Interview: Lorenzo Chan Jr
To what extent has the life insurance industry transitioned to serve the mass market, and how can micro-insurance penetration be boosted?
LORENZO CHAN JR: The life insurance industry has largely focused on investment products and the top-tier corporate market, which represents a tiny, single-digit share of the overall Philippine market. Premiums from unit-linked investment products comprise some 70% of the life insurance industry’s total premium income, and most of this comes from single-pay variants. The growth of unit-linked products is increasingly being generated by bancassurance, typically through joint ventures between a foreign insurance player and a local bank. This type of partnership has allowed foreign insurers to enter the domestic market and aim for a large market share through the extensive branch networks of big banks. Even with this development, a large portion of the population is still not able to afford insurance, and insurance penetration in the country remains a single-digit figure. To increase its reach to 30% of the population, the industry needs to cater to the broad C and D socio-economic classes by developing new distribution models and insurance products such as micro-insurance.
Traditionally, education has been emphasised as a major catalyst for boosting insurance penetration. As a result, some sectors of the industry have engaged in financial literacy efforts that target the upper segments of the market. However, for micro-insurance, which targets the lower segment and provincial markets, one must go beyond education and pursue penetration through partnerships.
One cost-efficient approach is to partner with microfinance institutions, rural banks, cooperatives, pawnshops and retail outlets, allowing an insurance company to make its products readily available through the partner’s network and resources. It is important to launch products that are affordable, easy to understand and simple to claim. Ideally, it should only take five days for a payout to be made following a claim, and given the occurrence of major climatological events over the past few years, some companies in the industry have learned to tweak their claims model to maintain the swift processing and settlement of claims.
How well positioned is the micro-insurance industry to minimise loss ratios, and in what ways can the industry encourage innovation?
CHAN: Companies engaged in micro-insurance should expect to take losses; however, they cannot lose their shirts. There are several reasons for high loss ratios in micro-insurance, including adverse selection, fraud, improper underwriting, inadequate pricing and catastrophic claims attributable to climate change. To address these concerns, a variety of risk controls such as periodic review of product design and pricing, reinsurance support and streamlining of processes should be put in place.
Although the micro-insurance framework created by the Insurance Commission of the Philippines is a positive development, regulators generally seek compliance and the protection of buyers, which leaves it up to the industry to innovate. The government plays an important role in encouraging product innovation by facilitating the approval process of new products and providing incentives for innovation.
Additionally, ASEAN integration is expected to generate greater levels of competition in terms of the products and services offered by insurance companies, with technology being a key element in reaching out to the large unserved sections of the population. Simplifying the process of making claims is key, and in areas like the automotive industry, telematics will become progressively more important, whereby devices installed into vehicles will be able to monitor driver performance. Consequently, the role of end-to-end retail systems is expected to grow as well.
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