THE PHILIPPINE Insurers and Reinsurers Association wants a free market regime for tariffed insurance products, while seeking to reform the system for car and fire insurance policies and surety bonds. The nonlife insurance industry is working on a major shift to a free market system on the three businesses governed by tariff rates, based on a referendum agreed to by its members three months ago, group Executive Director Michael F. Rellosa told an online forum on Tuesday. He said local insurers want to eventually scrap the tariffs on car insurance, craft a new system on tariff for fire insurance products and adopt a more flexible tariff system for surety bonds. “The current tariff rates have been static for some time and may not be reflective of the true/technical rates,” he said in a separate e-mailed reply to questions. “These would have to be analyzed and updated.” Under a tariff regime, insurance companies will have a fixed price list for product premiums, while a nontariff or free market regime allows insurers to set their rates based on their risk assessments. Mr. Rellosa said charging appropriate rates would benefit both the insured public and insurance companies since this would help the sector build loss reserves for claims in times of calamities and enough buffer against rising claims. Insurance Commission chief Dennis B. Funa said the agency is studying the industry’s proposal for a free market regime. “We will decide on what will be the best for the Philippine market,” he said in a Viber message. “But this needs to be studied further.” Mr. Rellosa said the sector still has a lot of work to do before the organization and commission can proceed with the free market shift. The regulator has seen tariff violations amid increased competition, though breaches have been few and far between, Mr. Funa said. At the same forum, Mr. Rellosa asked the Insurance Commission to reconsider a planned minimum capital requirement of P900 million for all insurers, and defer the scheduled hike to P1.3 billion by 2022 so companies can expand their operations. He said 48 nonlife insurers have hit P1 billion in net worth as of end-2020, four are above the P900-million mark, while the capital of three more were around P700 million. Insurers with more than P1 billion in net worth would be considered to be on a solid financial footing and have proven to be resilient to economic shocks such as the pandemic-induced recession last year, he said. “We hope our government would see this as enough capitalization already and would consider the industry’s proposal to keep the capitalization target at the P900-million mark and no longer the P1.3 billion originally set for December 2022,” Mr. Rellosa said. “Doing this would enable the companies to invest their money more in their operations and digitalization, rather than just parking it to satisfy the requirements of law,” he added. But Mr. Funa said the scheduled hike must proceed to give policyholders greater protection. “The Department of Finance has already spoken on the matter,” he said. “The increase to P1.3 billion as provided by law will push through to provide greater protection to the insuring public.” He also said deferring the increase would require lawmakers to amend the law. “It will depend on Congress if they want to amend it or not.” Insurance companies’ minimum capital requirement was increased to P900 million at the end of 2019 from P550 million and will increase further to P1.3 billion by end-2022, according to the Insurance Code. The local insurance industry’s total premium income rose by 28% in the first quarter from a year earlier to P99.89 billion. Source: bworldonline.com

Attended by delegates from our Council Members, the ASEAN Insurance Education Committee (AIEC) Working Group Meeting was successfully conducted virtually on 3 September 2021 at 3pm, local Phillipines time. The meeting itself was a follow-up meeting from the 18th ASEAN Insurance Education Committee (AIEC) Meeting, which was also conducted virtually and hosted by The Philippines. Through the Working Group discussion, the Country Members were able to share and provide updates regarding any developments on the Education Committee’s activities. We wish to express our gratitude to everyone who participated within the discussion, and we truly hope that the good efforts that has been done can be carried over to the following years.

Given the pandemic and the rapid advancement of technology, companies are pushed into going Digital. This presents companies, organizations, and financial institutions with a new set of risks and responsibilities. The company's board is ultimately responsible for its compliance and adherence to good Corporate Governance. In times like these, YOUR board should be on top when it comes to Anti-Money Laundering Compliance. How can fraud and money laundering risks be mitigated? What are the recent laws that companies need to comply with? How can technology enable companies to detect money laundering and fraud? How does one adhere to AMLA compliance in the Age of the Digital World? Click here to register.

Industry experts expressed optimism on the insurance market despite the lingering impact of the Covid-19 pandemic on players, policyholders and the broader economy. In a virtual forum organized by The Manila Times on Tuesday, Insurance Commission (IC) Commissioner Dennis Funa reported the income of life and nonlife insurance companies and mutual benefit associations improved in the first quarter of the year. Citing data from unaudited quarterly reports on select financial statistics, Funa said the first-quarter income of these firms and associations rose by 45.84 percent to P11.85 billion in January to March from P8.13 billion last year. Total premiums earned also posted a double-digit growth of 27.81 percent in the first three months to almost P100 billion from P78 billion year-on-year. Funa said the life sector recorded a 38-percent higher income of P9.4 billion during the period from the previous year's P6.8 billion. The non-life sector's total net income also surged to P1.19 billion in the first quarter from P164 million year-on-year. "Actually, the current amount is even higher than the prepandemic figure of P1.04 billion back in the first quarter of 2019," he noted. Philippine Insurers and Reinsurers Association Executive Director Michael Rellosa highlighted the resiliency of the nonlife insurance sector. Rellosa said the nonlife sector reported a 67-percent higher net income of P5.5 billion last year from P3.3 billion in 2019. He noted that the increase was achieved despite nine out of 10 nonlife insurance companies recording lower premiums during the period. "The income increase was due to the decline in losses paid by insurance companies. Simply put, [fewer] cars on the road resulted in [fewer] accidents and [fewer] accidents meant less insurance claims," Rellosa explained. Collectively, he said, the industry's incurred losses went down by more than 20 percent, which lowered the loss ratio to 41 percent in 2020 from 47.1 percent in 2019. Rellosa added gross premiums of the nonlife sector declined by 16 percent to P75.9 billion from P90.1 billion year-on-year. Net premium of the sector was also down 15 percent to P40.7 billion from P47.7 billion in 2019. Rellosa said the drop in premium was caused by a decline in car sales, which prompted the 16-percent slip in car insurance sales, the decline in shipping activities, which dipped marine insurance by 12 percent, and the reduced mobility, which resulted in other businesses slumping by 49 percent last year. The fire insurance business was the only gainer as it registered an 11-percent increase year-on-year. Despite the weaker figures, Rellosa said the industry remains "on solid ground" as it is "more than adequately capitalized." "Our industry continues to make itself relevant by being proactive," he pointed out, disclosing one big project the industry is working on is the establishment of a Philippine Catastrophe Insurance Facility. According to Rellosa, the Philippines urgently requires the capability to make the industry more resilient and also make catastrophe insurance more affordable for Filipinos. When it comes to insurance rates, the industry is also pushing for a big transition to a free market system. Easy transactions Meanwhile, Funa highlighted the commission's efforts to cope with the global pandemic, which included the acceleration of its digitalization. "For the Insurance Commission, we have converted most of our existing manual operations into streamlined internet-based processes for fast, easy and safe transactions among our regulated entities," he said. The commissioner added the IC crafted and issued policy interventions, which directly helped the public. "When the going gets tough, insurance will keep our people going. This is what we're here for, to bring relief and assistance when contingencies strike and we will not renege on that," he said. "In the future, even after this pandemic, we expect technology will continue to evolve, providing greater efficiency in the way our processes are conducted," he said. Funa said manual operations were converted into streamlined internet-based processes for fast, easy and secure transactions among its regulated entities. Insurance companies used the internet insurance market to distribute their products and provide a smoother customer experience to the insuring public, according to the commissioner. More importantly, he said, his agency has enjoyed the trust, unwavering support and collaboration of its regulated entities, making navigating through these unusual times less difficult. "And because of these, I am confident enough to declare that the industry outlook for 2021 is very hopeful," the IC chief added. He acknowledged "2021 will likely not bring sterling production" given the country's current state of flux. Nonetheless, Funa expressed confidence the insurance industry will remain robust, vigorous and dependable, and capable of adequately and actively securing life, property and health under the pandemic. AI Rahul Hora, president and chief executive director of AXA Philippines, spoke about the opportunities presented by digital transformation. "Truly, digital transformation will ensure the insurance outlook going forward will continue to be very, very promising," he said, adding artificial intelligence (AI) is the first and primary technology used by the sector. Hora said AI has enabled insurance companies to give more efficient, effective and personalized service by allowing them to create custom products. AXA Philippines has created a social media command center and its own app, Emma, which is designed to serve consumers, health and financial concerns. Amid the pandemic, Hora said, health is an important developing trend in the insurance sector, as a large portion of health spending is still borne by Filipinos out-of-pocket. "This is something we see needing to change for the future. And that is a role HMO (health maintenance organization) and the private insurance industry have to play in a very significant way, and we will see this trend emerging in the years to come," he added. Pru Life UK is the business forum's co-sponsor with AXA, Cocogen Insurance, Cocolife and Hungry Workhorse as special partners. The event's organization partners include the British Chamber of Commerce of the Philippines, French Chamber of Commerce and Industry in the Philippines, Davao City Chamber of Commerce and Industry Inc., Financial Executives Institute of the Philippines, Italian Chamber of Commerce in the Philippines, Management Association of the Philippines and The Manila Times TV. Click here to watch. Source: manilatimes.net

Recent inflation trends have significantly increased during the post pandemic economic recovery. Whether this result is a "bounce back" effect or a longer-term trend is yet to be determined, says Willis Re's Strategic & Financial Analytics in a note released earlier this week. However, the negative impact of rising inflation on the insurance industry’s financial position is leveraged and multi-faceted affecting both profitability and capital position, says the note which is titled “Global (re)insurance: Underlying profitability improves at H1 but inflation and rate deceleration remain concerns”. The note outlines the potential impact of inflation on a company’s profitability and capital position. Underwriting From an underwriting perspective, during times of unanticipated inflation, there is usually an increase in loss ratios given the typical lag in pricing response. In the current pricing cycle, companies appear to be proactively taking pricing action, but it remains to be seen whether it is sufficient. For reinsurance, it is important to note that loss trend on excess of loss layers is higher than ground-up trend. This effect increases the relative value of excess of loss reinsurance as an inflation hedge. On the positive side, overall premiums increase with inflation sensitive exposure bases (e.g. sales, payroll) as well as real economic growth. Reserves With respect to carried reserves, if inflation spikes above the historical trends reflected in the actuarial reserving data, losses will tend to ultimately develop greater than currently booked. The impact of inflation on long-tail reserves is greater as more of incurred losses in older years will be paid out with newly inflated costs. Also, writing long-tail business accumulates reserves to a multiple of current premiums magnifying the risk of adverse development. In addition to reserve uncertainty, the economic value of holding reserves has been pressured as recent interest rate increases have lagged the rising trend in inflation making reserve transfer solutions (ADC/LPTs) potentially more attractive. Assets On the asset side, as inflation rates (or fears) increase, interest rates typically go up. As noted, currently interest rate increases have been more moderate than inflation, but they have increased from their 2020 lows. Given insurance companies hold large bond portfolios whose market prices go down as interest rates go up, this poses a significant risk to their asset values. Source: asiainsurancereview.com

The motor insurance sector is facing a churn, as mass lockdowns have forced drivers off the roads and resulted in fewer vehicle sales thus hitting new premium income. The industry must increasingly adopt digitalisation to stay relevant and navigate the impact of the ongoing COVID-19 pandemic, said speakers yesterday, on the opening day of the Virtual Motor Insurance conference organised by Asia Insurance Review. In his opening address, Mr Dominique Roudaut, head of Asia Insurtech Partnership/Innovation Solutions/Personal Lines, Hannover Re, said that designing a customer experience for the next normal was critical for insurers. Mentioning that the number of road deaths in Asia is higher than in Europe, he said that insurers can help in making driving safer and also ensure that customers get something from their insurance product every day and not once every few years. “Whenever there is engagement, it leads to a delightful experience and a net promoter score,” he said. He highlighted the need for insurers to work on prevention and emerging behaviours to stay profitable and relevant. Hannover Re has developed an app that is mobility-centric, through which it educates and empowers its end users through constant engagement. “We regularly communicate with our end users through this app and update them on road safety and the weather conditions,” he said. Digitisation Speaking on the claims experience in the new normal, Mr Sebastian Tan, country director, Singapore & Regional Business Manager, APAC, of Merimen, said that insurers in Asia are enabling a digital touchless customer claims journey in the COVID-19 era. “Digital claims portals are achieving fast registration and reserving and freeing up traditional channels,” he said. He mentioned how insurers today outsource the document upload function to the customers directly, as the insurers automate document processing, thus saving considerable time and costs. “A digital touchless customer claims journey can be achieved with new tools and technology for better customer engagement,” he said. To be successful, he said, insurers must change their legacy mindsets and begin small. In his presentation on the future of claims during the COVID-19 pandemic, Mr Thomas Sam, Senior Manager, EY Consulting, Business Consulting – Insurance said that in future claims must be customer-experience driven, technology and data-powered and partnership enabled. He mentioned how COVID-19 has accelerated the need for a digital claims ecosystem that has minimal in-person interaction. “A touchless claims operating model is one in which a majority of the claims are processed in a paperless environment enabled by intelligent automation, AI, analytics and InsurTech with zero touchpoint,” he said. A panel discussion on the next generation of motor insurance highlighted the critical role of AI and telematics in driving the segment in the future. The two-day conference, with the theme “Rethinking Motor Insurance for the Next Generation of Mobility” ends today. Source: asiainsurancereview.com

The insurance expert at the ADB speaks about the insurance industry coping with the growing number of extreme weather events 24 August 2021 An interview with Arup Chatterjee Principal Financial Sector Specialist, Sustainable Development and Climate Change Department at Asian Development Bank In this second part of the interview, Arup Chatterjee, Principal Financial Sector Specialist, Sustainable Development and Climate Change Department at Asian Development Bank, speaks about how the insurance industry is coping and innovating to respond to the growing number of extreme weather events. He also speaks of strategies being used by insurance companies to better manage extreme weather events. Unravel: In the first part of this interview, you talked about responses financial market stakeholders and governments are considering to mitigate climate risks. Is it practically possible to implement these measures in emerging and developing economies transitioning to a low carbon economy? Arup Chatterjee: Overall, financial authorities in emerging markets note significant teething problems in capabilities, data and tools. Today’s reality is that the taxonomy, necessary rules, regulations, standards and best practices remain nascent, weakly defined and not harmonised. As a result, immense challenges confront financial institutions, particularly around quantification and scenario analysis. Due to weak policies and conventions in the financial industry and a lack of climate risk disclosure besides adequate support and incentives to act, very few financial institutions actively incorporate climate risks into their financial decision-making. Moreover, because of the immaturity of business models and the risk management practices still evolving, there is a perceived lack of private benefits to scale up climate finance. A few financial institutions have incorporated their exposure to climate risks in their investment, lending, and underwriting decisions and integrated them into their broader risk management processes. As a result, environmental, social and governance (ESG) issues are gaining in with institutional investors exerting their influence and channelling investments into projects that deliver measurable non-financial benefits while improving long-term financial returns. Even major credit rating agencies now factor ESG elements, including climate risks, in their ratings, to varying degrees. Any successful response will need to involve a mix of compulsory and voluntary measures backed by a robust framework for assessment, implementation and monitoring. Such a framework should leverage the innovations happening in big data, data analytics, automation, artificial intelligence and machine learning to help meet the sustainability ambitions. Unravel: With the number and frequency of these events multiplying at such speed, can the insurance industry cope even if awareness increases and buy-in for insurance increases? Mr Chatterjee: One cannot precisely comment on the level of preparedness of the Asian insurance industry to deal with rising climate change-related losses and the extent it will threaten their underwriting and investment portfolios. In the absence of adequate disclosure and climate-specific stress-testing, beyond traditional catastrophe models, it may not be easy to assess the effectiveness of insurers’ actions to withstand extreme weather events and defend their underwriting and pricing decisions. Insurance of some risks can either become unaffordable for customers or unfeasible for insurers. And, this could lead to underinsurance, higher rates of self-insurance and increased demand for disaster relief from the public sector. However, compared to other financial market participants, insurance companies still fare much better in understanding the impact of climate risk on their balance sheets. Insurers need to shift business models away from transactional risk transfers and indemnity payments towards mitigating physical climate risks such as rebates for using resilient construction materials or working with the government to improve land use planning and building standards and policies. The insurance industry can seize the opportunity to offer innovative solutions – parametric insurance, pooling mechanisms by collaborating with governments to provide affordable coverage and alternative risk transfer solutions using capital markets for specific risks. Insurance companies should also consider re-evaluating their investment-allocation strategies. They should restructure their portfolios towards supporting a sustainable decarbonised economy. Unravel: With the vast amount of data now available to quantify climate change risks, how do you think the growth of insurance markets will be impacted in the medium- to long-term in Asia? Mr Chatterjee: Granular mapping of financial exposures to different climate change drivers will help better assess vulnerability across Asia’s sub-regions at the sectoral and institutional levels. For example, it can help quantify exposures to physical climate hazards and emission-intensive firms concentrated across economic sectors at a sub-national level. Additionally, it can quantify exposures to climate risk drivers concentrated in financial institutions. The massively increasing volume, velocity and granularity of data sets will allow consumers and insurers to see and understand risks clearly. Moreover, it can transform how insurers see large pools of consumers and price risks. Premium pricing will more accurately reflect risk behaviour. With a better understanding of customers’ risk profiles, insurers will be able to provide closely tailored and more accurately priced products. In addition, the use of data to provide early client warnings can give an incentive to undertake risk mitigation. Thus, in practice, price signalling can drive better behaviour and reduce risk. As a result, it offers enormous insurance benefits for society, such as improved risk management and fairer premiums. Of course, this will have implications on the cost and availability of insurance for all consumers. A small group of consumers may have to pay more for insurance because they may belong to a higher risk category, although they may not control the risk they seek to insure. The regulators will need to tackle privacy and discrimination-related concerns. Additionally, governments must develop plans to finance uncontrollable risks to protect society, particularly the vulnerable, in collaboration with commercial insurers. Unravel: How can the insurance industry prepare consumers for adapting to climate change and prioritising financial protection? Mr Chatterjee: Despite ample evidence that insurance is a climate change adaptation tool, significant challenges remain that impede the ability of the industry to deliver on its full potential. In emerging markets, there is a need for risk and insurance literacy. The insurance industry can improve the capacity to identify and assess risk by using modelling techniques and approaches developed over the years. Risk assessments can help drive climate-sensitive public policies, investments and risk management solutions. They can invest in generating capability and expand awareness of the pros and cons of the different risk financing instruments available to reduce risk, manage residual risk and considerations around tradeoffs. However, building risk capacity and insurance literacy is not an easy task and is time-consuming. Unravel: What business strategies are insurance companies adopting to help better manage extreme weather events? What innovations do we see in insurance products that will be relevant for emerging markets? Mr Chatterjee: Building resilience to extreme weather rests on three pillars: resistance – the ability to lower impacts; recovery – the ability to bounce back; and adaptive capacity – the ability to learn and improve. These pillars of resilience can be influenced depending on how specific insurance mechanisms are structured to respond to extreme weather. Insurers are pursuing business strategies that include combining multiple extreme weather events in a single policy and linking the purchase of extreme weather event insurance to a more commonly required and enforced product. In addition, policies covering weather-related risks are being extended and introduced to new sectors. Some insurers incentivise adopting green or energy-saving policies by offering lower premiums like premium discounts for hybrid low emission cars. Insurance policies covering solar panels, hydropower, geothermal energy, or bio-fuels are increasingly available. Carbon dioxide-related insurance coverage is another emerging product for companies interested in reducing carbon emissions to gain carbon credits to sell on the market. This activity creates risks for businesses that fail to reach their target and earn credit. So carbon credit delivery insurance can protect them against such risk. In addition, insurance is available for the risks associated with capturing carbon dioxide and storing it underground. Certain insurers are also offering to offset carbon emissions caused by some insured activities. Adjustments to third-party liability policies covering environmental liability, directors’ and officers’ liability, and other professional liabilities are taking place to cover liabilities linked to climate change losses. One also observes collaboration between the public and private sectors for setting up insurance pools and public reinsurance or backstopping support for catastrophic losses in addition to private reinsurance coverage. Also, we see insurers bundling extreme weather event insurance with conventional general insurance coverages and risk financing mechanisms to fund losses through public-private partnerships. For the agricultural sector, there is a shift towards comprehensive crop yield insurance by linking with agricultural subsidies. The use of multi-risk or yield insurance is being pursued actively by ensuring that the entire cultivated land is insured. And subsidies are being directed as a premium contribution to multi-risk policies. Additionally, pool-like structures or public reinsurance for systemic risks such as droughts in collaboration with the public sector and insurers are also on the anvil. Parametric or index insurance is gaining recognition. Using remote-sensing data to monitor crop patterns, insurers can pick up early signs of crop failure due to climate changes. This data further enables the insurer to gauge the risk for large numbers of small farmers, making insurance more affordable. All these innovative approaches offer important cues to insurers in emerging economies. They are crucial for designing appropriate insurance products for reducing the protection gap. Source: unravel.ink

CDRI announces 'International Competition for Imagining Disaster Resilient Infrastructure' (IDRI), where young minds can share their idea of 'resilient infrastructure' in any art form including photographs, animations, comics, poetry, thought pieces etc., and win cash prizes worth US$1800, along with a chance to get featured at COP 26. Launched on 12 August 2021 to commemorate the International Youth Day, the competition is open to youth from all nations in the age group 15 to 32. Further details of IDRI are available in the poster below as well as at https://y4ri.cdri.world/ This one-of-a-kind competition aims to engage, inspire, and invigorate the young minds and future change makers in the field of disaster resilient infrastructure. We greatly appreciate your support in promoting the contest across your networks. About CDRI - Coalition for Disaster Resilient Infrastructure (CDRI), launched by the Honourable Prime Minister of India at the Climate Action Summit in New York in 2019, is a multi-stakeholder global partnership of national governments, UN agencies and programmes, multilateral development banks, the private sector, academic and knowledge institutions. It aims to address the challenges of building resilience into infrastructure systems and associated development.