The Philippines: Insuring a brighter future

There are signs that the Philippines insurance industry may be heading towards a period of solid growth, with both the state and the private sector stepping up efforts to encourage the public to embrace insurance as a way of life. It will be some time, however, before the domestic market will be able to rival that of most of its neighbours.

Data compiled by Sun Life Financial Philippines, one of the country’s leading policy writers, shows that insurance penetration levels in the local market remain low – at around 14% – and well below that of regional markets.

At the end of last year, the Philippines was ranked the third-smallest insurance market in the East Asian region in terms of insurance premiums, ahead of only Macau and Brunei Darussalam, with the life insurance segment valued at under $2bn.

According to Emmanuel Dooc, the head of the Insurance Commission – the state agency charged with regulating the industry – one of the key reasons that current penetration rates are so low is the public’s lack of confidence in the sector. At a press conference on October 14, Dooc said it was understandable that many people had doubts about insurance companies, given that in previous years there had been instances of insurance and pre-need companies going bankrupt. This meant that they failed to meet their responsibilities to their clients, undermining confidence in the industry, he said.

To counter this, both the government and the industry are working to overcome the negative perception many Filipinos, especially low-income earners, have of insurance services. The commission has further tightened regulations governing the sector, making entrance into the market far more stringent, Dooc explained. “Only duly licensed firms, with strong financial capitalisation, are allowed to engage in the insurance business,” he said.

The Insurance Commission has also been promoting microinsurance as an option to those in lower-income groups as a way of building financial security. These policies, which are increasingly being made available through licensed agencies in rural areas as well as in large cities, offer limited payouts but boast low premiums. Premiums for a standard microinsurance policy can range from around Ph30-600 ($0.4-8.8) a month, with life, health and property policies being the main focus.

The government sees microinsurance as a useful tool to help alleviate poverty and to ease the threats posed by accidents, illness, deaths, or any catastrophe, said Dooc.

While it is unlikely to pressure the dominance of the major policy writers in the sector, where large insurers account for more than 80% of combined premiums, there is a growing push by small rural banks to buy into the industry, with seven lenders having recently been granted licences to offer microinsurance services.

Under the terms of their licences, issued through the Bangko Sentral ng Pilipinas (BSP) and the Insurance Commission, the banks will be authorised to distribute microinsurance products and services offered by licensed partner insurance companies. A further 40 rural banks have applied to become accredited microinsurance agents.

This increased interest from the finance sector in offering microinsurance products could see up to 20% of Filipinos covered by the end of 2011, according to estimates by the Insurance Commission released earlier this year. However, even if there is a rush into microinsurance by low-income earners, the limited premium charges will not result in a large inflow of funds for investment by agency banks and their policy-underwriting partners. For that to occur, there will need to be a sustained expansion in policy take up by middle-class consumers, a trend that does seem to be under way.

In late July, the president of the Philippine Life Insurance Association (PLIA) forecast that, based on recent performance, there could be an increase in life insurance premiums of around 23-24% this year posted by the main players in the industry. Better still, Mayo Jose B Ongsingco predicted that there would be a sharp increase in new premium growth of up to 60%, indicating a surge in interest in coverage.

While there may be solid growth in premiums and policies issued, the sector will still have to contend with the possibility of large payouts as well, a constant risk in a region prone to natural disasters. Although the Philippines was considered to have got off lightly from September’s Typhoon Nesat, insurance payments are projected to approach $100m, a figure that will eat into the industry’s black ink this year.