Coop MGT - COOP - INS

Cooperative Insurance System
Presenter : James D Chua
February 2007
Presentation Outline
I. Financial Intermediation Structure

II. Where Cooperative Insurance Compete
III. Mutual, MBAs, NGOs & Cooperative Insurance
IV. Indigenous and Formal Insurance
V. Survey of Cooperative Insurance in the Philippines
VI. Risk Management Practices
VII. Strengths and Weaknesses
VIII. Principles and Practices
IX. Strategies for the Future
I. Financial Intermediation Structure
Financial Intermediaries
Contractual Investment
Banks Mutual Funds
Savings Companies
Pre-Need Insurance Pension Funds
*
Other financial intermediaries include pawnshops, lending investors, finance
companies, credit card companies
II. Where Cooperative Insurance Compete
Insurance Industry
Commercial Insurance Micro-Insurance
NGO
Stock Mutual Coops
MFIs
MBAs
MFI Formal* Indigenous** Hybrid
*
refers to cooperatives offering insurance services registered with the Insurance
Commission
**
refers cooperatives offering insurance services but are not registered with the
Insurance Commission
III. Mutual, MBAs, NGOs & Cooperative Insurance
SIMILARITY :
• These organizations exist for the purpose of helping their
members.
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 the

company by direct investment.
• In Mutual Insurance, members do not usually contribute to the

capital of the company by direct investment, but derive their right
to profits and votes through their customer relationship
relationship.
IV. Indigenous and Formal Insurance
Attributes Indigenous Insurance Formal Insurance

Origin Traditional risk sharing custom; Insurance sciences
Damayan
Players Co-ops and NGOs For profit, and MFI-owned insurance
corporations
Technology Social organization, social capital, Actuarial sciences, financial
social mobilization, community management, reinsurance
organizing, indigenous customs
Scale Small Large
Regulation None. Unregulated, allows site Insurance Commission - ensures
specific customization financial and actuarial soundness,
favors big formal insurance firms
Sense of High Low
ownership
Sense of High Low
Solidarity
Nature of Personal Impersonal
Relationships
Co-op-Life Mutual Benefit Services Association, Inc. (CLIMBS)
• Established in 1971 as an experiment in mutual protection by the Southern

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.

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.

VI. Risk Management Practices
Waiting Several coops now have policies whereby members are not eligible
Periods for insurance cover until after an initial period of time
Exclusions Policies that exclude coverage for high-risk members, such as

persons over 65 or those with pre-existing conditions
Screening Requirements to furnish health certificates to be eligible for

Techniques insurance for larger policies
Graduated Because of information asymmetries, some MFIs have lower

Benefits benefit ceilings for new members. Once they get to know the
member better, then the maximum benefit increases. These
graduated benefits also serve as an incentive for customer loyalty
VII. Strengths and Weaknesses
Attributes Indigenous Insurance Formal Insurance
Strength Social capital Technical skills in Insurance

Risk-bearing membership allows Large financial base
ventures into health insurance Professional managers
Innovation 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 Access technical assistance in Focus on products that are difficult

Overcoming insurance design for cooperatives to self insure
Weaknesses Pool resources for R&D Increase operational efficiency
though closer links with cooperatives
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 that
everyone can refer to the same source of information
• reduces the cost of internal communication and training of
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 defined and
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 clearly
disclosed
IX. Strategies for the Future
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
world’s population is without any social security protection.
Just as microfinance has gained widespread acceptance as an effective

development strategy; microinsurance through cooperatives, too,
promises to be a sustainable approach to risk management 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.

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Cooperative Insurance System

Presenter : James D Chua

I. Financial Intermediation Structure

Pre-Need Insurance Pension Funds

Commercial Insurance Micro-Insurance

MFI Formal* Indigenous** Hybrid

• NGO MFIs derive funds from donors

• In Cooperatives, members contribute to the capital of the

• In Mutual Insurance, members do not usually contribute to the

Attributes Indigenous Insurance Formal Insurance

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

• Established in 1971 as an experiment in mutual protection by the Southern

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

Novaliches Development Cooperative, Inc. (NOVADECI)

• Founded in September, 1976

Informal Insurance run by a cooperative.

Exclusions Policies that exclude coverage for high-risk members, such as

Screening Requirements to furnish health certificates to be eligible for

Graduated Because of information asymmetries, some MFIs have lower

Attributes Indigenous Insurance Formal Insurance

Strength Social capital Technical skills in Insurance

Ways of Access technical assistance in Focus on products that are difficult

Web site • should include insurance products and practices, educational

Just as microfinance has gained widespread acceptance as an effective

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