Congress urged to enact law making microinsurance tax exempt

Friday, 20 May 2011 05:14

Microinsurance companies are urging the House of Representatives to enact a law that will exempt microinsurance from taxes to bring down its cost and directly benefit Filipinos.

The microinsurance companies made the appeal during a recent symposium on the present concept of microinsurance and its current state in the country. The symposium was sponsored by the Department of Finance-National Credit Council (DOF-NCC) together with the Insurance Commission (IC).

According to Jhun Benedicto, Chairman of Philippine Insurers and Reinsurers Association (PIRA), the umbrella organization of all non-life insurance companies in the Philippines, removing the taxes will bring down the cost of microinsurance by about 25 percent.

"The tax exemption will directly benefit our fellow Filipinos. As of now, the taxes on non-life insurance policies include the 12.5 percent documentary stamp, 12 percent EVAT, 0.5 percent local government tax, 2 percent fire service tax (for fire policies)," said Benedicto.

Benedicto said the tax exemption will also be the government's contribution to the overall effort to ensure that the poor are given access to financial services in general, and insurance in particular.

Benedicto, also the president of Republic Surety and Insurance Company Inc., said PIRA is committed to continue getting involved in the Financial Literacy on Microinsurance campaign as it recognizes the organization's role in "taking the lead in directly providing microinsurance products and services to the low-income sector."

As defined, microinsurance is an activity of providing specific insurance, insurance-like and other similar products and services that meet the needs of the low-income sector for risk protection and relief against distress, misfortune and other contingent events.

This shall include all forms of insurance, as may be defined by concerned regulatory bodies, with the following features: premiums and contributions, fees or charges are collected or deducted prior to the occurrence of a contingent event; and guaranteed benefits are provided upon occurrence of a contingent event.

Joselito Almario, Deputy Executive Director of the DOF-NCC, explained that a microinsurance product is a financial product or service that meets the risk protection needs of the poor where: the daily contributions or premiums do not exceed five percent of the current daily minimum rate or P20.00; and that guaranteed benefits should not be more than 500 times the daily minimum wage rate or P200,000.00.

As an overview, Almario said that 26.7 million Filipinos of 90 million are below the poverty line based on 2006 figures. However, he said only 2.9 million have some kind of risk protection, and of those provided, 50 percent were covered by informal insurance schemes.

Two reasons cited for low insurance coverage are lack of awareness of insurance and low financial literacy level among the low-income sector. Various case studies of the Microinsurance Center show that the poor either lack an understanding of insurance or have a negative perception or distrust of it.

To ensure the success of the low-income sector to appropriate risk protection, the government through the DOF-NCC launched in 2010 the National Strategy for Microinsurance and the Regulatory Framework for Microinsurance. These were developed in cooperation with other government agencies and the private sector engaged in the provision of insurance products and services.

Currently, the DOF-NCC together with the IC, in its thrust to encourage, enhance and facilitate the safe and sound provision of microinsurance products and services are implementing the Developing Microinsurance Project through the assistance of the Asian Development Bank - Japan Fund for Poverty Reduction (ADB-JFPR). Through this initiative, a system that will protect the rights of the insured will be promoted, and the trust and confidence in the insurance industry and other providers of insurance-like and other similar products as whole will be enhanced.

Mabini Juan, President of the Philippine Life Insurance Association (PLIA), the duly recognized umbrella organization of life insurance companies in the country, stressed that PLIA fully supports the national campaign to support microinsurance, continues to encourage its members to provide microinsurance products, and will provide inputs on microinsurance initiatives during the technical working group meetings.

Immediately after the launching of the National Strategy for Microinsurance and the Regulatory Framework for Microinsurance on January 29, 2010, Juan said PLIA created its Adhoc Microinsurance Committee to establish awareness among its 33 member companies.