AS we move toward the last quarter of the year, the positive outlook, which we had at the beginning of the year, seems to be taking a back seat to the events currently prevailing. New Covid-19 cases have reached the 20,000-level as predicted by health experts and are expected to stay there during this month. The imposition of modified enhanced community quarantine has caused stoppage of work in many offices, and transport has become more limited. It is time to look at the economy again and perhaps make a new forecast. The insurance industry, especially the nonlife sector, which is very sensitive to the status of the economy, will have to calibrate its performance in the light of the new developments.
The Insurance Institute for Asia and the Pacific sponsored a webinar, "Economic Briefing for 2021," with noted economist Dr. Cielito Habito last Aug. 26, 2021. Doctor Habito is a columnist of the Philippine Daily Inquirer in a column titled "No Free Lunch." After describing the present situation, which has resulted in persistent recession due to the lockdowns and slow business activity, he has a two-wheel proposal to push for the recovery of the economy. The two must durable sectors amid the pandemic are the digital economy and agriculture/agribusiness. Agricultural production is prevalent across all regions of the country and can provide labor and other linkages, which can make the regional economy recover fast and be a major contributor to the gross domestic product (GDP). The other wheel for recovery, according to Doctor Habito, is the digital economy and allied industries. Digitalization of almost all business processes became the solution to the immobilization of people and other movers of the economy. Sales and marketing, risk evaluation of insurable risks, payment of claims, commissions to agents and compensation of employees can be done remotely or without going to the offices of the companies. These two wheels of recovery are benefiting the nonlife insurance sector since it covers many agriculture-related risks. Micro insurance should be strongly promoted among farmers, poultry, swine and other food growers. In previous columns, I described how the insurance industry has utilized to the maximum the benefits of digitalization.
It is no surprise, therefore, that Insurance Commissioner Dennis Funa, in his talk in the virtual forum organized by The Manila Times, expressed optimism despite the lingering impact of Covid-19 on the insurance players and policyholders. He reported that the income of life and nonlife insurance companies and mutual benefit associations improved in the first quarter of 2021. The life sector posted higher growth in both premium and net income of 28 percent and 38 percent, respectively, in the first quarter of 2021 compared to the same period last year. Mr. Rahul Hora, president and executive director of AXA Philippines, spoke of the benefits brought about by digital transformation to the operations of the companies. The use of artificial intelligence enabled the companies to customize their products and systems, which allowed them to service their business partners as fast and efficiently even in a work-from-home environment.
For the nonlife sector, resiliency is the key word. The year 2020 was a very difficult time for the industry since everybody, insurers and clients, had to adjust to the changes caused by the pandemic. Car sales were down, which pulled down the insurance premiums on this line. Car insurance is the major contributor to the premiums written by the sector. Despite the lower premium income, net income for the year 2020 was 67 percent higher than the 2019 net income as reported by Mr. Michael Rellosa, executive director of the Philippine Insurers and Reinsurers Association, which was attributed to lower losses and savings in expenses.
Reconciling the insights presented in the two recent forums, the economic briefing by Doctor Habito and the "Industry Outlook" by The Manila Times, we are optimistic that the insurance industry can ride out the negative effects of the pandemic. We can start by providing the support to the two wheels of economic recovery - strengthen our agricultural capabilities and continue with the digital transformation of business operations and people's mind sets. We should aim to do better than the GDP growth forecast of 3.5 percent for 2021.