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Cooperative Insurance System

Presenter : James D Chua

February 2007


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I. Financial Intermediation Structure

Banks

Financial Intermediaries

Investment

Companies

Contractual

SavingsMutual Funds

Pre-Need InsurancePensionFunds

*Other financial intermediaries include pawnshops, lending investors,finance companies, credit card companies


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II. Where Cooperative Insurance Compete

Commercial Insurance

Insurance Industry

Micro-Insurance

Stock Mutual Coops MBAs

MFI Formal* Hybrid

*refers to cooperatives offering insurance services registered with theInsurance Commission**refers cooperatives offering insurance services but are not registered with

the Insurance Commission

Indigenous**

NGOMFIs


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III. Mutual, MBAs, NGOs & Cooperative Insurance

SIMILARITY : These organizations exist for the purpose of helping theirmembers.

DIFFERENCE : Mutual Benefit Associations are insurance schemes run on

a not-for-profit basis.

NGO MFIs derive funds from donors

In Cooperatives, members contribute to the capital of thecompany by direct investment.

In Mutual Insurance, members do not usually contribute to

the capital of the company by direct investment, but derivetheir right to profits and votes through their customerrelationship relationship.


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IV. Indigenous and Formal Insurance

Attributes Indigenous Insurance Formal Insurance

Origin Traditional risk sharing custom;

Damayan

Insurance sciences

Players Co-ops and NGOs For profit, and MFI-owned

insurance corporations

Technology Social organization, social capital,

social mobilization, community

organizing, indigenous customs

Actuarial sciences, financial

management, reinsurance

Scale Small Large

Regulation None. Unregulated, allows site

specific customization

Insurance Commission - ensures

financial and actuarial soundness,

favors big formal insurance firms

Sense ofownership

High Low

Sense of

Solidarity

High Low

Nature of

Relationship

s

Personal Impersonal


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V. Survey of Cooperative Insurance in the Philippines


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Co-op-Life Mutual Benefit Services Association, Inc.(CLIMBS)

Established in 1971 as an experiment in mutual protection by theSouthern Philippines Educational Cooperative Center (SPECC)

and the Misamis Oriental-Bukidnon-Camiguin Federation of

Cooperative

Registered with the Co-operative Development Authority in 1992 Licensed as a Mutual Benefit Association (MBA) by the Insurance

Commission in 1994

CLIMBS is a member of NATCCO

Number of contributors : over 200,000

Products Offered :

Group Life Protection with Mutual Aid System (MAS)

Co-op Life Savings Plan (CLSP)Co-op Loans Protection Plan (CLPP)

Formal Insurance run by a MBA and organized as a cooperative.


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Novaliches Development Cooperative, Inc. (NOVADECI)

Founded in September, 1976

Formerly known as the Novaliches Vendors Credit Union, Inc.(NVCUI)

Answer to the growing number of usurers lending money at high

interest rates (e.g. 5/6 lenders)

Membership base of more than 17,000 Registered with the Co-operative Development Authority Schemes Offered :

Health Care Program

Damayan Death Benefit

Gabay sa Katandaan and Disability Benefit

Informal Insurance run by a cooperative.


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VI. Risk Management Practices

Waiting

Periods

Several coops now have policies whereby members are not

eligible for insurance cover until after an initial period of time

Exclusions Policies that exclude coverage for high-risk members, such aspersons over 65 or those with pre-existing conditions

ScreeningTechniques

Requirements to furnish health certificates to be eligible forinsurance for larger policies

GraduatedBenefits

Because of information asymmetries, some MFIs have lowerbenefit ceilings for new members. Once they get to know the

member better, then the maximum benefit increases. Thesegraduated benefits also serve as an incentive for customer

loyalty


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VII. Strengths and Weaknesses

Attributes Indigenous Insurance Formal Insurance

Strength Social capital

Risk-bearing membership

allows ventures into health

insurance

Innovation

Technical skills in Insurance

Large financial base

Professional managers

Low priced insurance compared

to for-profit policies

Simpler than group self-insurance

Weakness Risky insurance design More expensive compared to

group self-insurance

Relative administrative

inefficiency

Weak patronage of co-operatives

Ways of

Overcomin

g

Weaknesses

Access technical assistance in

insurance design

Pool resources for R&D

Focus on products that are

difficult for cooperatives to self

insure

Increase operational efficiency

though closer links with

cooperatives


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VIII. Strategies for the Future

Components Discussion

Web site should include insurance products and practices,

educational materials, marketing materials, premium

rates, and media communications

accessible to customers, agents, and employees so thateveryone can refer to the same source of information

reduces the cost of internal communication and trainingof employees and agents

Customer centric get to know the customer first, before trying to offer any

of its products

Simple products for life insurance, term insurance should be separate

from investment

the protection offered by each product must be definedand explained in simple terms

a fair premium rate based on the cost of claims and

expenses should be charged

the charges for the investment product should be clearlydisclosed


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IX. Strategies for the Future

Just as microfinance has gained widespread acceptance as an

effective development strategy; microinsurance through

cooperatives, too, promises to be a sustainable approach to riskmanagement for the informal sector. Cooperatives are currently

in the best position to provide microinsurance to the informal

sector and should actively experiment and innovate to make the

mainstreaming of microinsurance a reality.

Social security is a universal need and a basic human right. Yet,only one in five people in the world has adequate social security;

half of the worlds population is without any social security

protection.

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