BSP amends rules on cross selling

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has amended a circular that governs the practice of cross selling, the banking regulation that affects the sale of life insurance policies through the banking system.

Certain sections of BSP Circular 801 will be amended that will, among others, allow the sale of new variable unit-linked (VUL) life insurance products through a partner bank.

The special or exclusive partnership with the bank is commonly known as bancassurance, or the sale of insurance products through a partner bank’s branch network and client base.

Previous to the amendments, an existing bancassurance arrangement only allows that sale of traditional life insurance and existing VUL products before the BSP circular was released in June 2013.

However, no new VUL products could be introduced.

But existing bancassurance arrangements that will introduce new VULs must be part of a financial conglomerate.

A little less than half of the country’s life insurance system are part of a conglomerate.

BSP Circular 801 defines a financial conglomerate as “a group of entities whose exclusive or pre-dominant activities consist of providing significant service in at least two different financial sectors (banking, securities and insurance).

A banking group, which is defined as banks related by common ownership and is engaged predominantly in banking . . . “

The bank must reflect a CAMELS composite rating of at least 3 based on BSP standards.

CAMELS composite rating is an international bank-rating system based on six standards, which are capital, assets, management, earnings, liquidity and sensitivity.

“All banks can sell traditional products as long as these are compliant with all requirements with IC (Insurance Commission), and are rated Camels 3,” BSP Deputy Governor Nestor Espenilla Jr. said. “VULs and other like products can only be sold, if the insurer is a member of a financial conglomerate.”

The amendments are part of Phase 2 of the liberalization process of cross selling involving the country’s banking and insurance sectors.

Phase 3 will eventually remove the financial conglomerate requirement to cross selling as well as allowing the entire banking sector to sell traditional, VULs and microinsurance products.

That will likewise open all insurance products to be sold through the country’s banking system including term insurance, traditional/whole life/endowment, non-life insurance and other related insurance products.

Presently, thrift and rural banks are allowed to sell only microinsurance products not the traditional protection or VUL versions, in their premises.

By allowing all types of banks to cross sell insurance products will allow the public easy access to protection and investment products.

The Philippines is considered among the lowest in Asia in terms of insurance penetration, and the  worsening environmental conditions and increasing natural catastrophes more than warrant a more liberal platform for protection.

Of the total 27 life insurers, only half sold VULs, and more than 80 percent of those that sold VULs are part of a financial conglomerate.

Last year, half of the first year premiums or insurance sold only last year, were VULs.

Total premium income as of end December stood at a little over P170 billion, and total VUL premiums amounted to P121.9 billion.

Espenilla said the amendments would take effect upon release of the new circular.