill out but none of them are applicable to the non-life insurance industry.
- Audit process (inconsistency); too many reports
– Too many reports, being audited with so many reports, reports are deliverables of the contract. Very subjective on interpreting the code.
– During the examination of the books, ; different examiners have different subject; no uniform auditing process and standardization of the reports
– We had products that were approved last year but now after the audit they are saying that we cannot offer it anymore, this may be because that most of the IC staff/auditors are not from the industry and new. (also same with disallowing some assets)
– There is no standard in auditing and requirements, and interpretation of the code.
– IC does not even know what to do with their requirements. IC requires submission of financial statements but apparently, IC doesn’t have financial standards.
- Accreditation by LGUs/Govt. agencies
– IC is a licensing authority for the industry but the LGUs are coming up their insurance accreditation, Compulsory General Liability (CGL) when businesses are applying for business permit. And some city governments have their own accredited insurance companies which is kind of anomalous.
– Duplication on securing business permit. Insurance agency was asked to secure another business permit when creating an office in another jurisdiction.
– Dealing with unauthorized reinsurers; currently are not being regulated by the IC.
- Dealing with unauthorized reinsurers
– Currently not regulated by the IC.
– Currently foreign reinsurers are just required to have a resident agent. If it is a foreign broker, the reinsurer doesn’t have to submit anything. Foreign brokers are not regulated by IC, they are only asked to have a mail box.
- High regulatory fees and charges
– The fees and charges are too high that it seems like an income generating for IC. IC doesn’t have fund coming from the government.
– Excessive demand of the (IC) examiners for out of town exams.
– Duplicative fees imposed by IC. Every error on the financial has a charge, 500 pesos.
– NON-life – VAT only; life insurance – premium tax;
– Outsourcing of activities will be approved by IC.
– Approval for a new life insurance product is too long with a minimum 4 months
- Insurance vs. Pre-need/Insurance vs. HMO
– Can’t provide reinsurance to HMO and pre need because they are not insurance, different regime.
– HMO mahal kasi walang standard areas to check for what you can charge.
- Contract approval or disapproval
- Labor market regulations
- No PRC Regulation Life Insurance Agents
- How to Broker represents the insured while the agent represents the company/ broker represents the insured.
- Starting a business
- Brokers – 150 mil requirement from IC, no risk for them but bakit ang laki?
- Non-life, branch outside manila, IC requires an underwriter in each branch when all of the decision making is in the head office (manila). Mostly, just printing of policies or proposals.
- License stays with your company, so when you transfer to another company you have to get another license.
- 70k to renew license for a general agency
- Getting credit
- Because the income is not fixed, banks decline the agents when applying credits.
- Paying taxes
- Agents are required to have BIR requirements (O.R, journal entry, ledger, books of account); they are viewed as a business.
- VAT – life agents are charged with VAT when they earn above 3M.
- VAT is carried by the agents and can’t pass on the client.
- Final tax to foreign reinsurer (agent)
- Reporting to various disallowance
- Trading across borders
- ASEAN integration – Sign lang ng sign sa mga agreements without thinking what would be the impact.
- Talk with Korea-Philippines (IC) – Korea already know what they want from us but the PH don’t know what we know.
- Protecting minority investor – insular – mutual company
- Protecting the local industry, because of the new capital requirements a lot of small companies who are actually dealing with motor vehicles were being imposed with the same requirements as a company that writes billions of policies.
- In the ASEAN, marami ang local insurance na nawala at ang natira malalaking foreign companies now they are undoing it.
- Lalabas lang lahat ng premium, walang tax, walang jobs (created), sayang lang, this just limits the clients to few choices.
- Regulations should not be blind to local interest. With the new capital requirement, it is just catering to multi-national companies.
- Resolving Insolvency
- Capital can’t be invested, inefficient use of capital.
- Margin of Solvency (MOS) or RBC, should be harmonized
- DOF and IC don’t talk to each other regarding this (harmonization of capital requirements.
- IC has monthly dialogue with the stakeholder (monthly), but recently the commissioner has been absent.
- If there are new policies of regulations, IC would allow the industry to give comment.
- TRAIN Law Train law – ASEAN integration was not considered here., it’s an improvement but it is going to be a problem for the industry.
- Data Privacy issue – worried because it includes incarceration not just monetary fine. Because in the industry, we are really sharing information (reinsurance and claims).
- Accreditation as surety (judicial bonds) – clearance not just from the supreme court but in all the courts in the country. The insurance company is already accredited by the IC so why other government agencies (DPWH, SC, etc.) needs to accredit them?
- IFRS 17 – implementation, IC deferred it to 2023, transform the financials to transform to IFRS 17. All in all we will be doing 3 books, BIR, IC, SEC. why did SEC come in to an agreement with IFRS? What is the gain for local companies? (IFRS will make your financials/company more transparent for would be investors but most of the insurance companies here are not listed, so maybe only those who will go public should adopt IFRS
- 10M each company to get familiarized with IFRS
- Current financial reports can be reduced because they are asking for too detailed information.
- Harmonizing reports to the main audited FS with the other FS being asked by BIR, SEC and SEC. May charge kapag may error as well as to the delay of submission.
- Why do you have to attach doc stamps? Minsan yung policy is just 50 pesos but you still need to attach doc stamps. They need to rationalize their requirements.
- Di nag-uusap ang divisions of the same agency (IC) and the one’s suffering are the regulated entities because of the charges fined to them because of missed not shared data/report from one division to another; no sharing of information among the office in the agency and maybe online submission of reports will help resolve this issue.
- Maybe online submission of reports would help resolve this issue. no sharing of information.