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Friday, March 29, 2024

Revisiting the industrial life insurance concept

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The world life insurance industry has long known that the Philippines has one of the lowest life insurance coverage rates in this part of the world. I have not seen the latest Philippine Life Insurance Association (PLIA) figure, but I am prepared to guess that only around 30 percent of Filipinos are covered by life insurance.

Sensing the high potential for profitable Philippine operations, an increasing number of major foreign life insurance companies have over the years established a presence in this country. Some, like Canada’s Manufacturers Life Insurance Co. (Manulife) and the UK’s Prudential Life Insurance Co. (Prulife), have been operating independently, but others, like Sun Life Assurance Co. of Canada, Allianz of Germany and AXA of France, have partnered with leading Philippine life insurance companies. As the potential of the Philippine life insurance market gets to be better appreciated abroad, this trend is bound to intensify.

With a population moving past the 100-million mark, this country is a big market. But from the standpoint of life insurance industry, that is not the number that counts. What matters is the number of Filipinos capable of maintaining life insurance policies until the end of their terms. As indicated above, that number is, and for a time has been around 30 percent of this country’s population.

Although lack of knowledge about the role and value of life insurance has undoubtedly been a factor, the biggest impediment to the rapid growth of the Philippine life insurance market has been the financial incapacity of most potential life insurance buyers. It is true that the income ratio has been rising over the years – thanks almost entirely to the expansion of the OFW (overseas Filipino worker) and BPO (business process outsourcing) communities – but most of the incremental incomes have gone toward the purchase of real estate, dwellings and consumer durables. Unfortunately, acquisition of life insurance has been getting a small slice of the incremental-income pie.

This is a great pity, not only because life insurance protection is a necessity for every person but also because – and from the standpoint of economic development it is highly significant that – the life insurance industry has always been one of the biggest sources of investment capital in most countries. In this regard life insurance companies are as important as the commercial and merchant banks in the developed countries. In those countries life insurance companies are prime movers of economic development.

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There is a need to bridge the long-standing gap between the financial incapacity of most Filipinos and their need for life insurance coverage. The right approach to the bridging of the gap looks at the affordability of premiums. Affordability, in turn, involves looking at premium structures and the magnitudes of the periodic premium payments.

Premium rates are based on actuaries’ estimates of the life expectancies of Filipinos at this point in the 21st century. The life insurance companies – including the foreign companies operating in this country – are well advised to review their premium structures to see if reductions in premium rates can prudently be made to accommodate the current income levels of lower-income Filipinos.

But even with lowered premium rates, lower-income Filipinos would continue to have difficulty making premium payments in a consistent and timely manner if the payments are of large magnitudes. In this connection, it is worthy of note that several decades ago an insurance group – I think it was the Insular Life Insurance Co. – FGU group – introduced the concept of industrial life insurance in the Philippines. The concept was directed at life insurance buyers with no capacity to make lumpy premium payments and involved payment of premiums on a daily or weekly basis. Thus, for example, an annual premium of P1,000 was paid at the rate of around P3 per day. Clearly the premium-payment burden was rendered much lighter. In the context of a market like the Philippines the concept made much marketing sense; unfortunately the insurance group that placed industrial life insurance on the market appears to have underestimated the cost of administering the project, i.e., the cost of collecting small premium from thousands of policyholders on a daily or weekly basis. Accordingly, the project failed.

Still, making it possible for lower-income Filipinos to pay for life insurance on a pay-as-you-go basis makes good marketing sense, and if the wide gap between the insured and the uninsured in this country is to be closed anytime soon, the industrial life insurance concept, properly guided by experience, deserves a revisit.

E-mail: romero.business.class@gmail.com

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