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Untying the insurance industry's Gordian knot

By Michael F. Rellosa

BACK in the mid to late ‘80s a significant group of stakeholders raised the alarm that the insurance industry’s tariff pricing guidelines for certain classes of businesses — namely the fire, motor and surety lines — were a form of cartelization. They therefore posed legal challenges to the Industry and the regulators, as well, for supposedly condoning the practice. The case was never heard on its merits as the regulators in a bid to defuse the situation acquiesced and allowed individual insurance companies to come up with their own rating guides loosely based on the established, proven, transparent and defensible tariff, arrived at by the industry, based on years of historical data, and approved by the regulators. The only set price that the regulators left standing was that of the catastrophic perils of earthquake, typhoon and flood. In effect, each company now had its own set of rates except for the CAT peril rates, which effectively stood as the minimum rate to which all the other peril rates were added.

For those in the know, tariff pricing is not new and unique to the Philippines. You will find that tariff pricing regimes are common across the globe from mature markets such as the United States, Japan and some European countries to developing markets such as those in neighboring Asean countries, as well. Some countries have already started to detariff with various results, the most worrying of which is that competition can drive prices to unsustainable lows jeopardizing the ability of insurers to service their claims.


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