Sunday, October 13, 2013

DISPOSITION OF FUNDS OF A COOPERATIVE'S SELF-INSURANCE SCHEME




Early this year (2013), Insurance Commissioner Emmanuel F. Dooc  formally endorsed to the Cooperative Development Authority, the results of its examination of a Mutual Benefit Association (MBA).


CO-OP FORMS
AN MBA
 

Said MBA, established by a medium-sized cooperative, has an existing Certificate of Authority issued by the Insurance Commission (IC).  Apparently, the  MBA was organized in compliance with new regulations requiring cooperatives, among others, to formalize their insurance services and to terminate their informal/now unauthorized  insurance schemes.  

The MBA, whose members/clients are also members of the said cooperative, is supposed to provide (and currently providing) the IC-authorized microinsurance products/services.

ONLY A FRACTION
TRANSFERRED TO MBA
 

In the course of its regular examinations of the said MBA, the IC noted that said cooperative has transferred to its MBA only a fraction of the tens of millions of pesos in  "pool of funds" accumulated by the cooperative in the course of its operation of informal/unauthorized insurance.

It may be recalled that in 2010 and 2011, IC, Securities and Exchange Commission, and the Cooperative Development Authority (CDA) issued a series of Joint Circulars, covering this practice of unauthorized, self-insurance activities of SEC-registered microfinance institutions, and CDA-registered cooperatives, among others.

FUND EXCLUSIVELY
FOR CO-OP MEMBERS
 

In one of these Joint Circulars, it was provided, and we quote:

     the  "..pool of funds accumulated by cooperatives, microfinance institutions, etc. from the operation of authorized insurance or insurance-like activities shall be used EXCLUSIVELY  for the benefit of contributors who will continue to be covered by insurance or insurance-like contracts with authorized providers..."  (emphasis/underlining suppled).


TRANSFER ENTIRELY
TO THE MBA
 

Moreover, we quote further:

     "...for entities organizing an MBA (Mutual Benefit Association), the pool of funds shall be ENTIRELY TRANSFERRED, in behalf of contributors, to the MBA concerned to cover and/or augment the Guaranty Fund requirements and pre-operating expenses...xxxx" (underscoring/emphasis supplied)


It is interesting to point out that these findings  were noted during the regular examinations done by the Insurance Commission of an MBA, which happened to be formed by a cooperative. No member has yet complained against the cooperative.  This may not be an isolated case.

MORE PRO-ACTIVE
CDA ACTION
  

The CDA could be more pro-active in implementing the rules on such cases.  It is easy to know how much these accumulated "pool of funds" are.  As noted in the IC findings, they just cross referenced the Audited Financial Statements filed by the cooperative.

I could only imagine the huge total amounts involved in the cooperative sector. For more than 20 years, since the CDA was created, it is presumed that these informal insurance schemes had been a feature of cooperatives nationwide. 

 We are not even talking here about microfinance institutions registered with SEC.

It is not only incumber upon cooperatives to effect the proper disposition of these funds, based on the rules, but also for them to properly inform their members of the manner of such disposition.

We will monitor the action that will be taken by the CDA against the said cooperative, in this case.

Your comments are welcome.  (END).


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