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Insurance industry's Scylla and Charybdis

By Michael F. Rellosa

A WORLD Bank report pictures the Philippine insurance industry as small but growing, where insurance penetration remains below that of its Asean neighbors as well as of countries with similar per capita incomes. Despite that, it accepts that the Insurance Commission (IC), as the industry's regulator, has done a decent job at improving regulation and supervision. The World Bank, however, suggests that the IC overhaul its existing inspection methods, data collection, reporting infrastructure (IT), analytical tools and on-site inspection manuals. Thus, the Own Risk and Solvency Assessment (ORSA) process and its standards have been prescribed to bring the country's IC and its regulated entities on par with the rest of the world.

On the private sector side, there are developments that have been globally initiated such as the introduction of the IFRS17, a new international financial reporting standard for insurance contract accounting set to be adopted by 2023 in other jurisdictions and 2025 in the Philippines. IFRS17 entails a change in basic assumptions in our accounting principles and the new discipline would have to be learned and instilled by the current staff and grafted onto our existing processes. The problem is that it would entail a major overhaul in both the way of reporting, appreciating the company's status, benchmarking, budgeting and setting of targets. It involves changing the chart of accounts as well as the system on which all these run. The bottom line is that it will entail costs for the insurer from impact analysis to capacity building, and the migration to a new system. Costs no one needs in the current market.

Both initiatives on their own are acceptable and admittedly good for all stakeholders overall. However, the timing of the implementation is questionable.

The insurance industry struggles to navigate perilous waters generously peppered with difficulties and challenges such as climate change and the attendant aberrant weather that it causes; wave after wave of the Covid-19 pandemic and the appearance of yet more novel viruses in the distance; the economic ripples brought about by geopolitical issues, the saber rattling and the unease that they cause, to mention a few. ORSA and IFRS17, which are imposed to instill even more discipline and transparency on the part of the regulated, in all candor, puts the industry's existence at risk because of the difficulties it faces as it struggles to comply. ORSA and IFRS17 can then be christened the industry's Scylla and Charybdis.

The industry has been long preparing itself for IFRS17, now PFRS17, and has surrendered itself to the inevitability of its advent. However, ORSA has been a mere whisper that is now turning into a clarion call for change. Why now, amid all these changes and the dire straits we have to currently navigate? We have not yet emerged from the pandemic, inflation is high and still increasing, the peso is devaluing fast and mindful of our reinsurance costs, the premiums of which are in foreign currency, worries us no end. The economy is not promising, unemployment is increasing, and all are aware that insurance protection is the least of the priorities of a population that may be increasingly cash-strapped. Factor in the increasing ferocity of weather disturbances brought about by climate change and we end up with a perfect storm of uncertainty and an existential threat.

Questions are beginning to emerge from the beleaguered industry. Can we not plan these changes and work out a more realistic and doable timeline? Can we not first see how these initiatives affect one another, and address the duplications and redundancies? Can we not assess the current reportorial requirements which are required by law and recognize that they are outdated and are better replaced by these new frameworks. Many more questions are sure to arise as we get to know more about these new frameworks.

We remain hopeful though that through the open communication lines and the spirit of collaboration that the regulator has instilled in all of us, we can find the best way forward for all.


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