The Insurance Commission (IC) is recommending the exclusion of variable insurance products from the list of collective investment schemes (CIS) under study by Congress to avoid increasing costs for consumers, the Department of Finance (DOF) said in a statement yesterday.
In a letter to Carlos Dominguez, DOF secretary, the IC said variable insurance products are legally defined as life insurance products and not securities that are covered by the CIS.
CIS are arrangements in which funds are solicited from the investing public and pooled for the purpose of investing, re-investing and/or trading in securities and other assets —
for example,the mutual funds.
On the other hand, variable insurance products, also known as variable unit-linked (VUL) products, are life insurance policies which provide insurance benefits with an investment component.
Dennis Funa, insurance commissioner, said the insurance and investment aspects of VULs are, as recognized by the DOF, “indivisible” or cannot be taken as separate components.
These VULs are bought as single products because “the investment component of the life insurance policy, unlike other investment products, cannot be acquired by itself.”
“(Thus,) being an indivisible insurance product, it is our position that the insurance and investment components of a VUL product should be regulated and supervised under a single regulatory frame work, i.e., the Insurance Code,” Funa said.
Funa said if VULs are included in the CIS, these products would have to be subjected to two regulatory frameworks — the Insurance Code and the single framework being worked out in the Congress for the CIS.
Under this scenario, potential customers would be dissuaded from purchasing VULs as the additional operational layers involved in regulating such products would lead to higher premiums, Funa said.
“(This) would cause the decline in the insurance penetration and hamper the efforts of improving financial inclusion in the country as the public would be discouraged from availing of expensive financial products,” he said.
Funa also said detaching the investment component of a VUL product which would subject it to more than one regulatory framework does not support the ease of doing business initiatives currently in place.
He assured the DOF that current regulatory and supervisory mechanisms under the Insurance Code are in place and sufficient to protect VUL customers.
Funa said in the event that VUL products are still classified as CIS, he will adopt the DOF’s recommendation that “the IC should continue to administer, supervise and regulate the VUL in accordance with the Insurance Code.”
The Philippines, through the Securities and Exchange Commission, became the fourth signatory to the Association of Southeast Asian Nations (Asean) CIS Framework in May this year.
The Asean CIS Framework aims to clear the way for qualified fund managers in the region to directly offer mutual funds and other CIS to retail investors in other participating Asean countries through a streamlined authorization process.
A bill is pending in the Congress seeking to harmonize the regulatory and tax systems for all forms of CIS products to ensure that Philippine fund managers and retail investors would be able to benefit soon from the country’s signing of the Asean CIS Framework.
Participating fund managers under the CIS Framework are required to abide by a set of common rules and standards to ensure that they possess the necessary experience and track record, and that the funds they are offering are regulated and managed based on industry best practices.
