Micro-insurance is gradually gaining its popularity in the Philippines particularly in the poorest segment of the population, Fitch Ratings said recently.
In its special report “Philippine Insurers Show Ample Growth Potential, Face Changes,” the ratings agency noted that the Philippines continues to be plagued by poverty, with poverty incidences averaging at least 20 percent per year (2009 to 2012), and worse in times of disaster.
“This has led to a gradual increase in the popularity of micro-insurance—as it raises insurance awareness while keeping it affordable for the lower classes,” it said.
Meanwhile, Fitch lauded the Philippine government in creating various measures in regulating and promoting the expansion of micro-insurance in the country.
“The Philippines government has put in a tremendous effort to promote micro-insurance,” it said.
The agency cited that these measures include the establishment of micro-insurance websites and social media tools; the issuance of micro-insurance framework and simple prototype life/nonlife contracts; and the additional permits issued for insurers, and microfinance institutions (MFI) to enter the market.
Fitch said that these efforts have led to double-digit growth in the number of Filipinos with micro-insurance coverage. Based on the data from Insurance Commission, the ratings agency said that from 6.6 million in 2010, there were now 12.9 million Filipinos covered by micro-insurance by end-2012.
“The demand for and awareness of micro-insurance is still growing, and Fitch believes that continuous government support will continue to play a vital role in penetrating the lower-income classes,” Fitch added.
On the other hand, the ratings agency noted that despite being the 12th most densely populated nation with over 97 million people, the Philippine insurance industry remains heavily underpenetrated compared with its regional peers.
Fitch attributed the problem to the fact that the public does not fully appreciate the benefits of insurance, together with issues of insurance affordability for the low-income population.
However, with the improved economic conditions that boosted Filipinos’ standard of living and led to rising urbanization trend, the agency is positive on the expansion of the insurance industry in the coming years.
“Rising levels of income and financial literacy have led to a gradual rising urbanization trend in the last five years,” it said.
Fitch noted that the average urbanization rate in the country stood at 65 percent, marginally lower than the world’s 69 percent.
“Fitch takes a positive view on the growing urbanized trend, as this will drive higher demand for wealth accumulation and health protection products—and in turn, propel higher premium growth,” it said.