On 15 August 2013, the President of the Philippines signed into law Republic Act No. 10607 or the revised Insurance Code of the Philippines (RA 10607). RA 10607, which amends the 38-year-old Insurance Code under Presidential Decree No. 612, seeks to strengthen the Philippine insurance industry and re-align Philippine law with global developments in the insurance sector.
Among other reforms, the amendments brought about by RA 10607 include the recognition of financial products such as bancassurance. Bancassurance, also known as cross-selling, is defined as the presentation and sale to bank customers by an insurance company of its insurance products within the premises of the head office of such banks duly licensed by the Bangko Sentral ng Pilipinas (BSP or Philippine Central Bank) or any of its branches, under such rules and regulations which the Insurance Commission and the BSP may promulgate.
On the banking side, the legal basis for engaging in the business of bancassurance in the Philippines is Section 20 of Republic Act No. 8791 or the Philippine General Banking Law of 2000. This law provides that a bank can use any or all of its branches as outlets for the presentation and/or sales of the financial products of its allied undertakings or of its investment house units.
Impact on the insurance sector
All financial institutions supervised by the Insurance Commission (IC), including insurers/insurance companies, agents, and brokers (collectively, the Supervised Entities), are subject to the new provisions of RA 10607, including those relating to bancassurance. Given the updates brought about by RA 10607, the new law is expected to improve the IC's supervision of bancassurance transactions in the Philippines. Notably, the new provisions on bancassurance (discussed below) aim to encourage Supervised Entities to engage in cross-selling and likewise foster the growth of the Philippine insurance sector.
At present, the BSP for its part is revising its cross-selling regulations applicable to banks. Proposed amendments to current BSP regulations are expected to grant authority to commercial and thrift banks to engage in cross-selling, in addition to universal banks and expanded commercial banks which were presently allowed under BSP rules.
New bancassurance provisions
Amendments relating to bancassurance which are brought about by RA 10607 include the following:
- To engage in a bancassurance arrangement, a bank is not required anymore to have equity ownership of the insurance company. Previously, pursuant to BSP Circular 357 (dated 8 November 2002), only insurance companies which are affiliates of banks can engage in cross-selling. For an insurer to be classified as an affiliate of a bank, the bank must own at least five percent (5%) equity of such insurer. (By definition, an affiliate is a corporation at least five percent (5%) but not exceeding fifty percent (50%) of the voting stock of which is directly or indirectly owned, controlled or held with the power to vote by a bank.) Nonetheless, insurance companies cannot enter into a bancassurance arrangement unless it possesses all the requirements as may be prescribed by the Insurance Commission and the BSP.
- All bancassurance products, whether life or non-life, are required to be issued or delivered in the form previously approved by the Insurance Commission.
- Personnel tasked to present and sell insurance products within the bank premises must be duly licensed by the Insurance Commission. Such personnel will also be subject to the rules and regulations of RA 10607 to be promulgated by the Insurance Commission and the BSP.
To comply with the new provisions on bancassurance, Supervised Entities may consider taking the following steps:
- Review carefully and more in-depth the bancassurance provisions ofRA 10607 and further IC regulations/issuances to be issued on the matter;
- Consider the new bancassurance provisions, review and reconsider their current policies and practices applicable to cross-selling, in order to comply with the recent law;
- Possibly liaise with relevant IC personnel (in particular, the Regulation, Enforcement and Prosecution Division) to ensure that their policies/practices meet internal rules, policies, and practices of the IC; and
- Monitor the progress and eventual issuance of the rules and regulations to be promulgated by the Insurance Commission and the BSP, specifically with respect to bancassurance, to ensure timely and effective compliance.
The IC is currently in the process of formulating the implementing rules and regulations (IRR) that will serve as guidelines for compliance with the RA 10607. For this purpose, the IC has issued Circular Letter No. 2013-25 (dated 13 September 2013). Under this issuance, the IC formed advisory committees for the implementation of RA 10607. They are tasked to conduct meetings and research on the subject assigned to them (e.g., solvency, capitalization, as well as assets, investments and valuation), get feedback from stakeholders, and submit a draft circular for the consideration of the Insurance Commissioner (who heads the IC). Stakeholders in the Philippine insurance industry may benefit from the details of the law as provided by the IRR.
Compliance with recent bancassurance provisions/rules as well as sound supervision by the IC will equip Supervised Entities in the Philippines to implement prudent business practices, manage insurance business risks, and continue to be globally competitive amid dynamic developments in the insurance industry.