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Philippines Nat CAT cover sorely lacking

Given the country’s vulnerability to catastrophic disasters, a large proportion of the population in the Philippines still does not have Nat CAT insurance. In conversation with Asia Insurance Review, Philippines Insurance and Reinsurance Association’s Mr. Michael Rellosa raised awareness of the lack of Nat CAT insurance coverage in the Philippines, saying that the country is in a ‘perfect storm’, with the price of Nat CAT insurance increasing while supply is decreasing. By Reva Ganesan

The lack of widespread Nat CAT insurance coverage in the Philippines has been a concern to insurance and reinsurance companies since 2021. Despite the country’s vulnerability to natural disasters such as typhoons and earthquakes, a significant portion of the population and private businesses do not have adequate insurance coverage against such events.

“We are quite concerned as studies done by the World Bank in the US indicate that there is a coverage gap in the Philippines, with huge swaths of the populace not having cover against Nat CAT events,” said PIRA executive director Michael Rellosa.

To make matters worse, the country was expecting to face the fast-approaching super typhoon Mawar, also known as typhoon Betty, which was reported to be the second major weather disturbance for the year in the Philippines. Although the typhoon largely skirted the island, the weather disturbance has sucked in a stronger monsoon season in the Philippines, leading to more rain and severe thunderstorms.

“Mawar formed almost immediately as a super typhoon and even normal monsoons, which our farmers depend on for water, are getting stronger due to climate change.

“Now that we are getting more super typhoons than ever, even a normal thunderstorm can wreak havoc, which is why people need more coverage. There is a dearth of coverage, mainly because it is too expensive,” said Mr. Rellosa.

Many individuals and businesses, particularly those in low income and vulnerable communities, find it challenging to afford Nat CAT insurance premiums, which can be relatively expensive due to the high frequency of such events in the Philippines.

Addressing the lack of Nat CAT insurance coverage in the Philippines could require a multi-faceted approach with efforts focusing on improving affordability, increasing awareness and enhancing risk assessment capabilities. Collaborative efforts between the government, insurance industry and stakeholders are crucial to developing innovative solutions and promoting the availability and accessibility of Nat CAT insurance.

Pooling facility needs more support

Launched in the 1Q 2021, the Philippine non-life insurance industry together with the regulators embarked on creating a programme called the Philippine Catastrophe Insurance Facility (PCIF) that could potentially close the coverage gap.

However, due to the toing and froing in the local market, it took some time for the industry to build PCIF. There were a lot of fence sitters and what was forecast to be a 55-member facility only yielded 17. Many wanted to test the programme before joining and skepticism was high.

“Seventeen companies versus 55 is a huge difference and we saw at the time that the market was hardening because of climate change. The timing was off and in other words, we were not able to get sustainable rates to be able to push PCIF. We then created PCIF Two,” he said.

PCIF Two is a combination of traditional indemnity based insurance and parametric cover, with a focus on affordability. Products will be sold in bite-sized pieces.

Premiums will be a lot lower, and consumers can buy affordable coverage instead of a total lump sum. PCIF Two is currently in talks with members of the programme.

Closing the protection gap in agriculture insurance

The Philippine government and the private sector are now working together to increase the coverage of agriculture insurance, however they have barely scratched the surface.

In the past, increasing agriculture cover was managed solely by the government-owned Philippine Crop Insurance Corporation.

“A protection gap has been clearly identified and the World Bank is saying that it is better for the private sector to lend its efficiencies and be able to offer its capacity for agriculture insurance which includes crop insurance and covers against poor farming implementations and equipment,” said Mr. Rellosa.

“We are starting to get out feet wet. The Philippine insurance sector is not an expert when it comes to agriculture insurance as we were hands off for a very long time but now companies that are willing to step into agriculture insurance are starting to build the capacity for it,” he said.

He also said that it would be a long time before anything gets done.

Post pandemic, the insurance industry has recognized that technology is vital for microinsurance as the traditional channels of distribution such as agents and advisers cannot be everywhere all the time. Technology is more important than ever for farmers and other microinsurance policyholders to manage their finances and premiums.

“Microinsurance in the Philippines is far ahead of other countries and it has become a valuable avenue when it comes to closing the gap, even against Nat CAT.

“As we discover new ways of closing the gap, we see it is increasing. We are playing catch-up. The gap increases, we come up with something and then the gap increases again. It’s a never-ending process,” he said.

Regulation becoming tougher due to IFRS17

Regulation is becoming increasingly tough in the Philippines as the country’s insurance sector transitions to IFRS17. Companies need to invest in new computer systems that will have to be compliant with IFRS17 and changes are expected to take effect in 2025.

Regulators have also hoisted the Own Risk and Solvency Assessment framework onto insurers that have $2bn in premiums, which adds to the mounting pressure from the IFRS17 transition.

“It is taking a lot of effort from individual companies to do what they are supposed to do and to be able to meet the requirements of such frameworks and regulations.

“The fact that we are faced with all these new regulatory developments in rapid fire succession gives rise to capacity issues such as cost, systems, metric, operational and manpower issues. We would like the government to recognize these threats and ease up on implementing additional ones,” said Mr. Rellosa.



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