Philippine Business Magazine: Volume 14 No. 3 - Cover

The insurance industry unveils a new generation of insurance products to suit Filipinos’ changing lifestyles

By Ton C. Reyes

Innovation is the main driver of businesses. New technologies and changing lifestyles have redefined the quality and pace of people’s lives, leading to better health, longer lifespans, and greater expectations. As the world evolves, so are needs changing. In a world where speed has become a requirement for growth, companies that are able to produce the products that best meet the needs of consumers are better assured of success.

Insurance Innovation

Change has likewise engulfed the insurance industry. For instance, the industry now has to contend with longer lifespans, which means a need for longer coverage for clients. While the life expectancy of the average Filipino was 64–70 years in the years 2002–2005, the figures are expected to climb to 67–73 years by 2010–2015, according to the Commission on Population. In the 1940s, the average Filipino died at 47–50 years old.

As disposable incomes rise and investor education improves, more Filipinos will embrace the protection that insurance affords

But more importantly, recognizing the new risks and challenges that they now face, consumers are asking for more from their insurers—better protection, more options, more flexible terms, and greater affordability. Whereas traditional insurance plans that offered protection and little else were enough for them before, today they are looking for so much more.

It is no surprise then that the most successful insurance companies are also the most innovative. Those that offer traditional insurance products only, consisting of term and whole life packages, are seeing their share of the market’s minds and pockets quickly dwindling. In contrast, those that have developed expanded and totally revamped products are seeing their stock steadily growing.

“There was a slowdown in 2005 to 2006 in the sale of traditional life insurance products, but sales picked up for variable life products,” reveals Jose Cuisia Jr., president and CEO of Philippine American Life Insurance Co., the largest insurance company in the Philippines. The lower demand for traditional products, he explains, could be partly attributed to the decline in interest rates. As a result, there was a greater push for more variables, even if these carry no guaranteed benefits.

INSURANCE AS INVESTMENT

Philamlife president and CEO Jose Cuisia Jr. is very optimistic about the outlook for the insurance sector

Variable life insurance policies are single-premium, investment-linked plans. They allow you to enjoy a basic protection plan and at the same time participate in the gains of an investment fund. Although rather expensive, Cuisia says these plans are essentially “attractive.” Because yields of variable funds are linked to life products, you enjoy both life protection and wealth accumulation.

The opportunities for financial gain, coupled with the freedom to choose an investment instrument based on one’s risk appetite, have drawn a lot of interest. “The new generation of products is more flexible,” Cuisia points out. Thus, the AIG Money Tree, one of Philamlife’s newest products, saw a surge in sales in the last quarter of 2006.

This experience has been shared by others in the industry. Insular Life’s Wealth Builder, a variable unit-linked product, has also experienced warm market reception. In fact, it contributed 78% to Insular Life’s total first-year premium for the first quarter of 2007.
This trend is mirrored across the entire insurance sector. “For the industry as a whole, growth has been in unit-linked products,” observes Cuisia. It has been this way for the past two years. AXA Life and Pru Life, which are also offering investment-linked products, have posted substantial gains in the past year as well.

Hand in hand with this is the growing interest in dollar-denominated insurance plans. With the number of overseas Filipino workers still growing and their buying power strengthening, such plans have become more affordable. All major insurance firms now offer dollar-denominated plans, and the take-up among Filipinos continues to grow.

PRODUCT FLEXIBILITY

More than anything else, however, it is product flexibility that the Filipino consumer truly values. Thus, the new insurance products coming out in the market allow the buyer so much more options in terms of benefits. Customizing a product to suit your needs is now possible.

Philamlife, for instance, has introduced Brilliance, a customized educational insurance plan that covers the cost of a child’s eight years of high-school and college education. It provides protection beyond graduation and offers dividend potential and earning power. You can even opt for a rider for a two-year vocational program.

New York Life Philippines, another player in the insurance industry, has launched an insurance package called Life Event Rider. This package provides coverage for important life events, such as a wedding, the birth or adoption of a child, the death of a spouse or a child, the involuntary loss of a job, divorce or separation or annulment, and natural disasters. The package, in a nutshell, aims to offer customers an entire menu of protection options to fit their lives, preferences, or situations, whether planned or unplanned.

Insular Life, for its part, has i-Value Max, a protection, savings, and health plan all rolled into one. It is a savings vehicle that can give up to 200% of one’s coverage with its annual cash allowances starting on the eighth year. It even includes protection against 16 dreaded diseases, including cancer and liver failure.

Cuisia is confident that Philamlife will continue to see strong sales as it introduces new products, each fine-tuned to meet the changing needs of the market. This year, for instance, it has already introduced Longevity, a life insurance plan that provides guaranteed income over the years; Abundance, a variable life product that combines investment and insurance; Leisure, an expanded retirement plan; and Bounty, a new-generation savings and protection plan. Because all these products factor in the low interest rate environment, they are much more affordable. “I am optimistic that I will see premium growth exceeding 30% this year, ahead of our targets,” Cuisia declares.

OPPORTUNITIES AND CHALLENGES

For sure, the Philippine market for insurance remains huge. Of the estimated 80 million Filipinos, less than 12% currently enjoy some form of insurance coverage. However, the uninsured majority is a young, growing, and dynamic market, no doubt representing a tremendous opportunity for various life insurance companies.

There are also underserved markets worth looking at. Cuisia has singled out the OFW market for its enormous potential. In fact, Philamlife has started selling to OFWs based in Hong Kong through its affiliate. The response has been very positive and Cuisia is confident that take-up will continue to be strong.

There are, of course, numerous challenges that insurance companies also need to face. The majority of Filipinos still lack a basic understanding of insurance, and this is aggravated by Filipinos’ low propensity to save. Compared to Singapore and Japan, where the national savings rate hovers in the range of 40%–45% of GDP, the Philippines’ savings rate stood for the longest time at below 19% of GDP. Recently, this has risen to around 26% of GDP, following the increase in investments in the real estate sector by OFWs. While this is a significant uptick, the still-considerable disparity between the savings rate in the Philippines and its neighboring countries underscores that many Filipinos still do not recognize that insurance is primarily a form of long-term savings. “We need to help raise awareness for the need for insurance,” Cuisia emphasizes. “We also have to encourage OFWs to save for the long term.”

Taxes are also a problem for the insurance sector. The Philippine insurance industry is believed to be one of the most taxed in Asia. Insurers continue to lobby for the removal of various taxes, including documentary stamps.

These, however, are relatively minor kinks that do not mar the whole picture. On the whole, the outlook for the insurance industry is rosy. Insurance executives draw hope from the Philippines’ increasing economic strength, mirrored by the low interest rate regime and the improvement of the fiscal deficit. They are confident that as disposable incomes rise, and as investor education improves, more Filipinos will embrace the protection that insurance affords.