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Insurance coverage is very low in the Philippines--yet it is one of the world's most disaster-prone areas.
“If you want people to stay away from you during gatherings, just tell
them you’re in the insurance business,” jokes a senior marketing
officer from one of the country’s top life insurance companies. “The
thought of hearing another morbid sales pitch will send them running.”
This aversion to insurance is said to be so prevalent that the
agents who succeed are regarded as highly skilled salesmen who can sell
almost anything. After all, they are selling a product that’s often at
the bottom of the market’s list of priorities, is somewhat complicated,
and usually disburses its benefits only upon the condition of death.
“You have to be good to get something out of that,” says this same
marketing executive.
So far, there have only been few such individuals. A paper, “The Philippine Insurance Industry from the Perspective of an Asean Outside Observer,” released by Asia Insurance Review in 2003, says that life insurance penetration in the country, at 0.87 percent of Gross Domestic Product (GDP), is the second lowest in Asia (after Vietnam) and among the lowest in the world. The average rates in Singapore, Malaysia, and Thailand, for instance, are 6.09 percent, 3.29 percent, and 2.25 percent, respectively. The world average is 4.59 percent.
“Insurance penetration shows the relative importance of insurance in an economy,” says Jose Cuisia, president and CEO of Philippine American Life. “Its value is less appreciated in the Philippines than the rest of the world.”
Insurance density is also low, at US$8.60 per capita. This means that, theoretically, the average Filipino has insurance cover of only P481.60 on his life. The rest of the world averages $469.60 (P26,298).
The actual number of insured Filipinos constitutes only 5.5 percent of the population, says a 2002 report of the Philippine Insurance Commission.
Growth is sluggish. Although the sector enjoyed 11 to 20 percent growth rates from 1997 to 2002, this had sunk to 1 percent by 2003, according to Business Monitor International’s (BMI) Philippine Insurance Report for 2005.
Predictions are not rosy. “We see no reason why density and penetration will increase from their current very low levels,” BMI continues. “We believe insurance sector growth will be driven solely by nominal GDP growth.”
Aversion to Death
In more developed countries, insurance is widely accepted as a necessary component of financial risk management. In the Philippines, the only protection many people get are their mandatory SSS, GSIS, and PhilHealth benefits. Those lacking regular employment get none.
According to Cuisia, buying insurance is affected by factors such as disposable income, lack of education, and appreciation of the product’s value. At times, it is undermined by the nature of the product itself and the way it is being sold.
“There are agents who start out with, ‘If you die,’” a sales officer explains. “That’s the usual pitch. They paint a picture of your grieving widow, your hapless children, your unpaid debts taking a toll on your family. It’s sold on the basis of fear, not benefit. You have to die first. And people don’t want to think about dying.”
Especially among younger people—that large group of working twentysomethings, for instance—insurance fails to hit a lot of buy-me buttons. “You’re young, healthy, and just starting to build a career, then you’re sold a product designed to deal with the consequences of your death,” says Angela Perez, a 24-year-old professional. “Not exactly appealing. I mean, that seems so far off. I want to focus on making money now.”
The industry tried to address this problem by highlighting product features that offer clients benefits while they’re still alive. Marketing teams began repackaging insurance policies as viable savings and protection bundles by zeroing in on the availability of policy loans, cash values, and accumulated dividends.
During the 1990s, insurance companies came out with products called “endowments,” which disbursed lump sums or staggered maturity benefits at certain periods, and at the same time provided life insurance coverage for the duration of the policy’s effectivity. Soon, fund accumulation joined income replacement as a reason for owning an insurance policy.
Yet endowments still have to establish themselves as a preferred saving tool of Filipinos with extra cash. Because they’re attached to a protection component, endowments generally offer lower rates of return than most investment instruments banks offer. And due to charges like agents’ commissions, cashing in on one’s policy before it matures would yield only a portion of one’s initial investment.
The unattractive pricing may also be due to heavy taxes levied on the industry. Other countries give tax relief and exemptions to the insurance industry to encourage growth. “There’s a high tax burden on the life insurance industry relative to other countries,” says Cuisia.
As a result, most Filipinos still prefer to put their money in the bank, where returns are higher and prices of early cash-ins are lower.
This approach may seem attractive yet ultimately lacking and short-term in scope. “Insurance secures your income and savings from unforseen events,” says Emilio de Quiros Jr., president of Ayala Life Assurance Inc.
The concept of insurance is based primarily on the transfer of risk. By buying an insurance policy, a person transfers the risk of early death or disability to an insurance company. The company is able to offer coverages much higher than the premiums paid by a single individual by factoring in mortality assumptions, pooling the risk of several people, and investing large amounts of money in one go.
Endowments
The three most common kinds of insurance in the Philippines are “term,” “whole life,” and “endowment.” The cheapest in the market, “term” insurance is similar to the kind that a person might buy for his car, except that this one promises to pay up if he loses his life. It covers a person for a given period of time, may it be a year, five years, 10 years or more. The owner pays until the policy expires, after which he’s no longer covered. If he dies, his beneficiary receives an amount that’s usually several times higher than what he paid. If he lives, he gets nothing and the premiums he paid are lost.
Whole-life insurance covers a person for life. In insurance lingo, this means up to age 100. The policy owner may choose to pay cheaper premiums for life, or more expensive premiums for a limited length of time. If the insured dies before he reaches 100, the benefit goes to his beneficiary. If he reaches 100, the benefit is handed over in lump sum to the policy owner.
The newest and most sophisticated of the three insurance types, endowments were developed as a sort of competitor to pre-need education and pension products, which became very popular in the 1990s. Here, the insured does not have to die before he can get the benefits of his policy; he only has to wait for it to mature, after which he receives the proceeds in lump sum. If he dies before the policy matures, his beneficiary gets the proceeds immediately. An endowment is essentially a savings plan with insurance protection built in, and is most comparable to traditional bank products. It’s also the most expensive type of policy.
Promise of protection
Clients also earn dividends depending on the kind of policy they get. Certain kinds of policies accumulate cash values, which may be loaned against or claimed should the policy owner surrender his plan before maturity.
Despite the investment-like features being attached to insurance policies, however, the industry’s main selling point will always be the promise of protection—or making provisions for the untoward and unknown. And this is something many Filipinos have yet to realize.
Asia Insurance Review says it is ironic that the Philippines has a very low insurance coverage and yet is one of the world’s most disaster-prone areas. It is also a country where personal savings are low and where many citizens depend solely on the regular flow of income for their day-to-day expenses. If that flow is suddenly cut off, shouldn’t there be a safety net?
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