Insurers seek respite from cross-selling rules

MANILA, Philippines - The country’s life insurance industry is asking the Bangko Sentral ng Pilipinas (BSP) and the Insurance Commission (IC) to either issue transitory regulations or declare a status quo with regards to the practice of cross-selling or bancassurance.

Cross-selling basically means allied financial institutions of a certain bank can convert the allied bank’s branch network as another distribution system.

In the insurance environment, it is called bancassurance wherein life insurers are allowed to use an allied bank’s branch network as another distribution outlet.

But when the BSP further liberalized the practice of cross-selling last June, it excluded some on-going practices of investment-type products of allied financial institutions.

This affected the life insurers as the sale of investment-type products, popularly known as variable unit-linked (VUL) life products, already account for nearly 40 percent of annual sales.

The Philippine Life Insurance Association (PLIA) urged the BSP and the IC that “transitory guidelines be issued on pending product approvals which clarify that these approvals should go on as usual and not be suspended.”

“Substantial commercial disruption continues with the suspension of the product approval process for new products,” PLIA president Esther C. Tan said.

Tan explained that majority of the new products seeking regulatory approvals are VUL or investment-laced in nature. The growth pace of the industry is seen to slow down without the introduction of new insurance products.

Another concern is the interpretation of “financial conglomerate” as embodied the BSP proposed liberalized rules.

Presently, the leading insurers are already practicing bancassurance and they are allied with the country’s leading conglomerates.

The present rules state that banks are allowed cross-selling or bancassurance if it owns at least five-percent equity in an insurer.

The high cost of equity in insurance companies thus limits ownership to banks that are allied with conglomerates. But majority of the life insurers are not allied with any other the leading conglomerates.

The proposed cross-selling rules open the practice to all thrift and commercial banks, from the previous exclusivity to expanded commercial banks (EKBs) otherwise known as universal banks (unibanks).

But the bank must be part of a “financial conglomerate”, and that the bank must reflect a CAMELS rating of three.

CAMELS stand for capital adequacy, asset quality, management, earnings and liquidity rating system.

It is a way of measuring the financial health of a bank following the issuance of Basel capital risk-weighting framework by the Bank of International Settlement (BIS), which is often referred to as the central bank of all central banks.

Insurers argued that the CAMELS ratings were acceptable for all banks, since it ensures financial viability and protection.

Insurers argued that the five-percent equity ownership be totally dropped from the new regulations.

Rural banks are already practicing bancassurance albeit limited to micro-insurance products, which have lower priced premiums and lower protection coverage.

There are no investment-laced micro-insurance products likewise.

Foreign-owned insurance companies confided that in other Asian countries where they operate, bancassurance is neither exclusive to an insurer nor limited to a single bank.