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Jun 2024

Philippines: High capital demands deter non-life players from microinsurance

Source: Asia Insurance Review | Mar 2018

ASEAN Philippines Microinsurance Financial Performance

Nonlife insurance players are deterred from tapping opportunities in the microinsurance space for a number of reasons, chief among them the high minimum capital requirement, the Philippine Insurers and Reinsurers Association (PIRA) has said.
   PIRA trustee Michael F Rellosa said: “PIRA members at present are going through difficult times. The main reason for this is the high capitalisation they need to comply with, among others.” 
   He was referring to the insurance law which requires new insurance firms to have PHP1 billion (US$19.2 million) in paid-up capital, while existing insurers need a minimum net worth of PHP550 million currently, PHP900 million by December 2019 and PHP1.3 billion by December 2022.
   He suggested that an addendum to the National Regulatory Framework for Microinsurance is in order, that would provide for reduced capital requirements proportional to the size of microinsurance business of the insurance companies, reported Business Mirror.
Tax and premium rate need to be reviewed
Nonlife insurers are also taxed at 27.5% while life insurers are charged only 5%. This dampens the incentive to offer microinsurance products, according to Mr Rellosa. He argued nonlife and life insurers should be taxed the same.
In addition, the flat premium rate imposed on microinsurance products should be reviewed.
   “Premiums are regulated by the government [for microinsurance]. Thus, insurance companies cannot charge higher premiums on clients who face higher risks. This is not sustainable,” said Mr Rellosa, who is also President and COO of Fortune General Insurance.
   The Insurance Commission (IC) has acknowledged local insurers have some of the highest capital requirements in ASEAN and would reconsider the minimum requirements.
   According to Microinsurance Acting Division Manager Juan Paolo P Roxas, the IC is optimistic of the growth in microinsurance this year as Filipinos have more disposable income set aside for insurance due to the recent passage of the Tax Reform for Acceleration and Inclusion (TRAIN) Act.
   “We are optimistic that [the growth in microinsurance] will be stable [this year]. There is a possibility that the purchasing power of the public could increase because of TRAIN. It’s just a manner of informing the public on how to use their money,” Mr Roxas told Business Mirror. A 
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