THE Insurance Commission (IC) wants to exclude variable insurance products from the list of collective investment schemes (CIS) being studied by Congress to be placed under a harmonized regulatory and tax framework.
In a letter to Finance Secretary and Capital Market Development Council Chairman Carlos G. Dominguez III, Insurance Commissioner Dennis B. Funa said variable insurance products, also known as VUL (variable unit-linked) products, are legally defined as life insurance products and not securities that are covered by CIS.
If VULs are included in the CIS, Funa said these products would 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, Funa warned potential customers would be dissuaded from purchasing VULs as the additional operational layers involved in regulating such products would lead to higher premiums.
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.
Collective investment schemes 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. A mutual fund is an example of CIS.
On the other hand, variable insurance products are life insurance policies that provide insurance benefits with an investment component.
Detaching the investment component of a VUL product will subject it to more than one regulatory framework so it “does not support the ease of doing business initiatives currently in place,” Funa said.
He also explained that the insurance and investment aspects of VULs are, as recognized by the Department of Finance (DOF), “indivisible” or cannot be taken as separate components. VULs are bought as single products because “the investment component of the life insurance policy, unlike other investment products, cannot be acquired by itself”, he said.
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,” Funa said in his letter to Dominguez.
Funa also argued that the current regulatory and supervisory mechanisms under the Insurance Code are in place and are sufficient to protect VUL customers.
But should VUL products be classified as CIS, Funa said they 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 last May.
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 were the initial signatories in October 2013 to a Memorandum of Understanding on the establishment of the Asean CIS Framework.
A bill is pending in 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.