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Insurance is financial protection for the ordinary Filipino

Attention to detail. That’s one of the many things, Commissioner Dennis B. Funa, the head of the Insurance Commission, focuses on, especially with the huge amount of paperwork that he has to deal with every day.

Funa told the Philippines Graphic during an interview at his office in Manila recently that he usually reserves Sunday to read the many documents that cross his desk every week.

“That way, I can read them without any interruption,” he said, citing the old adage “the devil is in the details.”

Doing so, he explained, gave him time to find what he described as “potholes” in the insurance sector.

“There are potholes and gray areas in the regulations,” he said. “We have to keep regulations up to date because the industry is evolving. We have to keep in line with international standards.”

GRAPHIC:  The Insurance Commission has to keep pace with world standards. That’s one of the challenges that the Insurance Commission has to deal with.

FUNA: Yes. That’s one of the things that the Insurance Commission has to do because of innovations and new practices in the insurance industry abroad. These have a great influence on how the Philippine insurance industry is regulated.

For example, let’s look at the accounting standards. It’s becoming more complicated. We work to keep our regulations at par with the standards used outside the country.

Last year, we came up with a new financial reporting framework. Before, we only required reports twice a year. Now, we want those reports quarterly. That was done to keep our standards in synch with the rest of the world.

There are many other practices outside the Philippines that are not being used here.  One of them is the so-called the Appointed Actuary. That’s a practice outside the Philippines. This is a practice wherein an insurance company has an in-house actuary. Here in the Philippines, we don’t have that.

Will Insurance companies here have an Appointed Actuary anytime soon?

Well, it’s being suggested by the Actuarial Association of the Philippines. They’ve made a proposal but we haven’t acted on that proposal yet.

What could be the probable effect of adopting the practice of appointed actuaries in the Philippines?

Well, the objective of the practice is to make sure the reserves of US companies are sufficient.

Their job is to determine accurately how much reserve an insurance company has.

The underlying reason for that is to determine a company’s financial stability. The rationale we have is that the more capital you have, the more stable you will be.

As of now, this February, insurance companies must have at least a financial reserve of P500 million and P900 million by 2019

That, in fact, has caused a lot of difficulties for a lot of insurance companies here. Because of that rule, about seven companies have voluntarily surrendered their licenses. They’ve decided to stop.

And we have issued seven cease and desist orders to another seven non-life insurance companies.  That’s already 14 companies that have closed down. Right now, we have around 50 or 51 non-life insurance companies remaining.

For the life insurance companies, two were not able to reach the P550 million requirement.

But please take note that, other than the insurance industry, we’re also regulating the pre-need industry.

On top of that, we are also now regulating the HMO industry.

The pre-need industry is facing difficulties right now in the market. And the HMO industry has become problematic in the sense that it was transferred to us from the Department of Health without any rules and regulations.

What we’re doing right now with the HMOs is that we’re formulating rules on a piecemeal basis. It’s a case of an industry with so many potholes that need to be filled up. We’re filling up the holes one by one. These are part of the challenges that the Insurance Commission have to deal with.

You have a lot of work to do.

We’re facing a tremendous task. But it’s doable. We’re mandated to come up with solutions to problems. As Insurance Commissioner, my main task is to be a problem solver.

Recently, you signed a circular about unsafe and unsound insurance practices.

These unsound business practices are really provided in the Insurance Code. It says in the Insurance Code that unsafe and unsound business practices should be prohibited. But the law stopped there. There were no details and no one has come up with anything to give flesh to that provision. That’s been the situation from the very beginning. No one has ever defined what those are.

So, what we did is an attempt that I signed some weeks ago to define what are unsound and unsafe business practices in the insurance industry. Really, when you provide this rule, this would be for the benefit of insurance companies because they will now know what to avoid and stay away from.

You know, the primary task of the Insurance Commission is to protect the public. These are the loopholes that have been left open and unattended for so many years.

Events over the past several years have been pushing the insurance industry to improve its practices…

Essentially the industry is improving. Before, there were 200 non-life insurance companies. Now, it’s just 50. Those who can’t keep up are gone and regulations for the remaining also have to keep improving.

For me, the key word for the insurance industry is “trust.”

Yes. That’s right. Unfortunately, trust was not really among the primordial ideas many years ago. Now, we’re gradually changing the mindset. Trust should, in fact, be the most important thing in the insurance industry.

In terms of surviving disasters, it’s been said that Insurance is an essential part of disaster resiliency.

For the government, we have a system in place under the GSIS. Unfortunately, we don’t have a system in place for the private sector on a national level. In other words, when a catastrophe strikes, such as fantastic flooding, massive typhoons or earthquakes, many private individuals are on their own because there is no mandatory insurance coverage for residential properties. It’s the choice of the individual whether to get fire insurance or similar insurance for one’s home or not.

But the association of non-life insurance companies have come up with a proposal. And that proposal is now with the Department of Finance. That proposal is to have a national insurance coverage for all private residences. There is no final structure yet for the proposal.

It’s still a work in progress.

Yes. It’s still a work in progress and hopefully we can come up with that one. What we do have is insurance coverage for government properties. That was put in place with the assistance of the World Bank, GSIS and the Department of Finance working together.

Is there something in our society or culture that discourages many Filipinos from getting insurance?

You know, I don’t think it’s a situation peculiar to Filipinos. That’s also the situation outside the Philippines. It’s also a factor of the economy. If our economic development is not yet at a certain stage, our sense for getting insurance is not yet that developed.

There’s also this problem in developed countries. An example is Japan, a country with a well-developed economy which has good insurance coverage. Their problem is under-insurance, meaning a property is not insured for what it is really worth. Say a property is worth a hundred thousand but the owner only insured it for just ten thousand. That means a large part of the property worth ninety thousand is not covered by insurance. That shows that even developed economies are not perfect in terms of insurance coverage. The extent of insurance coverage is really a factor of economic development.

As we develop, we become more aware of the advantages of having insurance. Seven out of ten Filipinos do not have a bank account. You go to the provinces and the barrios, a lot of people there don’t have bank accounts. This means another factor is the financial literacy of the people.

One of the things that the Insurance Commission had pushed before is micro insurance. Fortune Life is one of the many insurance companies that has supported this effort. And according to the data the Insurance Commission released last December, microinsurance rose last year. That’s good news.

However, some of those involved in microinsurance have stated that it is a costly undertaking. What can the IC do to address this situation?

The real problem really is accessibility. Microinsurance is really addressed to meet the need for insurance for those in the barrios. it’s true that the effort made by insurance companies to reach out to these people is really costly. That’s for insurance companies. That’s why those who have the edge when it comes to micro insurance are the mutual benefit associations because they are already present in those areas.

But that’s not all. For instance, PLDT is now proposing to promote microinsurance through mobile phones. They’ve come up with a mobile app where the user can buy microinsurance using a cell phone. It involves using an app and buying a load at a sari-sari store to pay for it.

We’re also coming up with other channels to make microinsurance available to the people, especially for low income families.

At first. I said that they’re assuming that the potential customer in the barrio has a smart phone. But they explained that the cost of smart phones has been going down. And I’ve noticed that more people in rural areas do use smart phones now. So, it’s really a matter of making micro insurance more accessible.

That’s a good innovation. But I can’t help but think that this has to be a very secure app because of all the hackers and scammers out there.

Well, that’s a technical issue that I am sure they will be addressing.

Is there anything else you think the public should know about the Insurance Commission and what it is doing right now?

Well, we’ve always been striving to make the people know that the Insurance Commission is here to protect their rights. At the same time, we want them to avail themselves of all the insurance products that are available in the market. Because insurance, really, not only promotes the security of the policy-holder, but also the economy. The money the people pay the insurance company are invested in government bonds. And these government bonds are used to finance the efforts of the government. So, it’s really a symbiotic process where everyone benefits. But at the end of the day, the bottom line is that insurance is security for the ordinary Filipino. Without insurance, at the end of the day, if something bad happens, then you’ll have no protection. Insurance is financial protection for the ordinary Filipino. G

 

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