Twin disasters expose Philippine insurance gap

Only 10 of 51 nonlife insurers belong to the disaster risk pool.

A private-sector insurance pool for major disasters in the Philippines faced its first major earthquake in June, but limited reported claims left questions over whether it can absorb a large-scale loss.

The Philippine Catastrophe Insurance Facility (PCIF), which pools earthquake risk amongst insurers, was tested by the magnitude 7.8 earthquake that struck Sarangani province in the nation’s south in June.

"With the second year of the program in 2026, the PCIF is functioning as intended, aiding primary retention," Hemant Nagpal, regional director and head of analytics for the Asia-Pacific region at Gallagher Re Ltd., said in an emailed reply to questions.

He said the quake provided an "early important operational test" but did not meaningfully test the facility's financial capacity because reported losses were limited.

The National Disaster Risk Reduction and Management Council had recorded 92 deaths, 1,316 injuries, and 20 missing people across Mindanao as of 7 July.

The Insurance Commission (IC), Philippine Insurers and Reinsurers Association (PIRA), and National Reinsurance Corporation of the Philippines launched PCIF in July 2025. It covers earthquake risk and is designed to retain losses domestically before transferring extreme losses to reinsurers.

The limited claims also exposed a wider shortage of catastrophe insurance. Swiss Reinsurance Company Ltd. estimated emerging Asia's catastrophe resilience at 5%, compared with 29.1% in advanced countries in the Asia-Pacific region.

Insurance penetration in the Philippines reached 2% in the first quarter (Q1), the IC said, leaving coverage amongst the lowest in ASEAN.

Mindanao faces an even larger gap. Insular Life Assurance Company Ltd. said the region accounted for just 9.5% of its year-to-date 2026 sales.

“The tricky thing with Mindanao is insurer presence tends to be a key factor in purchasing insurance," Jose Eduardo Ang, chief product and innovation officer at Insular Life, told Insurance Asia via Zoom.

He cited distribution, product fit, and price as barriers.

PIRA Executive Director Michael Ferre Rellosa, said lower premiums alone would not solve the shortage of catastrophe coverage.

"A premium that does not reflect real risk is not a discount; it is a deferred default,” he said in an emailed reply to questions. “The cheapest policy in the world is worthless if the insurer cannot honour the claim when the ground shakes, and a market priced on yesterday's climate is quietly accumulating exactly that failure.”

He said insurers should combine risk pooling and parametric insurance, which pays when disasters reach agreed thresholds, with targeted government support and measures to reduce disaster risks.

The debate over broader catastrophe cover gained urgency weeks later when Typhoon Bavi, locally known as Inday, struck Sarangani, killing 10 people in a landslide.

The PCIF initially covers only earthquake risk, with typhoon and flood coverage excluded to keep the facility simpler.

Rellosa said the pool could eventually cover a broader range of natural disasters. “Earthquake for now, but the whole idea is that all natural catastrophe risks will be included. Maybe in a year or so," he added.

PIRA plans to expand the pool to typhoon and flood risks, review rates, and increase membership. It also plans an agricultural insurance pool by Q1 2027.

Source: insuranceasia.com