AN OVERVIEW OF MICROINSURANCE

WHAT IS MICROINSURANCE?

Under Section 187 of Republic Act No. 10607, Microinsurance is defined 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 seven and a half percent (7.5%) of the current daily
minimum wage rate for nonagricultural workers in Metro Manila; and

(b) The maximum sum of guaranteed benefits is not more than one thousand
(1,000) times of the current daily minimum wage rate for nonagricultural
workers in Metro Manila.”

However, it must be emphasized that microinsurance is an insurance

product. Just like any insurance product, it is a contract and hence, a legal
document.

MANDATORY FEATURES OF A MICROINSURANCE PRODUCT

1. The amount of contributions, premiums, fees or charges, computed on a daily

basis, does not exceed seven and a half percent (7.5%) of the current daily
minimum wage rate for non-agricultural workers in Metro Manila; and

2. The maximum sum of guaranteed benefits is not more than one thousand
(1,000) times of the current daily minimum wage rate for non-agricultural
workers in Metro Manila.

3. All microinsurance contracts shall clearly state the benefits and terms of
coverage. In this regard, all microinsurance providers shall ensure the
following:

a. The contract provisions can be easily understood by the insured and

printed in English and/or Filipino; and
b. The documentation requirements are simple and the manner and
frequency of collection of premiums, contributions, fees and charges
coincide with the cash flows of the insured and are not onerous.

Other Features:

Features applicable to life and non-life Features applicable to life

microinsurance policies microinsurance policies
only
Coverage – A microinsurance contract shall Grace Period –
cover the insured, and at his/her option may During the
include his/her immediate family (i.e. his/her effectivity of the
spouse, children, and in the case of single contract, the
persons, his/her parents and siblings); and insured is entitled
his/her assets. to a maximum
grace period of 45
calendar days from
due date of
premium/contributio
n payment.
Period of Cover – The term of the Contestability –
microinsurance contract shall be determined by The contestability
the provider and shall depend on type of period for a
coverage. microinsurance
contract shall be
one (1) year.
Risk and Contingent Events Covered - A Suicide Clause –
microinsurance policy may cover any of the The provider shall
following: be liable if the
 Death (may be bundled with memorial insurance commits
plan, mortuary or burial benefits); suicide after one (1)
 Accident and illness; year from the
 Fire and other extended perils; effective date or
 Calamities/disasters/ date of last
catastrophic events (e.g. reinstatement of the
typhoon, earthquake, contract. Suicide
infestation, volcanic eruption, committed in the
flooding and other convulsions state of insanity will
of nature); be compensable
 Casualty (e.g. personal regardless of the
accident, motor vehicle, and date of
money security and payroll commission.
robbery); and Where suicide is
 Other contingent events as not compensable,
may be determined by the the liability of the
concerned regulator. provided will be
limited to the return
of premiums.

Terms and Conditions – A microinsurance

contract shall clearly state the face amount,
benefits and terms of insurance coverage.
Contract provisions shall be clearly stated in
simple terms. The manner and frequency of
premium collections shall, if possible, coincide
with the cash flow of the insured and may be
collected daily, weekly, monthly, quarterly,
semi-annually, and annually, whichever is
applicable.
Effectivity – A microinsurance contract
becomes immediately effective only upon full
payment of the first premium, contribution, fees
or charges.
Claims Settlement – Claims for a
microinsurance contract must be settled within
ten (10) working days upon receipt of complete
documents by the provided.
Dispute Resolution – Disputes related to
microinsurance contract shall be settled initially
through alternative dispute resolution
mechanisms.
In the case of non-life microinsurance policies,
the provider shall send notices to the
microinsurance clients at least forty-five (45)
calendar days prior to expiration of the contract.
Such notice shall include in clear terms whether
the contract may or may not be renewed and
any changes to be made thereon, if renewed.

In addition, all microinsurance policies should

contain the microinsurance logo

The table below shows the distinction between a regular insurance and a
microinsurance products:

Common Regular
Microinsurance Products
Provisions Insurance
Insurance Plans Products
7.5% of the current daily
Maximum Premium No Limitation minimum wage rate in
Metro Manila (per day)

1,000 times the daily

Maximum Benefits No Limitation
minimum wage rate in
Metro Manila

Policy Contract Full of complex Simple and easy to

conditions understand

Frequency of Monthly, Quarterly, Semi- Daily, Weekly, Monthly,

Premium Annual, Annual Quarterly, Semi-Annual, Annual
Collection

Grace Period 30 days/One month from

45 days from premium due
premium due date
date
 Two (2) years from
One (1) year from date of
date of issue or last
Suicide Clause issue or last reinstatement of
reinstatement of the
the policy
policy

Generally, 30 - 90 days Ten (10) working days after

Claims Settlement after submission of submission of complete
complete documents documents

Max of two (2) years

Maximum of one (1) year from
from date of issue or
Contestability Period date of issue or last
last reinstatement of
reinstatement of the policy
the policy

MICROINSURANCE PROVIDERS
Listed below are the types of entities that must have a Certificate of Authority
or License by the Insurance Commission to engage in insurance business pursuant
to the Section 193 of Republic Act No. 10607:

a) Life Insurance Companies – engages in the life insurance business and

issues life insurance products.

b) Non-Life Insurance Companies – engages in non-life insurance

business and issues non-life insurance products.

c) Mutual Benefit Associations (MBAs) – Any society, association or

corporation, without capital stock, formed or organized not for profit but
mainly for the purpose of paying sick benefits to members, or of
furnishing financial support to members while out of employment, or of
paying to relatives of deceased members of fixed or any sum of money,
irrespective of whether such aim or purpose is carried out by means of
fixed dues or assessments collected regularly from the members, or of
providing, by the issuance of certificates of insurance, payment of its
members of accident or life insurance benefits out of such fixed and
regular dues or assessments.

d) Cooperative Insurance Societies – autonomous and duly registered

associations of persons who may organize themselves into a cooperative
insurance entity for the purpose of engaging in the business of insuring
life and property of cooperatives and their members.

Notes:

 Even though the foregoing companies were granted by the Insurance

Commission a Certificate of Authority or License to engage in
insurance business, they are not automatically allowed to sell any
insurance products, all of the insurance products must be approved
first by the Insurance Commission before they can be sold to the
public.
 Legal consequences for any unlicensed or unauthorized transaction of
insurance business range from the imposition of an administrative
 sanction or fine to imprisonment for violating Republic Act No. 10607
and any other applicable provisions of Act No. 3815, as amended, or
the Revised Penal Code.
 In 2010, the Insurance Commission, Cooperative Development
Authority and Securities Exchange Commission issued Joint
Memorandum Circular No. 01-2010 that mandated that all informal
insurance activities to be terminated. Said Joint Memorandum
Circular further gave any informal insurance providers the following
options:

 Establish an insurance entity duly licensed by the Insurance

Commission;
 Partner with a licensed commercial insurance companies
that will provide insurance coverage to its members; or
 Join a Cooperative Insurance Society (CIS) or Mi-MBA.

M ICROINSURANCE S ALES AND

D ISTRIBUTION
Circular Letter No. 2015-54 on the Adoption and Implementation of Enhanced
Microinsurance Framework issued by the Insurance Commission on 16 October
2015 specified the roles, functions, responsibilities, and limitations of
microinsurance agents, general agents, and brokers.
I. A microinsurance regular agent is an individual or an entity duly licensed by
the Insurance Commission as life and/or non-life microinsurance agent,
representing the interests of the microinsurance providers:
a) Solicit/sell individual or group microinsurance products carried by its
provider-partners;
b) Perform document processing functions on behalf of its microinsurance
provider-partners; and
c) Assist claimants in the preparation of microinsurance
claims documentation requirements.15

II. A microinsurance general agent is defined as an entity duly licensed by the

Insurance Commission representing the interests of microinsurance providers.
Microinsurance general agents may represent and partner with several life or
non-life entities providing microinsurance products and services. In addition to
the functions of microinsurance regular agents, a microinsurance general
agent, upon authority granted by the microinsurance provider, may perform
any or all of the following:
a) Assist the insurance provider-partner in designing microinsurance
products;
b) Develop, formulate, design or analyze business plans for
microinsurance providers;
c) Perform outsourcing functions such as collections, training of
microinsurance individual agents, database management, on behalf of
its microinsurance provider partners;
d) Advance the claims payment to clients;
e) Receive complaints, summons, notices and other legal processes for
 and in behalf of the insurance companies in connection with actions
or legal proceedings against such companies.

III. A microinsurance broker represents the interests of its clients.

Microinsurance brokers may partner with several life and non-life insurance
entities and in addition to the applicable functions, microinsurance brokers
shall determine the microinsurance needs of existing or potential clients and
may perform any or all of the following:
a. Design products;
b. Apply directly with the Insurance Commission for the registration of a
developed microinsurance product and acceptance of a provider of
such microinsurance product, provided however that sale/solicitation of
the registered product shall be done only upon approval of the
Insurance Commission;
c. Identify and negotiate with insurance providers for the underwriting of
the developed products.

In sum, the table below shows basic similarities and differences between the
microinsurance regular agents, general agents and brokers.

Process/Activities/
Regular Agent General Agent Broker
Services
Representation Insurance entity Insurance Clients
entities
Life: one company
Number of insurance
Non-life: up to No limits No limits
partners
seven companies
In collaboration
May design products No Yes
with the insurer
Business
No Yes Yes
plan
development
Evaluation of risk No No Yes

Document
Administration Yes Yes
processing
only
Selling Yes Yes Yes

• Documentatio • Documentatio
n and n and
Claims Documentation only evaluation evaluation
• Payments if • Payments if
authorized by authorized by
the insurance the insurance
company company
Use of distribution
No Yes Yes
channels
 Additional notes:
 Institutions engaged in microfinance activities can apply then be licensed as
microinsurance agents/brokers, however, the license shall only cover the
solicitation of microinsurance products.
 Primary cooperatives may apply and be licensed as microinsurance
agents/brokers provided the cooperative agent or broker only sells
microinsurance products to its individual members.
 The circular permits the utilization of innovative channels for distributing
microinsurance products once registered. The partner agent/broker will need
to closely supervise them, delegate only distribution tasks (except selling/
solicitation), and assume full responsibility for any misconduct that the
channels may commit.

O THER M ICRO R ISK P ROTECTION

P RODUCTS

I. AGRICULTURE MICROINSURANCE REGULATORY

FRAMEWORK
- envisioned to promote and encourage the provision of agriculture
microinsurance products and services that are simple, affordable and
accessible to the vast of the population dependent on agriculture.

II. HEALTH MICROINSURANCE REGULATORY FRAMEWORK

- aims to augment the Government's Universal Health Care program

through a viable and sustainable private sector microinsurance industry
to provide every Filipino with greater coverage and wider access to
simple, affordable, appropriate and effective MicroHealth products and
services in order to address the health needs of the general
population, particularly the low-income and the informal sectors.

III. MICRO PRE‐NEED REGULATORY FRAMEWORK

- aims to provide affordable pre- need products for education, life or

memorial services, and pensions

Common Provisions Agri-Microinsurance Health Microinsurance Micro Pre‐need Products

Products Products
Maximum Premium 7.5% of the current daily 7.5% of the current daily 7.5% of the current daily
minimum wage rate of minimum wage rate of a minimum wage rate for
non- agricultural worker in non- agricultural worker in non-agricultural workers in
Metro Manila, computed Metro Manila, computed Metro Manila, computed
on a daily basis on a daily on a daily basis
 basis
Maximum Benefits 1,000 times the daily 1,000 times the daily 1,000 times the daily
minimum wage rate of a minimum wage rate of a minimum wage rate for
non- agricultural worker in non- agricultural worker in non- agricultural workers in
Metro Manila Metro Manila Metro Manila
Policy Contract Simple and easy to Simple and easy to Simple and easy to
understand. May be understand. May be understand. May be
printed in English or printed in English or printed in English or
Filipino Filipino Filipino
Frequency of Premium Flexible, cash flow based Flexible, cash flow based Flexible, cash flow based
Collection premium payments (Daily, premium payments (Daily, premium payments
Weekly, Monthly, Weekly, Monthly, (Weekly, Monthly,
Quarterly, Semi-Annual, Quarterly, Semi-Annual, Quarterly, Semi-Annual,
Annual) Annual) Annual)
Claims Settlement Ten (10) days after Ten (10) days after Ten (10) days after
submission of complete submission of complete submission of complete
documents. 20 days, in documents. documents.
cases of natural Memorial Services -
catastrophes and processed and provided
disasters, upon within
submission of complete (24) hours from receipt
documents. notice of death.
Contestability Period Maximum of one (1) year Maximum of one (1) year Maximum of one (1) year
from date of issue or last from date of issue or last from date of issue or last
reinstatement of the policy reinstatement of the policy reinstatement of the policy
Target Market Low income and informal Low income and informal Low income and informal
sector sector sector
Providers Life lnsurance Companies Life lnsurance Companies Sold through pre-need
Non-life lnsurance Non-life lnsurance companies providers,
Companies Companies sales counselors, pre-need
Cooperative lnsurance Cooperative lnsurance general agents and pre-
Societies Mutual Benefit Societies Mutual Benefit need brokers licensed by
Associations Associations the Insurance Commission
Health Maintenance
Organizations (HMOs)

C ONSUMER P ROTECTION
One of the Insurance Commission’s priorities is to ensure that the interest and
welfare of the insuring public are protected. For microinsurance clients, the following
mechanisms are in place:

I. POSTING OF THE BILL OF RIGHTS

The Bill of Rights is issued to promote the protection of the rights of

policyholders as may be found in various insurance laws, rules and regulations. It
also seeks to safeguard all other contractual rights which are provided for under the
insurance policy.

II. FAST CLAIMS SETTLEMENT

All entities providing microinsurance products shall process and settle claims
within ten (10) working days from receipt of complete required documents from a
 claimant.

For Memorial Services for Micro Pre-need Products, the services must be
provided 24 hours from receipt of notice of death; while for Micro Agri products, in
cases of catastrophic events, the claims will be payable 20 working days upon
submission of complete documents/requirements.

III. ALTERNATIVE DISPUTE RESOLUTION (ADR) MECHANISM

The process shall adopt the following ADR mechanisms:

(i) Mediation - a trained third party facilitates a negotiation for the purpose of
reaching a voluntary agreement concluded by the parties themselves. The mediator
refrains from dispensing advice or suggestions, and aims to guide the discussion
towards resolution by safeguarding the structure of the process and observance of
the ground rules agreed upon.
(ii) Conciliation - While conciliation is similar to mediation, it is distinguished by
the fact that a conciliator actively offers opinions and suggestions.

Below is a summary of the key features of the mediation and conciliation processes:

FEATURES MEDIATION CONCILIATION

Less structured, following the
course of the particular
Process Structured, with specific stages negotiation
The parties/disputants The parties/disputants
Decision maker themselves themselves

Needs and interests of all parties, Most favorable reconciliation

Basis of decision rather than demands or positions of positions
Direct and full participation in With the guidance and
representing their respective suggestions of the conciliator,
interests; deciding on issues; and direct and full participation in
Involvement of the creating, evaluating and agreeing on options and
parties agreeing on options and solutions
solutions
Usually an authority figure
Independent and impartial responsible for seeking a
process facilitator who does not solution to the dispute, who
Role of third party give opinions, suggestions nor may give opinions and
facilitator judgments on disputes advice,
but not impose a judgment
Types of possible “Win-win” situation; mutual Best compromise solution
outcomes acceptance acceptable to the parties

ADR Processes for the Microinsurance Sector

The ADR framework for the microinsurance sector was designed to protect both consumers and
providers by providing them with venues to resolve disputes in a convenient and expeditious non-
adversarial manner.

It must be noted that cooperatives have existing Mediation-Conciliation Committees that can cater to
disputes affecting their members. Therefore, microinsurance disputes involving cooperatives will be
referred to the existing primary and secondary level mechanism.