Monday, December 9, 2013
HOW CO-OPS, MICROFINANCE NGOS STILL DO "SELF-INSURANCE"
Despite the Joint Memo Circulars between the Insurance Commission; Securities and Exchange Commission; and the Cooperative Development Authority disallowing the practice of self-insurance by cooperatives, and micro-finance NGOs, the practice is still ALIVE.
Supposedly, only the practice of "DAMAYAN" was allowed by the Joint Memorandums. It is when/after a member dies, the surviving members of DAMAYAN give a certain pre-agreed amount per member, as contribution to the family of the deceased.
There is no premium paid in advance of the occurrence of the risk (death); nor is there an assured amount that will be given when said risk materializes. This makes it NOT an insurance or insurance-like scheme, by definition spelled out by the Joint Memorandums.
But some cooperatives and even micro-finance NGOs have creatively found a way of collecting in advance a "premium" for DAMAYAN.
For example, if the historical number of deaths in a cooperative in a year is say 20 persons, and the contribution to each death is P10 per member, the amount of P200 is collected at the start of the year. Even before anyone dies.
This practice of collecting in advance the estimated annual contribution to DAMAYAN, started more out of convenience for the cooperative or micro-finance NGOs, in administering DAMAYAN benefits to their members. It is cumbersome and time consuming to collect P10 per member, each time somebody dies, especially when the members are in thousands.
In the cooperatives' books, there is no fund created, as a liability, as this is a sure give-away that the practice is self-insurance/insurance-like. The "premium" or advance contribution is deducted from the interests earned by cooperative members, for example, from dividends on share capital and patronage refund.
Or those without or with less than the required annual premium are asked to deposit the "premiums" balance in their savings account at a certain cut-off date, if they want to be members of DAMAYAN or of other insurance-like schemes.
These are then placed in the savings deposits of the members, as deposit hold-outs, meaning these cannot be withdrawn, except as contribution to DAMAYAN. The withdrawal is done by the cooperative, upon prior authorization by members.
In like manner, many cooperatives have hidden their other insurance-like products (hospitalization benefits; medical/dental consultation services), similar to the way they run their DAMAYAN.
For example, for a yearly fee, a member once hospitalized gets a daily subsidy (say P500,or P1,000 per day of hospital confinement, over a fixed maximum number of days per year). In the same way, for a fixed annual fee/premium, a member gets free, unlimited consultations from accredited doctors and dentists, and discounted rates for other services.
In return, the doctors and dentists, under a memorandum of agreement, get a monthly retainer from the cooperative, depending on the number of members given medical/dental consultation.
The yearly fee/premium are also collected in advance from members, also by deducting from their share capital dividends and patronage refund received from the cooperatives.
Technically, the above-cited insurance-like schemes are crude, health/hospitalization insurance-like schemes. Members pay in advance a fixed fee, for a fixed amount of benefit, and in advance of the occurrence of the risk insured against.
Unlike before when the insurance-like activities created fund liabilities in the cooperatives' books, now, the advance contributions/premiums are "hidden" as cash hold-outs in the members' savings deposit accounts.
There are no insurance liabilities reflected in the cooperatives' book of accounts/financial statements. Clever? Yes.
As in the previous self-insurances, now disallowed, today's DAMAYAN-like self-insurance schemes also meant well, to provide protection and assistance to members in times of death, sickness, and need for medical/dental consultations. We have no quarrel with that.
Can cooperatives and micro-finance institutions also find a way of technically circumventing the existing regulations of the SEC, CDA and Insurance Commission, as far as running their own credit insurance (insuring the amount of loans from borrower's death, delinquency), similar to the schemes above?
Any reactions? Your comments are welcome. (END)