The Insurance Commission (IC) thumbed down the proposed yearlong grace period on life insurance and pre-need premium payments under the Bayanihan 2 bill, saying this may spell “financial danger to life insurance and pre-need companies.”
In a letter dated August 12 addressed to members of the Bicameral Conference Committee of Congress, IC Commissioner Dennis B. Funa said the proposed 1-year grace period will add to the life insurance and pre-need industries’ challenge of generating as much premiums from its existing business in order to offset the decline in new business premiums resulting from the slowed market demand.
While the Senate version of the Bayanihan 2 Bill only provides for a 30-day grace period, the version of the bill in the House of Representatives provides that insurance companies providing life insurance policies and pre-need companies shall implement a 1-year or 365-day grace period, staggered payment schedule or any mutually beneficial arrangement for premium payments.
“We understand that the proposed policy in HB [House Bill] 6953, while favoring life insurance and pre-need customers, may spell financial danger to life insurance and pre-need companies, which are among the pillars of the Philippine economy that also need protection,” Funa said.
“Life insurance and pre-need companies are still reeling from the effects of the reduced economic activity, which has already resulted in the reduction of premiums collected and earned,” he added. “With due respect to Congress, we fear that a 1-year moratorium will exacerbate the adverse economic effects of the pandemic to said industries’ financial and capital positions, such that said industries may be permanently unable to recoup the consequent losses during this period, even if we were to consider future premiums.”
Instead, Funa suggested an alternative to the one-year premium payment moratorium.
“As a form of compromise between the House of Representatives and Senate versions of ‘Bayanihan 2’, we wrote Congress to suggest that life insurance and pre-need customers instead be given a 30-day extension in addition to the usual and existing 30-day or 31-day contractual grace periods under insurance policies and pre-need contracts. Taken together, this makes for a total extension of 60 days in favor of the consumers,” Funa said.
“We firmly believe that this proposed alternative achieves a balancing of interests. The suggestion affords both life insurance and pre-need customers, as well as life insurance and pre-need companies, much needed relief from the adverse economic and financial effects of the Covid-19 pandemic,” he added.
The proposed 1-year grace period also did not sit well with Finance Secretary Carlos G. Dominguez III, who recently said that this moratorium will “negatively affect the financials of banks and other credit providers which in turn affect their ability to provide new loans to borrowers or pay interest to their depositors who vastly outnumber their debtors.”
The finance chief also earlier said the “entire economy will lose disproportionately more than the gains borrowers make.”
Instead of a 365-day grace period, Dominguez said he favors a maximum of 45-day grace period.
By: Bernadette D. Nicolas