Savings-linked solutions in the Philippines as ICMIF member CLIMBS partners with ILO on impact insurance project

Thursday, 02 July 2020

The Philippines experiences about 20 typhoons every year. The island of Mindanao is home to Oro Integrated Cooperative (OIC) and Nabunturan Integrated Cooperative (NICO), two savings and credit cooperatives that are currently partnering with local ICMIF member CLIMBS Life and General Insurance Cooperative* and the International Labour Organisation (ILO) to support an ILO project on integrated risk management solutions.

Members of the two cooperatives typically cope with emergencies like typhoons by taking out a loan. The saving habit among members is generally very low according to OIC and NICO. Both cooperatives were therefore keen to instil the habit of saving amongst their members and to increase saving deposits to help members have access to their own funds during times of emergency. OIC also wanted to increase long-term savings to balance liquidity for the long-term loan products it offers, and NICO was keen to provide a health insurance benefit to its members.

To design integrated risk management solutions, the project started with market research, including focus group discussions, in-depth personal interviews with members and staff and an analysis of the current products offered. The research with members included questions relating to risks faced, coping mechanisms, saving habits and credit behaviour. Health and calamities topped the list of risks faced by members. OIC members also wanted an education product to help their children pay for college.

Based on the demand of members and the requirements of the cooperatives, three products were launched. All three solutions are anchored on savings with a relevant insurance bundle. This ensures that, in the event of a typhoon or other emergency, a member can access their own fund rather than taking out a loan with a high interest rate, which can put additional burden on an already difficult situation. The insurance is provided by CLIMBS. For the cooperatives, it builds member loyalty and provides them with the liquidity they need for a long duration term.

NICO’s “Health Saver”

This is a five-year savings product with added health insurance. Members need to save a small monthly deposit (a minimum of PHP 500 (USD 10) to a maximum of PHP 2,500 (USD 50)) for five years. The interest rate is 6% per annum, which is higher than the regular savings interest.

The member gets a hospitalisation income benefit for him or herself and two dependents. The member pays for the insurance premium for the first year, after which the premium is deducted automatically from the accumulated savings balance.

In case of hospitalisation, members avail of PhilHealth insurance and NICO’s hospital income benefit. If there is a shortfall, a member may withdraw from this health savings account. In case of a further shortfall, members may take a loan, which is subject to the member’s ability to pay.

OIC’s “Health & Disaster Savings”

This is again a minimum five-year savings product with added calamity insurance. Members are provided a free calamity insurance once the accumulated balance reaches PHP 5,000 (USD 100). The insurance covers damage to property and health reimbursement due to natural disasters. Members need to save a small deposit (minimum of PHP 500 (USD 10) to a maximum of PHP 2,500 (USD 50) per month for a minimum of five years. The interest rate given is 5% per annum. After the five-year term, members can withdraw the interest earned and stop contributing deposits; however, they can only withdraw for an emergency.

OIC’s “SAFE Plus for the Co Op Kid”

The purpose of this savings is to build a college fund for a child. In the savings plan, members need to save for 10 years or until their child enters college. Withdrawals are permitted in instalments of two per year spread over the duration of the college term. During the deposit period, free life insurance is offered to the member. The insurance is equal to the accumulated balance. In case of a member’s death, the child can withdraw from the fund when he or she reaches legal age.

All three products have a pre-termination penalty in case the withdrawal is made for any other purpose than intended for. To ensure persistency in savings, a pre-termination fee is levied, and the account closed in case of non-deposit of the minimum committed amount.

All three products were launched a few weeks before the lock-down was imposed in the Philippines. While a drop in overall savings has impacted the uptake of the product, the initial feedback from members has been encouraging. In fact, OIC is certain that members will see the benefit of such a product more now than before and expects for the Health & Disaster Savings product to be the highest availed product offered by the year-end.

CLIMBS is one of ILO’s partners in The Impact Insurance Project of the Philippines. The project will run for 18 months and has gained momentum from the time it was launched in 2019 until the COVID 19 broke out globally early 2020. The project’s pilot partners are the OIC, NICO and MSU-IIT NMPC however, the project is still at the conceptual stage for the latter. With CLIMBS’ network of around 4,000 cooperatives nationwide, the project is also intended for scalability - in terms of reach and impact from the grassroots level.

The ILO fellow assigned to CLIMBS for this project is Preeti Sancheti. Preeti is part of the implementation of the Impact Insurance Project through the ILO's Fellowship Programme. She is working with CLIMBS and its pilot partners on the market research and design of these holistic risk solutions.