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Lessons from Philippines highlight importance of affordable policies adapted to local needs, alongside effective regulation
It had been a normal sunny day before Typhoon Haiyan smashed into the Philippines on Nov. 7, 2013. People were going about their business. Those in high-risk areas were advised to evacuate to safer places, but most did not leave their houses.
Then the nightmare came. The typhoon hit 1.5 million families, leaving 6,300 people dead, thousands of houses destroyed and millions of hopes shattered.
Over the past 20 years, disasters induced by natural hazards have affected 4.4 billion people and have claimed 1.3 million lives. The Philippines, being in the Pacific Ring of Fire and typhoon belt, is prone to natural disasters; we are hit by one calamity after the other.
The resilience of the Filipinos has been tested multiple times, and whether you are rich or poor, you will be affected. But the poor have a harder time getting back on their feet compared to the rich, and recovering from this typhoon was no different.
They are more vulnerable, and are also the least likely to be covered by insurance due to high premiums from commercial insurance providers.
However, in the case of Typhoon Haiyan, the Center for Agricultural and Rural Development (CARD) was in place to rise to the challenge of sending disaster relief and payments to the poor people we insure against such events.
When we established the CARD Mutual Benefit Association (CARD MBA), our goal was to protect our clients from sliding back into poverty when they are hit by adversity. Currently, we cover around 12 million individuals with affordable insurance, 80 percent of whom live below the poverty line.
Almost 180,000 of our customers were affected by Haiyan. We wasted no time and paid $1.35 million in claims and distributed $1.63 million worth of relief goods.
We were able to make a payout of $2,400 to the family of Nanay Marilyn, a CARD member in Leyte who died in the typhoon. We often hear from our clients that this can provide some relief during the grieving period.
This is how we believe insurance should work – reaching those most in need in a timely way and decreasing their vulnerability. So we welcome the G7’s commitment to insure up to 400 million more people who are vulnerable to climate risks, but there are key factors that must be considered by the international insurance industry if they want to implement effective schemes.
CARD MBA was established in 1999, after several years of pilot testing solidarity lending, modifying the Grameen Bank’s microfinancing model and making it fit the Philippines. We experienced many growing pains and found the key to success was this testing period, in which we developed products tailored to the needs of clients.
First and foremost, this means our products must be affordable for the members who mostly belong to poor families. We also have to offer training and education in managing loans.
We must make sure the clients want the services on offer. For example, not all clients want compulsory health insurance, and would rather contribute to this voluntarily.
Thanks to such adaptability, our member base continues to increase and retention is also high. In fact, based on our research, microinsurance is one of the major reasons why microfinance clients join and stay with CARD.
In our early days, regulation for microinsurance was still being developed and strengthened. Inefficient regulation of the insurance market can lead to financial risk for the institution and clients themselves, as they are not studied and scrutinised by the Insurance Commission which is there to ensure the products are viable for both parties.
That is why we have worked with the regulators, particularly the Insurance Commission, to implement certain policies. Policyholders now have clear rights, which are set out by a Regulatory Framework for Microinsurance. This allows our clients to claim their rightful benefits.
In January 2010, all “informal” schemes were terminated. Since this date, many more regulations have been put in place. Insurance products now need to be approved by the regulators, and the performance of the industry is monitored.
Insurance contracts must be short and clear, and accompanied by simple documentation. We and all other insurance providers follow these rules diligently as we further develop our microinsurance products.
As the Philippines implements more effective insurance regulation, microinsurance coverage has also spiked up, meaning more poor people than ever before are getting access to protection should disaster strike.
But there is still a long way to go to cover all poor Filipinos with insurance protection. The government, public sector and government sector must work closely to increase the reach of insurance schemes.
The regulator must maintain its openness to private providers like us, since we have developed a culture of listening to clients. We are customer-focused. We know what will protect the clients from adversity.
Meanwhile, the providers must follow the regulations, which based on our experience have enabled many Filipinos, especially the poor, to become better protected from climate risk.
Dr Jaime Aristotle B. Alip is the founder and managing director of CARD MRI, which runs a number of institutions including CARD MBA.