Passage of Amended Insurance Code
With the passage of the Amended Insurance Code (IC) and its effectivity on September 20, 2013, the term bancassurance was given a statutory definition for the first time. Section 375 defined bancassurance 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 bank duly licensed by the Bangko Sentral ng Pilipinas [BSP] or any of its branches under such rules and regulations which the Commissioner and the BSP may promulgate.”
Notably, under Section 377, banc-assurance was placed under the joint supervision of the IC and the BSP. Section 375 also clarified that “a bank is not required to have equity ownership of the insurance company.” For the protection of consumers, “[p]ersonnel tasked to present and sell insurance products within the bank premises shall be duly licensed by the Commissioner.”
BSP Circular 844, dated August 11, 2014
AN amendment of the rules on cross-selling was introduced by BSP Resolution 1207, dated August 1, 2014. Thus, amending the Manual of Regulations for Banks (MORB) and BSP Circular 801. BSP Circular 844, dated August 11, 2014, extended the coverage of “financial products” to include collective investment schemes. Under the amended subsection X172.2, “collective investment schemes [CIS] of financial product providers belonging to the same financial conglomerate may be cross-sold inside bank premises.” These CISs refer to: a) mutual funds registered with the Security Exchange Commission; b) unit investment trust funds as authorized by the BSP; and c) variable unit-linked (VUL) life-insurance policy as governed by the IC. Thus, for the first time, a regulatory framework on the sale of investment-linked or VUL insurance products in banks was issued. Under subsection X172.1, a financial conglomerate “refers to a group of interrelated entities providing significant services in at least two different financial sectors [banking, securities and insurance]. A banking group is subsumed within the context of a financial conglomerate.”
“Unless otherwise provided, financial products should be created by a financial product provider belonging to the same financial conglomerate” [subsection X172.2]. The objective is to lessen exposure to investment risks.
As provided under subsection X172.2, “[s]imple insurance products such as traditional life [whole life, term, endowment], nonlife [marine, fire, casualty, suretyship], and other similar protection-type insurance products, except variable insurance contracts, as governed by the Insurance Code are considered as simple retail financial products. These may be cross-sold inside bank premises regardless of whether the financial product provider belongs to the same financial conglomerate or not.”
Subsection X172.6 added the new provision on cross-selling of CIS and its suitability to customers. In recognition of possible exposure to investment risks, “enhanced consumer protection standards” were deemed necessary. In pursuit of consumer protection, a number of measures were introduced as “minimum practices” by insurers. First, the potential client must be provided with a Product Highlight Sheet which summarizes the important features of the financial product. Second, the insurer should undertake a Client Suitability Assessment on the potential client. Third, the potential client should be given an Investment Policy Statement (IPS), which should reflect his investment directive. Fourth, the insurer should disclose all possible conflict of interest. Fifth, there should be a Standard Disclosure Statement, which should advise the potential client of the risks involved.
Under subsection X172.7, whenever applicable, the bank and the insurer (financial product provider) must belong to the same financial conglomerate. Under subsection X172.8, banks engaging in cross-selling must have a CAMELS composite rating of at least “3” or its equivalent and without major supervisory concerns.
Microinsurance products under the 2012 MORB
Section 2172 provided the framework for the sale of microinsurance products by thrift banks. Thrift banks were allowed to “sell microinsurance products as defined under the Insurance Commission’s Memorandum Circular 1-2010 dated January 29, 2010, provided that the microinsurance product is duly approved by the Insurance Commission.” Thrift banks “can also service [i.e., collect premiums and pay claims] microinsurance products as collection and payment agents pursuant to Section 53.3 of the General Banking Law” (BSP Circular 683, dated February 23, 2010). The provisions of Section 2172 shall also apply to rural banks and cooperative banks (Section 3172).
Note that BSP Circular 682 (Rules and Regulations for Cooperative Banks), dated February 15, 2010, provided in Section 9: “Consistent with existing rules and regulations applicable to banks other than universal banks on limits on investments in the equities of financial allied undertakings under Section X, 378 of the MORB, a Cooperative Bank with existing investments in insurance companies, including insurance cooperatives shall not increase but may reduce and once reduced, shall not increase such equity holdings: Provided, that the entire equity holdings shall be divested within a period of five years from the effectivity of this circular.”
Circular Letter 2015-20
TO implement the new provisions on bancassurance, Circular Letter 2015-20, dated April 27, 2015, was issued by the Insurance commissioner. Notably, it was provided that the terms bancassurance and cross-selling can be used interchangeably. It also provided that variable life or VUL insurance contracts “shall not be deemed to be a security or securities as defined in The Securities Act or in the Investment Company Act.” While bank employees have been allowed to make “preliminary” presentations, they are “not allowed to conduct substantial presentation of insurance products, which involves discussion on the details and particularities of insurance products.” Moreover, “bank employees may not conclude any contract and must refer such conclusion to the insurance agent.” In furtherance of consumer protection, Section 5 of the circular also provides for an “enhanced consumer protection requirements for VULs.” Among the requirements would be the presentation of the Product Highlight Sheet and the IPS to the potential client, and the conduct of a Client Suitability Assessment to avoid mis-selling.
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Dennis B. Funa is currently the deputy insurance commissioner for Legal Services of the Insurance Commission. E-mail: dennisfuna@yahoo.com