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The role of insurance in economic security

By Herminia S. Jacinto

TODAY's column is inspired by the recent Pilipinas Conference 2023 on the topic of "The Path Towards Economic Security: Turning Global Risks into Opportunities," organized by the Stratbase ADR Institute. Now in its eighth year, the conference tracked the most pressing issues facing the country and gathered some government and industry leaders for an interesting discussion of strategic solutions toward economic security. Among the speakers from government were Finance Secretary Benjamin Diokno, Trade and Industry Secretary Alfredo Pascual, Environment Secretary Maria Antonia Yulo-Loyzaga, Transport Secretary Jaime Bautista, Budget Secretary Amenah Pangandaman, and NEDA Undersecretary Joseph Puno. The business sector was represented by executives from the various industries.

The mood was upbeat. The Marcos Jr. Cabinet members assured the audience that the government was confident that the priority measures to boost the economy would be pursued vigorously. Climate change, foreign investments, structural reforms, and ease of doing business through the use of technology were the more important topics mentioned by the speakers. I was happy to hear that the GDP growth estimate for this year is 5.9 percent, and the forecast is for the Philippines to reach a growth rate of 8 percent by 2028.

This is music to our ears, insurance players. When the economy is doing well, there will be a strong demand for insurance coverage, which will result in a strong insurance industry. The non-life insurance industry is well-prepared to respond to the insurance requirements of both government and the business sector. Traditional lines like fire, marine, motor, surety and fidelity guarantee are available anytime clients need them. What they cannot fully cover are reinsured to global reinsurers who have a large capacity to write such risks. Over the years, our insurance companies have earned the trust and confidence of large reinsurers, and they have supported the industry even for the more complicated risks. There is continuous interaction with the regulator so they can help the companies in complying with the necessary regulations without stifling business activities. Secretary Yulo-Loyzaga enumerated the plans and programs for addressing the negative or disastrous effects of climate change. Well and good, but events like earthquakes, strong typhoons and floods cannot be prevented. They have happened just recently and may happen again. Government can install the required infrastructure and measures to mitigate the harmful effects of these events. But that is not enough. There is a need for protection. How do we protect properties and, more importantly, people from such catastrophes? How do we rebuild if there are not enough funds to spend on reconstruction?

The insurance companies, with the support of their reinsurers, are ready to cover the risks. Technology makes it easier and faster to provide the right protection at rates that are commensurate to the risks covered. But why is there under-insurance or no insurance at all? Is it because of a lack of appreciation of the risk that may happen, so bahala na lang? Is it pricing? Insurance rates are computed with a lot of science and data involved. And rates are aligned with world prices of insurance. This is one business where prices are determined by engineers, accountants and actuaries. We can assure clients that prices are reasonable. However, the industry continues to be saddled with high taxes, which increase the cost of insurance covers. As of now, the non-life insurance premiums are subject to a 12.5 percent documentary stamp tax, 12 percent value-added tax and 2 percent fire tax. Local governments also charge their respective LGU taxes. The good news, however, is that these taxes are now being reviewed by Congress, which may result in some reductions as prayed for by the industry. The reduction will reduce the cost of insurance premiums and encourage the customers to insure their properties and, most importantly, insure to the correct value.

Government should realize the role and importance of the industry and consider it as a significant partner in achieving its path towards economic security.

Thank you to Stratbase ADR Institute for streaming the seminar on Facebook.


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