The Insurance Commission (IC) has recommended the exclusion of variable insurance products, such as those that include minimum death benefits, from the list of collective investment schemes (CIS) under study by the Congress to avoid increasing costs for consumers and defeating President Duterte’s goal of financial inclusion for all Filipinos.

In a letter to Finance Secretary and Capital Market Development Council (CMDC) Chairman Carlos Dominguez III, 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. An example would be mutual funds.

On the other hand, variable insurance products, also known as VUL (variable unit-linked) products, are life insurance policies which provide insurance benefits with an investment component.

IC Commissioner Dennis Funa explained that the insurance and investment aspects of VULs are, as recognized by the Department of Finance (DOF), “indivisible” or that 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 framework, i.e. the Insurance Code,” said Funa in his letter to Dominguez.

Funa said that 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, in turn, “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 that “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 are sufficient to protect VUL customers.

Funa said that 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 (SEC), 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.

The SEC of Thailand, the SEC of Malaysia and the Monetary Authority of Singapore (MAS) were the initial signatories in October 2013 to a memorandum of understanding (MOU) on the establishment of the ASEAN CIS Framework.

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.

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