IT the beginning of this century, the Medium-Term Philippine Development Plan (MTPDP) had recognized the need to provide risk protection to the poor. This document stressed that “protecting the poor and the vulnerable groups is imperative in winning the battle against poverty.” It likewise called for the involvement of the private sector in the provision of services and other assistance to our impoverished population through innovative and sustainable models that will be affordable to them.
Thus, between 2005 and 2006, the seed of microinsurance was planted to complement microfinance and microentrepreneurship. The former provides lessons on how to start microbusiness while the latter focuses on how to access funds or capital to start up the business. The trinity is completed with microinsurance securing the business and covering the losses when contingencies occur.
Under the new Insurance Code of 2013 (RA 10607), Microinsurance was incorporated and defined in the law. Section 187 thereof defines Microinsurance as “a financial product or service that meets the risk protection needs of the poor where: (a) the amount of contributions, premiums, fees or charges, computed on a daily basis, does not exceed 7.5 percent of the current daily minimum wage rate for non-agricultural workers in Metro Manila; and (b) the maximum sum of guaranteed benefits is not more than 1,000 times of the current minimum wage rate for non-agricultural workers in Metro Manila.” Microinsurance is our poor people’s shield against the various risks that confront them in their daily living. Losses arising from death, accident, sickness, injury and disasters can wreck the family’s finances. Unforeseen expenses can cause serious economic dislocation to a family that can hardly afford food, clothing, medicine and shelter to its members. The premium required to purchase or maintain a Microinsurance cover is not much but it is significant to an ordinary minimum wage earner. Our poor can hardly afford the cost of social security programs provided by both the government and the private sectors. Likewise, our government lacks the resources to extend to its citizens a sustained social security provisions free of charge. Our hapless victims of calamities and the low-salaried workers cannot rely solely on dole-outs from the government and food rations from community pantries for survival. The cash “ayuda” the government gives to the destitute and the unemployed who suffer most during inflation or the hapless victims of disasters who barely earn a living is hardly sufficient to give them sustenance for a week. Microinsurance can provide them bigger benefit and longer protection and, most importantly, it does not promote a mendicant policy which destroys a man’s self esteem and dignity.
Microinsurance is taxed at the rate of 25 percent to 27.5 percent of the premium paid, if the microinsurance policy is sold by a non-life insurer. The tax is broken down into: 12.5 percent DST, 12 percent EVAT, and 0.5 percent local government tax. The cost would be significantly lower and more affordable to the insured if no tax is imposed. A considerable portion of the premium amount goes to tax instead of getting a Microinsurance policy with more comprehensive coverage and benefits. Removing the taxes will make the product more attractive. The exemption should likewise apply to Microinsurance sold by life insurance companies although they are subject to lower rates of premium tax and DST. However, Microinsurance policies sold by the Mutual Benefit Associations (MBAs) and purely cooperative insurance companies or associations are not subject to tax. The taxes imposed on non-life companies are onerous and discriminatory. They don’t create an even-playing field among Microinsurance players which have a common noble objective of extending financial security and risk protection to the needy and the underserved.
Thus, it’s not surprising that the volume of Microinsurance both in number of persons covered and premiums written by non-life insurance companies are much lower compared to the Microinsurance production of the MBAs and the life companies. Based on 2020 Microinsurance statistics, the latest official figures available from the Insurance Commission, the total number of persons covered by MBAs and the life companies are 27,996,091 and 15,752,5167, respectively. Non-life companies, on the other hand, have only covered 6,240,110 persons. Notably, the numbers for both the MBAs and the life have steadily increased over the years while that of the non-life has decreased by 28.88 percent in 2020 (6,240,110) compared to 2019 (8,774,453). The same trends apply in Net Premiums written. In 2020, MBAs posted P4.475 billion and life hit P2.6312 billion in net premiums. Non-life earned P916 million, which was lower than its 2019 net premium production of P1.2 billion. Even if we add up the Microinsurance production of life companies, the total taxable amount is not significant and would hardly make a dent in our revenue collection. The amount of tax to be forgone from Microinsurance would not be considerable but it would go a long way in promoting Microinsurance. It would save the government billions of pesos in providing aid to calamity victims who have become too dependent on welfare.
Non-life, aside from the traditional casualty and liability insurance and accident, can do Health Microinsurance and Agricultural Microinsurance. Health and agriculture are two of the most urgent priorities that confront our country at present. The lessons of the pandemic have made every Filipino conscious of their health and the looming food insecurity has made agriculture a major concern. Undeniably, these are two critical areas where Microinsurance can play a major role. Small farmers can be protected by parametric-based or index-based insurance, which non-life microinsurers can provide. Health Microinsurance products can also be provided by MBAs, cooperatives insurance societies and HMOs, aside from the life and non-life companies.
It is our common dream to achieve an inclusive and sustainable program to protect our low-income population. Microinsurance is a mechanism to secure the lives, property and livelihood of the poor—an effective measure to reduce poverty. Unless we make Microinsurance affordable to our masses, such a dream remains elusive and illusory. Recently, we have launched an initiative to abolish taxes on Microinsurance to make it inexpensive. We have written to Congress to enact the necessary legislation to make Microinsurance within the reach of our people with meager income. It is not too much to ask our legislators to remove the taxes on Microinsurance if their hearts truly beat for the poor.